TASC deal brings a bolder competitor to the market
Getting sold by Northrop Grumman Corp. in 2009 was like getting set free for this company.
When TASC Inc. was sold by Northrop Grumman Corp. last year to meet new organizational conflict of interests federal regulations, the company returned to its original status as an independent company. The result is a company freed to specialize in systems engineering, technical assistance and other services to the Defense Department and intelligence community.
As a unit of Northrop Grumman, TASC could not provide those services for any program that the parent company might have been interested in bidding on or pursuing.
“We really needed to separate TASC from Northrop Grumman both from the perspective of Northrop Grumman shareholders but also from the perspective of TASC’s continuing success,” said Wood Parker, president and chief executive officer of TASC for the past five years. He was personally involved in the divestiture procedure.
At the time, TASC was part of Northrop Grumman’s Information Systems sector and was expecting $1.6 billion in revenue in 2009.
Parker cited what he called the government’s “increasingly restrictive OCI policies plus the passage of the Weapons Systems Acquisition Reform Act in 2009” as the main drivers behind the decision to sell TASC.
Goldman Sachs was brought in as adviser on the sale and presented TASC to a number of interested firms. “Once we started meeting with interested firms or interested potential buyers and the actual close on Dec. 18, 2009, I would say [the process took] six months,” he said.
In November, Northrop Grumman agreed to sell the Chantilly, Va., unit for $1.7 billion to equity groups General Atlantic and Kohlberg Kravis Roberts and Co. The deal was picked as the best overall merger and acquisition transaction of 2009.
The sale was significant because it created a new force within the federal IT market for winning contracts and possibly making acquisitions, analysts said. They also envisioned TASC becoming a long-term prominent independent player in the market.
“Obviously, we have not made any acquisitions, but as we go forward, the strategic plan is to continue to do what TASC has done throughout its legacy,” Parker said.
“The fact that we are separated from Northrop Grumman in terms of OCI constraints means that we can pursue opportunities that we were precluded from pursuing as part of Northrop Grumman. So just by definition, the opportunities that we have are significant,” he added.
Parker said the company is working closely with KKR and General Atlantic to pursue a couple of unnamed opportunities “that in the past we probably would have been precluded from pursuing.”
“Acquisitions are always a part of our strategic plan in terms of potential growth going forward,” he said, adding that there have been no significant management changes or approaches to business since the divestiture.
“Obviously, we have new partners; we’re a stand-alone company,” Parker said. “There are transition issues. But in terms of the basic business, I am comfortable in saying there are a number of things that remain constant in terms of TASC, our strategy and our long-term success.”
The newly independent TASC also has kept a number of ongoing government contract vehicles it had under Northrop Grumman. “We wanted to make sure that we were nonconflicted in terms of OCI, so any contract that was non-OCI sensitive remained with Northrop Grumman,” he said.
"But all of the systems engineering, systems integration, services advisory types of contracts did come with TASC,” Parker added.
When it was a corporate unit, TASC focused mainly on the intelligence community, including DOD intelligence contracting. Now free of its former OCI restrictions, TASC has set its sights on two specific growth areas, Parker said.
The 44-year-old company will pursue new customers at DOD and expand into federal civilian agencies.
“Our market area has expanded tremendously,” Parker said.
In addition, the divestiture allows TASC to go after subcontracting work within some of the larger Northrop Grumman programs it could not previously pursue, he added.
At present, TASC employs about 5,000 engineers and analysts, and Parker anticipates hiring an additional 1,000 employees this year. Some will be assigned to functional areas as TASC continues to formalize its new structure as an independent, stand-alone company; others will work on new contracts that Parker said he anticipates winning.
“We made it through [2009] very well, and I feel very good about our position as we start 2010,” he said.
TASC’s medium- and long-range strategic plans anticipate significant growth during the next several years, but Parker declined to provide precise financial targets.
“Let’s put it this way, TASC has grown in excess of a double-digit basis for the past five years and even before that,” he said. “And we anticipate growing at that level going forward.”