Please ensure Javascript is enabled for purposes of website accessibility

Palantir Competitor Perspecta Cashes In With $7 Billion Buyout

By Lou Whiteman - Jan 27, 2021 at 10:11AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Perspecta will be folded into a larger holding company nearly a year after losing its most important contract.

What happened

Shares of Perspecta (PRSP) jumped more than 10% at the open on Wednesday after the government IT company announced an agreement to be acquired for more than $7.1 billion. The stock was already up thanks to takeover rumors, with the takeover price a nearly 50% premium over where the shares traded in November prior to the rumors.

So what

Perspecta, a provider of IT services for government customers, said before markets opened on Wednesday it has agreed to sell to private equity firm Veritas Capital. Terms of the deal call for Perspecta holders to receive $29.35 per share in cash for each share owned.

Veritas already owns 14.5% of Perspecta, a company that was formed in June 2018 via a three-way merger involving two Veritas holdings. The private equity firm intends to merge Perspecta into Peraton, a separate Veritas holding that is also in the process of acquiring the IT business of Northrop Grumman.

Aerial view of the Pentagon.

Image source: Getty Images.

The deal follows a year of disappointment for Perspecta, which in February 2020 lost its most important contract. The U.S. Navy picked Leidos Holdings to modernize and maintain its computer networks, a contract that had previously accounted for about 15% of Perspecta's total revenue.

The loss of the Navy contract was a reminder of the importance of scale and bulk to defense contractors. Combined with Peraton and the Northrop Grumman assets, Perspecta will be part of a larger, more diversified company better able to manage the blow of losing any one individual contract award.

Now what

The deal comes at a time when the usually sleepy government IT sector is in the spotlight thanks to Palantir Technologies, which went public in late September and has seen its shares jump nearly 270% in the months since. Palantir has jumped in part because investors are bullish on the growth of government IT spending in the years to come, which should bode well for the entire sector.

As Perspecta holders found out, this is an industry where size and scale matter. With valuations up I'd expect to see further consolidation in the quarters to come, with ManTech International and CACI among the likely participants as either buyers or sellers as companies try to gain market share and better compete with newcomers like Palantir and Peraton.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Perspecta Stock Quote

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.