PAE sees early dividend from CSC acquisition

It’s the kind of result you hope for when you make an important acquisition. The piece of business PAE Group acquired from Computer Sciences Corp. last month has won an $81.7 million option year on one of its marquee contracts.

PAE Applied Technology leads a joint venture with Raytheon that won the option this week on the Eastern Range Technical Services contract which provides operations, maintenance and sustainment services for the 45th Space Wing and its launch customers at the Cape Canaveral Air Station in Florida.

Work under the contract includes program management, range operations, operational analysis, test and evaluation and financial management support.

PAE bought CSC’s Applied Technology Division in July for $175 million. The sale was part of CSC divestiture strategy as it sharpens its business portfolio to focus on cyber, big data, cloud computing and mission services. The range support work, which it picked up when it acquired DynCorp in 2003, didn’t fit with that vision.

But it did fit PAE’s vision as the company looks to expand its base of government work.

The range support work that the ATD business did was seen as a crown jewel when PAE announced the deal in May. In addition to the Eastern Range Technical Services contract, PAE picked up other range contracts including underwater testing and training ranges that the Navy uses.

“We see those ranges as national assets,” said PAE President Mike Dignam, at the time acquisition was announced in May, which he described as a “great foundational piece of our platform.”

Acquisitions are always risky so winning option years on contracts (and also winning recompetes) are critical for an acquisitions to be considered a success. If you lose those, the business case for an acquistion gets pretty weak. So this win shows that PAE is off to a good start with the ATD deal.

The Eastern Range Technical Services contract has other options years that could carry the work through 2017. This option runs through September 2014, so more tests are ahead.

According to the Deltek database, the contract brings in about $90 million a year in task orders.