Dealtalk: SRA seeks rich premiums as buyers circle: sources

NEW YORK (Reuters) - Defense consulting company SRA International Inc SRX.N has attracted takeover interest from private equity firms and weapons contractors, but its board's insistence on a rich premium could make a deal tough to reach, people familiar with the matter said.

SRA's board, led by Chairman Ernst Volgenau, sought more than $2 billion for the company in recent merger talks with Britain's Serco Group Plc (SRP.L), two sources said. That suggests a premium of at least 33 percent based on its market value of around $1.5 billion.

SRA, whose shares were trading at $27.20 on Thursday -- near a three-year high -- sought a price in the high $30s per share range, one of the sources said. At the high end of the range, a deal value would exceed $2.2 billion.

Serco pulled out in the last two weeks after it could not meet SRA's price. But the talks prompted others to approach the company, several people familiar with the matter said. Private equity firms considering offers include Providence Equity, General Atlantic, Veritas Capital, Carlyle Group CYL.UL, Bain Capital and Blackstone Group (BX.N), a source said.

Strategic bidders, meaning companies in the same industry as SRA, also have approached Volgenau -- who controls about 70 percent of SRA's voting stock -- to gauge his interest in selling the company, sources said.

Representatives for the buyout firms declined to comment or had no immediate comment. SRA was not available for comment.

SRA, which provides command, control and communications systems for defense and military service organizations, said this week it retained investment bank Houlihan Lokey after several parties expressed takeover interest.

SRA and other companies offering federal information technology services have drawn buyout interest as the U.S. government cuts spending on traditional weapons platforms while beefing up intelligence and surveillance presence.

Volgenau, a U.S. Air Force and Nuclear Regulatory Commission veteran, founded SRA in 1978. It went public in 2002.

THAT'S REAL MONEY

It is unclear if suitors would consider a transaction in the high $30s per share, people familiar with the matter said.

Boeing (BA.N) bought defense tech company Argon ST last year for $775 million, which represented 14 times the target's earnings before tax, interest, depreciation and amortization (EBITDA). Raytheon Co (RTN.N) bought defense technology company Applied Signal Technology for $490 million in December, paying an even higher multiple.

A price between $2 billion and $2.2 billion for SRA would imply a multiple of 12-14 times based on its estimated EBITDA of $160 million, according to Thomson Reuters I/B/E/S.

"You can overpay for something if it's $500 million. But if you overpay for something, and if it's $2 billion or $2.5 billion, that's real money," a second source said.

Providence Equity, General Atlantic and Veritas Capital are already active in federal IT services.

Veritas bought Enterprise Integration Group, a business that advises government agencies on weapons platforms, from Lockheed Martin Corp (LMT.N) for $815 million in October.

A group led by General Atlantic and KKR bought TASC advisory services for $1.65 billion from Northrop Grumman Corp (NOC.N) in 2009.

Providence, which owns security services company Altegrity, hired former SRA Chief Executive Renato DiPentima as a senior adviser in 2010.

(Reporting by Nadia Damouni and Soyoung Kim. Editing by Robert MacMillan)