CSC to Buy DynCorp for $950 Million

Acquisition will significantly boost CSC's already formidable presence in the federal IT services market.

Computer Sciences Corp. Friday announced plans to acquire DynCorp. for approximately $950 million.

The acquisition will significantly boost CSCs already formidable presence in the federal IT services market, bringing in another 23,000 technology professionals, who focus largely on defense, security and civil markets.

DynCorp., a $2.3 billion IT services company, focuses on systems and network integration, high-tech range operations, global defense logistics and maintenance services, contingency support, homeland security services as well as infrastructure management of defense resources.

"Ninety-eight percent of DynCorp. revenue comes from the federal sector," said Van Honeycutt, CEO of El Segundo, Calif.-based CSC, in a conference call this morning. "This significantly increases our exposure with a greater breadth of end-to-end solutions and increases our exposure to federal government outsourcing. This will enhance our already strong position as we support the new Homeland Security Department. The combined pipeline of opportunities through the end of fiscal 2005 is approximately $40 billion," he added.

Combined with CSCs 15,000 employees in its Federal Sector unit, the DynCorp acquisition will give CSC 38,000 professionals serving the federal government. "We expect $6 billion in (federal government) revenues as we enter fiscal 2004, and we will serve virtually every government agency," said Honeycutt.

DynCorp, headquartered in Reston, Va., brings a greater presence and scale in the Department of Energy, Department of Justice and Department of State, according to Paul Lombardi, CEO of DynCorp. CSC has a greater presence in the Department of Defense.

DynCorp., a privately held employee-owned company, elected to find a buyout partner after observing several trends in the federal outsourcing arena. These trends include "massive consolidation" coupled with a move to bundle government contract offerings into "large, multi-year solicitations that require an increasingly diverse set of competencies," said Lombardi.

At the same time, DynCorp observed a "massive move to outsourcing and the re-systemization of the federal infrastructure" combined with a fast-declining federal workforce. "In our opinion, only large companies with a full range of mission-oriented skills can be successful. Even though DynCorp is a $2.3 billion company, we are private and debt financed. We could not be a consolidator to match these trends," he concluded.

The acquisition, expected to be completed in the first quarter of next year, will boost CSCs percentage of revenues from the federal government to 40 percent.