(Reuters) - SRA International Inc is exploring a sale or initial public offering that could value the U.S. defense information technology company at around $2 billion, including debt, people familiar with the matter said on Thursday.
Cuts in U.S. government spending, particularly in the areas of defense and security, have hit companies that rely on government servicing contracts. A sale of SRA could provide the latest example of the industry consolidating as a result.
SRA’s owner, private equity firm Providence Equity Partners LLC, is working with investment bank Citigroup Inc (C.N) on an auction for SRA, and has contacted other companies in the sector, as well as buyout firms, to gauge their interest, the people said.
If an outright sale cannot meet its valuation expectations, Providence will opt for an initial public offering of SRA, the people said. SRA currently has annual earnings before interest, tax, depreciation and amortization of around $195 million, the people said.
The sources spoke on condition of anonymity because the matter is not public. SRA International and Providence Equity did not immediately respond to requests for comment. Citi declined to comment.
Fairfax, Virginia-based SRA provides IT solutions and professional services to various government organizations, including defense intelligence agencies. It was founded in 1978 and was taken private in 2011 by Providence for $1.88 billion.
Much of SRA’s cash flow is being used to service its debt. The company had total outstanding debt of $1.1 billion as of the end of March, according to a filing with the U.S. Securities and Exchange Commission.
Providence is just the latest private equity firm seeking to sell a defense contractor. Last month, Science Applications International Corp (SAIC.N) acquired Scitor Corp, a smaller peer, from private equity firm Leonard Green & Partners LP for $790 million in cash.
Late last year, another government services contractor, Engility Holdings Inc EGL.N, acquired TASC, a provider of professional services to government agencies, for $1.3 billion. TASC also had private equity owners - KKR & Co LP (KKR.N) and General Atlantic LLC.
Reporting by Mike Stone and Greg Roumeliotis in New York; Editing by Leslie Adler