On Assignment [ASGN] has agreed to acquire federal services provider ECS Federal, LLC, in a $775 million cash deal that would significantly expand its market share and footprint in the government services business.
On Assignment, which has about $2.6 billion in annual sales, currently does about $200 million with the aerospace and defense area, and government services. ECS in 2017 did about $586 million in business in these areas, with 82 percent of work under prime contracts, and On Assignment says the company can grow organically at around 10 percent annually and is on track to be a $1 billion business by 2021. ECS’ estimated operating income in 2017 before interest and taxes is $67.6 million.
ECS, which is based in Northern Virginia and has 2,300 employees throughout the U.S., provides services in artificial intelligence, cyber security, cloud computing, DevOps, information technology (IT) modernization, and advanced science and engineering. On Assignment says that 1,500 of ECS’ employees hold security clearances.
“ECS’ government solutions will complement and elevate our offerings and strengthen our position as a premium IT and professional services provider,” Peter Dameris, CEO of On Assignment, said in a statement on Jan. 31. “Our addressable end market is now $279 billion by virtue of our entering the $129 billion government services space.”
Dameris said ECS has a $1.6 billion backlog and that the company’s contracts average about five-years in length, which “provide strong revenue visibility and mitigate volatility from permanent placement revenue and a more challenging economic environment.”
On Assignment, which is based in California, will change its name to ASGN on April 2, the day the transaction is slated to close. The company provides human capital services in the areas of technology, engineering, life sciences, and creative and digital solutions.
ECS, which will become a platform company of On Assignment and retain its senior management, has four federal business units with key customers that include the Army, Marine Corps, Navy, Air Force, Missile Defense Agency, Office of the Secretary of Defense, U.S. Transportation Command, the Defense Health Agency, Department of Homeland Security (DHS), Environmental Protection Agency, and U.S. Postal Service.
Of ECS’ approximately $586 million in sales, 69 percent are with national security customers, 27 percent with the federal civilian government, and the rest with commercial customers. Some of its core contracts include providing endpoint security for the Army Network Enterprise Technology Command, the Army Secure Unclassified Network Infrastructure, and the supporting the DHS cyber security protection system known as EINSTEIN.
George Wilson, CEO of ECS, said in a statement that combining with On Assignment “immediately introduces a company with the scale, contracts, capabilities, personnel, past performance and ability to compete for the largest opportunities in the federal market.”
ECS is majority owned by founder Roy Kapani, and the private investment firm Lindsay Goldberg, a minority owner. The company’s competitors include CACI International [CACI] and Science Applications International Corp. [SAIC].
On Assignment’s financial advisers on the deal are Wells Fargo Securities as the lead and American Discovery Capital. Houlihan Lokey and SunTrust Robinson Humphrey are providing financial advice to ECS.