GTSI Corp. [GTSI], still reeling from a Small Business Administration (SBA) investigation begun in 2010 into its alleged use of small businesses to obtain federal contracts, said last week that it has agreed to be acquired by global information technology company UNICOM Systems for about $77 million in cash.
The pending acquisition, which is expected to close in the second or early third quarter of 2012, calls for UNICOM to acquire GTSI’s outstanding shares of common stock for $7.75 per share. The transaction is subject to the tender of a majority of GTSI’s shares and federal regulatory approvals.
In 2011, GTSI posted $500,000 in net income versus a $900,000 net loss in 2010 although operating losses in 2011 were $8.5 million, more than $1 million more than the previous year. Sales in 2011 plummeted 46 percent to $356.7 million from $666.7 million.
On Oct. 1, 2010, the SBA temporarily suspended GTSI from any future contract awards with the federal government related to possible violations of the company’s FirstSource information technology commodities contract with the Department of Homeland Security. Essentially, the SBA accused GTSI of using small businesses to front for the company for small-business set-aside contracts.
However, on Oct. 19, 2010, the SBA lifted the suspension, allowing GTSI to pursue new federal contracts. Under an agreement with the SBA, GTSI immediately stopped working with small businesses serving as prime contractors, which in recent years had accounted for less than 15 percent of the company’s sales.
Nonetheless, the government agency is still in the process of determining whether the company is in compliance with government contracting laws and regulations related to work with small businesses. The debacle with the SBA and the threat still of potential debarment should the company run afoul of government contracting regulations, led to an exodus of many of GTSI’s sales representatives in late 2010 and early 2011, which made it difficult to pursue business opportunities and is the primary driver behind the revenue decline last year.
Last week, GTSI reported its first quarter results for 2012, posting a nearly 9 percent increase in sales to $76.4 million and a $2.5 million net loss, which was a slight improvement by $200,000 from a year ago.
The agreed to purchase price with UNICOM Systems represents a 48 percent premium over GTSI’s closing stock price on May 5 and about a 66 percent premium over its one-year average closing stock price.
Under terms of its agreement with UNICOM Systems, GTSI is permitted to solicit third party proposals to acquire the company through June 6. The deal has been approved by GTSI’s board of directors. GTSI’s largest shareholder, Linwood Lacy, who is also a director, a related entity, and another director have agreed so support the transaction. Lacy and the related entity own about 17 percent of the company’s stock.
GTSI’s financial adviser on the deal is Raymond James & Associates.
UNICOM Systems is a subsidiary of UNICOM Global, which owns a portfolio of information technology companies and also provides business and financial services and owns more than $100 million in real estate assets.