DXC Technology [DXC] last week said that it is divesting its U.S. Public Sector (USPS) business which in turn will merge with Vencore Holdings and KeyPoint Government Solutions to create a $4.3 billion information technology (IT) company serving federal, state and local clients.
The new company, which will be publicly traded, will combine DXC’s public sector IT support for federal, state and local customers, with Vencore’s support to the intelligence community, Defense Department and other federal customers, with KeyPoint’s federal relationships. The DXC business offers clients solutions in cloud, applications, IT operations, and mobility, Vencore brings expertise in cyber, systems engineering and data analytics, and KeyPoint provides background investigating services for the federal government.
Vencore and KeyPoint are portfolio companies of the private equity firm Veritas Capital, which will retain a 14 percent stake in the new company. DXC, which was created in April through the acquisition by Computer Sciences Corp. of the enterprise services business of Hewlett Packard [HPQ], will own 86 percent of the new company.
DXC said the new company will be one of the top five services providers to the federal government.
“Clients and investors in both the commercial and public sectors are recognizing the higher value of IT service providers with scale and differentiation,” Mike Lawrie, chairman, president and CEO of DXC, said in a statement. “Separating our global commercial and USPS business, and combining it with Vencore and KeyPoint, will accelerate transformation of two strategically focused companies, each uniquely positioned to lead its market by prioritizing the needs of its clients.”
Lawrie will serve as chairman of the new company and Mac Curtis, president and CEO of Vencore, will be the CEO of the yet to be name new IT firm. Marilyn Crouther, senior vice president and general manager of DXC USPS, will be chief operating officer of the new company.
The deal is expected to close by March 2018, subject to regulatory approvals. The new company will have more than 14,000 employees. DXC said there is no overlap between USPS, Vencore and KeyPoint.
The transaction is structured as a Reverse Morris Trust. DXC’s shareholders will receive shares of USPS through a spin-off. USPS will distribute nearly $1.1 billion cash to DXC and Veritas will receive $400 million of cash merger consideration.