Engility Holdings Poised to Acquire Dynamics Research Corporation (DRC)

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Tony Smeraglinolo, Engility

Tony Smeraglinolo, Engility

Chantilly-based Engility Holdings, Inc today announced it is set to acquire Dynamics Research Corporation (DRC) — a government services, management and IT consulting firm — and start a tender offer for outstanding DRC shares beginning at $11.50 per share.

The boards of both companies unanimously approved the transaction, which is expected to close by the first quarter.

DRC shares have not exceeded the premium offer price since Feb. 2012, according to an analysis completed by The Wall Street Journal.

Engility — a government services contractor firm specializing in program and business support, technical consulting and supply chain services and logistic management among other capabilities — expects the transaction will be accretive to the company’s 2014 earnings and will significantly add to earnings per share in 2015 and years after.

Engility CEO and President Tony Smeraglinolo said the acquisition is consistent with the company’s strategy to expand and diversify its presence with adjacent customers and access to contracting vehicles.

DRC’s leading capabilities in homeland security, healthcare, intelligence, surveillance and reconnaissance and defense readiness supplement Engility’s current expertise in providing support to the U.S. Department of Defense and federal civilian agencies.

“[The acquisition] positions Engility within new higher-end markets, supporting enduring customer priority missions, and provides access to key prime contract vehicles,” Smeraglinolo said. “Long-term success in today’s consolidating federal services market will depend on both organic growth and strategic M&A to derive the benefits of scale and provide contracting flexibility to our customers.”

Northwind Partners Managing Partner Mark HuYoung, too, is optimistic about the transaction, but noted Engility will need to complete successful integration on the “soft side” in order to fully secure longer term value for the company.

“The key to securing longer term value will be successful integration on the “soft” side, especially in a services environment where your IP goes home at night. It will be imperative that the combined leadership of both entities set vision and intended results and communicate that clearly and swiftly to all valued stakeholders,” HuYoung said. “Human nature in these scenarios is often to fill any informational void with one’s own ideas, real or imagined, of what is occurring, which can create unnecessary problems. I certainly believe Tony, Jim, and the team are quite capable of and will do what is necessary to experience a smooth transaction.”

SunTrust Robinson Humphrey, Inc. and Bank of America Merrill Lynch are serving as the financial advisor and provider to DRC and Engility respectively.

Stifel, Nicolaus & Company, Incorporated also contributed a fairness opinion to DRC’s board of directors.

Bass, Berry & Sims PLC will provide ongoing legal counsel to Engility and Holland & Knight LLP and Nixon Peabody LLP will provide ongoing legal counsel to Dynamics Research Corporation.

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