General Dynamics Corporation (GD) has signed a definitive agreement to acquire Vangent Holding Corp., the parent company of Vangent, Inc., for approximately $960 million.
Vangent is currently 90% owned by The Veritas Capital Fund III, L.P. and is a leading provider of healthcare information-technology and business systems to federal agencies. Post acquisition, Vangent, Inc. will become a part of General Dynamics Information Technology, which provides healthcare information-technology systems and solutions to various customers.
Since Vangent is a fast-growing company, the acquisition will add significant depth and breadth to General Dynamics' healthcare IT organization and create a top-level healthcare IT business unit that will be capable of competing in markets that are receiving high priority in current funding and entitlement-reform initiatives.
Though approved by General Dynamics’ board of directors, the transaction is subject to normal regulatory approvals. It is expected to close by October 1, 2011, and be accretive to earnings in 2012.
General Dynamics has of late acquired the cloud computing services firm Network Connectivity Solutions Corp. which will also be a part of General Dynamics Information Technology. It is expected to be accretive to General Dynamics' earnings beginning 2012.
In July of this year, General Dynamics reported its second quarter 2011 results. Earnings from continuing operations came in at $1.79 per share, surpassing the Zacks Consensus Estimate of $1.73. The company ended the reported quarter with cash and cash equivalents of $2.16 billion, down from $2.61 billion at 2010 end. Long-term debt declined to $2.41 billion versus $2.43 at 2010 end.
General Dynamics’ revenue exposure is spread over a broad portfolio of products and services that keeps the overall growth momentum steady. However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming high. Also, we have turned slightly cautious about the company’s steadily dropping order backlog, as well as the recent G650 crash and execution risks of key projects. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Headquartered in Falls Church, Virginia, General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. Some of its main competitors include Lockheed Martin Corporation (LMT) and Textron Inc. (TXT).
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