URS Corporation (URS) has entered into an agreement to acquire Apptis Holdings Inc., headquartered in Chantilly, Virginia, for approximately $260 million in cash. Apptis’ high-end IT services are used by the U.S. Department of Defense, which includes four branches of the military and the Defense Information Systems Agency, and by other federal entities, including the Departments of State, Transportation, Justice, and Homeland Security.
The majority stake in Apptis is held by affiliates of New Mountain Capital and has approximately 1,000 experienced professionals employed at its offices in 35 states and nine international locations. Apptis generated total revenue of $298.2 million in 2010.
The high-end professional IT services, like network management, software engineering, IT infrastructure design and implementation, identity management, cyber defense and cloud computing technologies, are expected to have a good growth prospect in the vast federal IT market. Computing technologies of Apptis are widely used by federal agencies in the emerging markets.
Apptis’ expertise in high-end IT services will benefit URS Corporation by expanding its ability to meet the requirement of its federal clients. The operational and financial strength of Apptis will provide significant growth opportunities. Services by Apptis complements URS Corporation’s current engineering, construction and technical services and expands its existing client base.
URS Corp. continues to see favorable trends in the federal government sector. There is strong funding for O&M programs, which signifies increased opportunities to support long-term Department of Defense initiatives and stable funding for the Department of Energy's environmental and nuclear programs, including the National Nuclear Security Administration. In 2011, the company expects its federal sector to benefit from its large indefinite delivery contracts with the Department of Defense as well as new opportunities with the Department of Energy. Further, the company is not dependent on any single contract on an ongoing basis, and as such the loss of any single contract would not have any material adverse effect on its business.
However, since the company’s largest clients are from the federal market sector, loss of clients like the federal government, the U.S. Army, or DOE would have a material adverse effect on its business. As a government contractor, the company must comply with various procurement laws and regulations, and is subject to regular government audits. The violation of any of these laws and regulations could result in sanctions, contract termination, forfeiture of profit, harm to its reputation or loss of its status as an eligible government contractor.
URS Corp. provides engineering, construction and technical services. As such, it offers a broad range of program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to public agencies and private sector clients globally.
We continue to maintain a Neutral rating on URS Corporation for the long term. The company has a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.
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