Shares of On Assignment Inc. surged to a record Wednesday, after the IT staffing company said it is buying ECS Federal LLC, a privately held government services contractor, from its owner and founder Roy Kapani and investment firm Lindsay Goldberg for $775 million in cash.
Calabasas, Calif-based On Assignment
offers temporary, contract-to-hire and permanent staff for the technology, digital and life sciences industries. Fairfax, Va.-based ECS delivers artificial intelligence, cybersecurity, cloud computing and other advanced science services to commercial and government agencies.
ECS will continue to be run by its current management team and operate under the ECS brand, but will become part of a listed company with combined revenue of $3.2 billion and more than 24,000 professional workers.
”Our addressable end market is now $279 billion by virtue of our entering the $129 billion Government Services space,” On Assignment Chief Executive Peter Dameris said in a statement. “ECS’ long-term contracts, which average 5 years in length, and robust backlog ($1.6 billion) provide strong revenue visibility and mitigate volatility from permanent placement revenue and a more challenging economic environment.”
Shares surged about 9% in Wednesday trade to a high of $75.86, their highest level since the company went public in 1992. Volume of 215,000 shares traded by midmorning was about 85% of the 65-day average volume of 251,000.
SunTrust Robinson Humphrey reiterated a buy rating on the stock before the deal was announced, saying it expects more than 10% organic revenue growth in the second half, ahead of the 7% consensus.
“On Assignment is the second largest IT staffing firm in the U.S. with a collection of brands ranging from unique high-end Oxford to mainstream Apex and digital Creative Circle,” analysts wrote. ”These tandem IT brands facilitate market share gains, in our view.”
On Assignment is expected to benefit in the current administration from a decline in offshoring of jobs, including IT jobs, they wrote, which should support higher demand for domestic IT workers and faster bill rate growth.
On Assignment has obtained a $1.6 billion financing commitment from Wells Fargo, comprised of a $200 million revolving credit facility and $1.4 billion term B loan. The company expects to issue a new y-year term B loan to fund the deal, which is expected to close in April.
On Assignment offered fourth-quarter guidance with the deal announcement, saying it now expects revenue of $679 million, up from prior estimate of $658 million to $668 million. EPS is expected to come in at $1.28, up from prior guidance of $1.17 to $1.26. Adjusted per-share earnings are forecast at $1.44, compared with prior guidance of $1.32 to $1.41.
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