What happened

Shares of PAE (PAE) jumped 68% on Monday morning after the government services company announced plans to be acquired. The company's private equity backer has signed off on the deal, which means the odds are good PAE will soon be taken private.

So what

PAE, short for Pacific Architects and Engineers, provides services for the CIA, the U.S. military, civil services, and foreign governments. The company on Monday said it has agreed to be acquired by privately held Amentum Government Services Holdings in an all-cash deal that values it at about $1.9 billion, including the assumption of debt.

Terms of the deal call for PAE holders to receive $10.05 per share in cash when the deal is completed, a premium of 70% over PAE's Friday close. The stock is moving higher as a result.

Aerial view of the Pentagon.

Image source: Getty Images.

The two companies know each other well. Amentum recently beat out PAE for a $1.3 billion contract to maintain aircraft for the U.S. Customs and Border Protection Agency.

In a statement, PAE interim president Charlie Peiffer said the deal "will benefit the customers and employees of both companies" by expanding their capabilities.

"Aided by an attractive demand environment and PAE's diversification across its customer base, contract portfolio and geographic reach, combining with Amentum is expected to provide our customers a wide array of capabilities and services via a broad range of contracting vehicles," Peiffer said. "Furthermore, this transaction should provide strong growth opportunities in terms of career development for our employees."

Now what

An affiliate of Platinum Equity, which holds about 22.5% of PAE shares, has entered into an agreement to vote its shares in accordance with the PAE board's recommendation, a big step toward making sure the deal does close as planned. The only question is whether someone else will step in with a higher offer: PAE has until Nov. 29, 2021, to solicit alternative acquisition proposals and will have to pay a breakup fee should it find a better offer.

Given the premium, investors shouldn't bank on a better deal coming along. But there are a lot of government services flush with cash right now and looking for deals. If nothing else, this deal might suggest investors are undervaluing the government services sector, setting up the possibility we might see other deals for related companies in the quarters to come.