Employees buy high-tech firm Scitor

Employees of Scitor Corp., a provider of high technology services to the U.S. intelligence community and the Department of Defense, have acquired all of the company's common stock, the investment banking firm of Houlihan Lokey Howard and Zukin Inc. announced July 29.

The Herndon, Va.-based company declined to disclose the purchase price of the leveraged employee buyout.
Houlihan Lokey of McLean, Va., acted as the exclusive financial advisor to Scitor. The firm designed the buyout vehicle used by the employees to acquire the company as well as lined up debt financing in support of the transaction.

A majority of Scitor's 800 employees elected to transfer funds from their pension and profit sharing/401(k) plans into a newly created employee stock ownership plan, or ESOP, Houlihan Lokey said. The plan in turn acquired all common stock in Scitor. A group of outside lenders provided senior and subordinated debt in support of the employees' equity investment in the company.

The Scitor transaction represents the second application of an innovative ESOP S Corporation buyout model implemented by Houlihan Lokey. The first application was the arrangement of the employee buyout of Appleton Papers Inc. of Appleton, Wisc.

The ESOP S corporation vehicle has significant potential to outperform traditional leveraged buyout vehicles, enabling employees to compete against outside buyers for the acquisition of their companies, according to Houlihan Lokey. One significant feature is that the ESOP S corporation buyout model allows companies to avoid the cash drain of federal income taxes.

Houlihan Lokey's Government Technology Services and Aerospace/Defense Investment Banking Group played a major role in the transaction by providing the critical industry and capital markets leadership.

The government technology services industry "draws highly educated, highly motivated people who understand the value of equity and employee ownership," said Jerry Grossman, the group's head.

"Likewise, corporations in this industry understand the usefulness of employee ownership and preservation of a high performance culture as strong incentive for the work force," he said.