UPDATE 1-At least 3 PE firms seen still interested in SRA

Wed Mar 9, 2011 1:24pm EST

* Providence, Veritas, General Atlantic involved-sources

* KKR initially looked, but since cooled interest-source

* Another set of bids expected in March-sources

* Process moving along despite lingering doubts-sources (Adds price expectations, details about process)

By Soyoung Kim

NEW YORK, March 9 (Reuters) - At least three private equity firms remain interested in SRA International Inc SRX.N as the U.S. defense consulting company seeks another set of buyout offers this month, people familiar with the matter said.

Providence Equity, Veritas Capital and General Atlantic remain interested in buying SRA, three people said, adding that the process is ongoing despite lingering doubts about whether Founder and Chief Executive Ernst Volgenau will eventually be a seller.

Kohlberg Kravis Roberts & Co (KKR.N) also looked at the company initially but its interest has since cooled, one of these people said.

"It's been an odd process, a little bit confusing, but things are still bubbling along," that person said.

SRA shares were up 4.8 percent at $27.31 in early afternoon on the New York Stock Exchange.

The next round of bids expected around the middle of March might not necessarily be final as the private equity bidders are still conducting due diligence on the business, two of the people said.

Some strategic bidders - meaning companies operating in the same industry as SRA -- initially expressed some interest after SRA retained Houlihan Lokey earlier this year, but they are not involved in the current process, these people said.

The sources declined to be identified because details of the auction are not public. Representatives for SRA and the private equity firms have declined to comment or were not immediately available for comment.

It remains unclear whether the ongoing review will result in a deal, these people said.

Volgenau, who founded SRA in 1978 and controls 70 percent of its voting stock, had not been interested in selling in the past and there are also big doubts as to whether any of the private equity bidders could meet his price expectations.

In January, Volgenau rejected a $35 per share offer from Britain's Serco Group Plc (SRP.L) that valued SRA at around $2 billion, asking for a price in the high 30s per share range instead, people familiar with the matter said previously.

None of the private equity bidders is likely to come near the price offered by Serco, making the likelihood of a deal hard to predict, sources said.

But Volgenau's priority might not be getting top dollar, and there is a possibility that he might strike a deal with a financial buyer of his liking at a lower price, sources have said.

Volgenau has tried to ensure that any deal would preserve SRA's brand and people. While strategic bidders generally can afford to pay more since there are synergies from combining operations, such mergers can often lead to restructurings.

"The way they've been doing this process, it was clearly geared to the financial sponsors, not the strategics," another person said.

"The real question is, they're going to have a hard time getting north of $30. Private equity wants to pay high-20s per share and maybe $30, but they're not going to pay a lot more," that source said.

SRA provides command, control and communications systems for defense and military service organizations. SRA and other companies offering federal information technology services have drawn buyout interest as the U.S. government moves resources from military hardware to intelligence and surveillance services. (Reporting by Soyoung Kim, editing by Gerald E. McCormick)

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