Science Applications International Corp.’s $2.5 Billion Acquisition of Engility Holdings

Citigroup Global Markets Inc. acted as lead financial advisor and Stone Key Partners LLC acted as co-financial advisor to SAIC. Morrison & Foerster LLP served as legal counsel. Arnold & Porter provided financing legal counsel. Renaissance Strategic Advisors Ltd. provided business due diligence and strategy support services. Guggenheim Securities served as lead financial advisor to Engility, and Weil, Gotshal, & Manges LLP and Bass, Berry and Sims PLC acted as legal counsel. Fairmont Consulting Group provided business due diligence services. Morgan Stanley & Co. LLC also provided financial advisory services to Engility.

Science Applications International Corp. (NYSE: SAIC) and Engility Holdings Inc., (NYSE: EGL) have entered into a definitive agreement under which SAIC will acquire Engility in an all-stock transaction valued at $2.5 billion ($2.25 billion net of the present value of tax assets), creating the second largest independent technology integrator in government services with $6.5 billion of pro-forma last 12 months’ revenue.

The combination of these two complementary businesses will accelerate SAIC’s growth strategy into key markets, enhance its competitive position and provide significant financial benefits.

The transaction will create market sub-segment scale in strategic business areas of national interest, such as defense, federal civilian agencies, intelligence, and space. In addition, it expands the capabilities of both companies, bringing additional systems engineering, mission, and IT capabilities to a broader base of customers.

The combination will enhance shareholder value creation, with greater customer access and more competitive and differentiated solutions, supported by more than $375 million in pro-forma annual free cash flow to enhance capital deployment flexibility and $150 million of expected annual gross cost synergies ($75 million of expected annual net cost synergies, after consideration of the pro-forma company’s cost type contract mix). Upon closing, SAIC shareholders will own approximately 72% and Engility shareholders will own approximately 28% of the combined company on a pro forma, fully diluted basis.

Under the terms of the merger agreement, Engility stockholders will receive a fixed exchange ratio of 0.450 shares of SAIC common stock for each share of Engility stock in an all-stock transaction. Based on an SAIC per share closing price of $89.86 on September 7, 2018, the transaction is valued at $40.44 per share of Engility common stock or $2.5 billion in the aggregate, including the repayment of $900 million in Engility’s debt.

SAIC has obtained a financing commitment letter from Citigroup Global Markets Inc. for a new seven-year senior secured $1.05 billion term loan facility under our existing credit agreement. The proceeds will be used to repay Engility’s existing debt and associated fees. SAIC expects no immediate change to its quarterly cash dividend as a result of this transaction.

The transaction is expected to close by the end of the fiscal fourth quarter ending February 1, 2019, following customary closing conditions, including regulatory and SAIC and Engility shareholder approvals. The transaction has been unanimously approved by both Boards of Directors. The businesses will continue to operate separately until the transaction closes.

Morrison & Foerster LLP advised Science Applications International Corp. with a team including Charlie Katz (Picture), Lindsay Thomas, Lucas Barta, Stephanie Ference and Larry Bard.

Weil advised Engility Holdings with a team including Frederick Green and includes Mergers & Acquisitions partner Eoghan Keenan and Mergers & Acquisitions associates Christina De Vuono and Brianna Dollinger; Banking & Finance partner Heather Viets; Capital Markets partner Faiza Rahman; Technology & IP Transactions partner Jeffrey Osterman; Tax partner Marc Silberberg; Executive Compensation & Benefits Co-Chair Paul Wessel; Antitrust Co-Head Steven Newborn; Antitrust counsel Michael Naughton; Banking & Finance associate Young Lee; Capital Markets associate Michael Stein; Technology & IP Transactions associate Mary Lentowski; Tax associate Joseph Reich; Executive Compensation & Benefits associates Jennifer Britz, Amanda Rosenblum and Akansha Mishra; and Antitrust associate Megan Granger.

Bass, Berry & Sims advised Engility Holdings with a team including, Noah R. Black, Kevin H. Douglas, Curtis L. Fisher, Thomas Gossett, Nick L. Grunenwald, Andrew Hard, S. Ryan Hoffman, Jay H. Knight, Thaddeus R. McBride, Todd R. Overman, Fritz Richter, III, Ryan D. Thomas, Rodrigo N. Valle, David R. Venturella, Kurt Vincent, Tyler H. Wadlington and Sylvia Yi.

Involved fees earner: Kevin Douglas – Bass Berry & Sims; Nick Grunenwald – Bass Berry & Sims; Andrew Hard – Bass Berry & Sims; Ryan Hoffman – Bass Berry & Sims; Jay Knight – Bass Berry & Sims; Todd Overman – Bass Berry & Sims; Ryan Thomas – Bass Berry & Sims; David Venturella – Bass Berry & Sims; Kurt Vincent – Bass Berry & Sims; Tyler Wadlington – Bass Berry & Sims; Noah Black – Bass Berry & Sims; Curtis Fisher – Bass Berry & Sims; Fritz Richter III – Bass Berry & Sims; Thomas Gossett – Bass Berry & Sims; Thaddeus McBride – Bass Berry & Sims; Sylvia Yi – Bass Berry & Sims; Rodrigo Valle – Bass Berry & Sims; Charles Katz – Morrison Foerster; Lindsay Thomas – Morrison Foerster; Lucas Barta – Morrison Foerster; Stephanie Ference – Morrison Foerster; Lawrence Bard – Morrison Foerster; Frederick Green – Weil, Gotshal & Manges; Eoghan Keenan – Weil, Gotshal & Manges; Christina De Vuono – Weil, Gotshal & Manges; Brianna Dollinger – Weil, Gotshal & Manges; Heather Viets – Weil, Gotshal & Manges; Young Lee – Weil, Gotshal & Manges; Faiza Rahman – Weil, Gotshal & Manges; Michael Stein – Weil, Gotshal & Manges; Jeffrey Osterman – Weil, Gotshal & Manges; Mary Lentowski – Weil, Gotshal & Manges; Marc Silberberg – Weil, Gotshal & Manges; Joseph Reich – Weil, Gotshal & Manges; Paul Wessel – Weil, Gotshal & Manges; Jennifer Britz – Weil, Gotshal & Manges; Amanda Rosenblum – Weil, Gotshal & Manges; Akansha Mishra – Weil, Gotshal & Manges; Steven Newborn – Weil, Gotshal & Manges; Michael Naughton – Weil, Gotshal & Manges; Megan Granger – Weil, Gotshal & Manges;

Law Firms: Bass Berry & Sims; Morrison Foerster; Weil, Gotshal & Manges;

Clients: Science Applications International Corp.; Engility Holdings, Inc.;

Author: Ambrogio Visconti