DigitalNet IPO finally lands on Wall Street

DigitalNet Holdings Inc. finally arrived on the stock market today, when the initial public offering of 5 million shares opened at $17 each and closed at $20.95, a 23.2 percent increase.

The enthusiastic response of Wall Street to the new stock might be attributed, in part, to two acquisitions in the government IT space earlier this year, said Jerry Grossman of investment bank Houlihan Lokey Howard & Zukin.

"Two large companies, Veridian [Corp.] and Titan [Corp.], have been purchased, and for investors who were intrigued and interested in the IT sector, those two companies are gone," Grossman said. Titan's deal with Lockheed Martin Corp. is still pending and is expected to close in the first quarter of 2004. General Dynamics Corp. acquired Veridian on Aug. 11.

"Buying into General Dynamics or Lockheed Martin is not the same thing," he said.

Grossman said that DigitalNet's warm reception indicates the stock market might be interested in IPOs from other companies in the government sector.

"Between the Titan and Veridian transactions the market lost $3 billion in stock value. This only represents 10 or 15 percent of [capacity]," Grossman said. "I think there's probably more than one or two giving this renewed consideration."

DigitalNet, a Herndon, Va., government systems integrator, originally had planned to go public in May, but the company pulled the offering, citing "current market conditions." Media reports at the time also attributed the decision to DigitalNet's loss of two large government contracts.

Since then, the company rebounded with several contract wins, most notably a $200 million award in July from the Justice Department to design and implement a new IT network architecture.

DigitalNet's offering was underwritten by Citigroup Global Markets Inc. and UBS Investment Bank, and co-managed by Legg Mason Wood Walker Inc. and Raymond James & Associates Inc. The company is trading under the symbol DNET. DigitalNet was ranked No. 35 on the 2003 Washington Technology Top 100.