Shares of company ManTech International (MANT) jumped more than 16% on Monday after the government contractor agreed to be acquired in a deal valued at $4.2 billion. Investors had reason to believe the company was fielding offers, and ManTech on Monday announced it had found a buyer willing to pay a sizable premium.
ManTech is a defense IT contractor that generates nearly half of its revenue from the intelligence community. The company reportedly put itself up for sale in February, with both strategic and private equity buyers expected to show interest.
On Monday, ManTech announced that it has a deal in place to be acquired by Carlyle (CG -0.10%) for $4.2 billion in cash and assumed debt. Terms of the deal call for ManTech holders to receive $96 per share in cash, a 32% premium to ManTech's price in February prior to deal talk becoming public and a 17% premium to Friday's close.
"ManTech's talented employees and leadership team have built a remarkable Company with strong market positions across the federal government," Dayne Baird, a managing director on Carlyle's aerospace & government services team, said in a statement. "Through this partnership, we look forward to leveraging our sector expertise and resources to accelerate growth and innovation and to drive greater value for customers and employees."
While both strategic and private bidders were likely interested in ManTech, a sale to a private equity firm makes a lot of sense. For one, many of the potential strategic bidders are either paying down debt from previous acquisitions or still in integration mode. And with ManTech focused primarily on cost-plus contracts, there are only limited cost saving opportunities available to a strategic buyer. With that in mind, it appears unlikely any other party will engage in a bidding war for ManTech from here.
The deal is expected to close in the second half of 2022.
ManTech was a bit of a one-off, with an octogenarian co-founder and major shareholder who was rumored to be looking for liquidity. We said back in September 2020 that investors could be the target of a buyout in the next 18 to 24 months. But this is unlikely to be the last major government IT deal we'll see in the quarters to come.
Private equity has long been active investing in the defense IT sector. With the government looking to cut costs, there are increasing opportunities for companies able to outsource IT and other functions for government agencies. And given the focus on cost control, scale is important to these contractors because it allows them to run more efficiently. Add it up, and there is ample reason for both private funds and strategic buyers to be on the lookout for deals.