Inside Engility's $120M deal for DRC

Engility pursued the acquisition of Dynamics Research Corp. because both companies wanted to transform themselves. So, what do they want to become?

The story behind Engility’s recent $120 million purchase of Dynamics Research Corp. is as much about two companies looking for transformation as it about a larger company buying a smaller one.

First from DRC’s perspective: This is a company that had been on a transformation path for several years and had been making its own acquisitions to move it along the path toward growth and higher margin business.

Its most notable acquisition was of High Performance Technologies Inc., which it bought in 2011 for $143 million. The deal brought them health care and intelligence work.

The work brought in by the acquisitions of HPTI and, earlier, of Kadix were often the bright spots for DRC as other parts of its business contracted.

For Engility, its story started in July 2012 when it was spun-out as a public company from L-3 Communications.

Its challenge was to build a new company; “We started with a clean sheet of paper,” said President and CEO Tony Smeraglinolo. “To be honest, we still weren’t hitting on all cylinders by January 2013.”

And while Engility went to market with a strategy and story to investors that it would be growth company, it ran into 2013. “Probably one of the hardest years for government contractors,” Smeraglinolo said. “It’s hard to take market share when the customer isn’t coming out with contracts.”

But there was a silver lining; “It gave us a chance to get our policies and procedures down, get our people comfortable and mature our operations,” he said.

That process was complete by June 2013, and the company’s leadership finally could lift its head up and decide where they should go as a company.

They felt good about the company, its customer set and capabilities, “but there were certain competencies and market channels we didn’t have,” Smeraglinolo said.

Following a strategic planning process, the company identified areas for growth. They knew it could take years to build organically, so getting involved in mergers and acquisitions were necessary. DRC quickly landed at the top of Engility’s list.

The deal made sense for four reasons:

  • New competencies in cyber security and health IT
  • New markets in the Air Force and with intelligence agencies
  • Scale: DRC brings 1,100 people and about $270 million in revenue.
  • Engility had the resources to make the deal.

“Nothing is ever perfect, but this is close,” Smeraglinolo said.

The acquisition also helps Engility’s transformation story in that when L-3 spun out the business, the story was that it was the low-end services that the company was getting rid of.

“But 80 percent of what we do is higher-end services, so we want to take Engility further in that direction,” he said.

DRC was in a similar mode and recognized the need to move toward the hiring end several years ago, which led to the Kadix and HPTI acquisitions.

“We were both going through a transformation process, but where DRC was struggling was with getting to the scale necessary to be successful,” Smeraglinolo said. “We were attractive to them because we have the scale.”

The pace for transformation will quicken for both companies as Engility gets new customers and contract vehicles through which to sell its services, and DRC gets the same. There are a lot of cross-selling opportunities, he said.

“Combined, we can heighten the transformation, and they get the scale and investment they need to hone their capabilities to a fine edge,” Smeraglinolo said.

Scale is very important for today’s services industry because it gives companies a larger base across which to spread their fixed, corporate costs. The wider the base to spread those costs, the more efficient a company can be.

“That’s an important element of success in today’s market,” Smeraglinolo said.

With the addition of DRC, Engility will now have annual revenue approaching $1.7 billion.

The plan for now is to keep DRC as a subsidiary, but eventually it will be fully integrated into Engility. The senior management team is staying in place, and Chairman and CEO Jim Regan is taking on an advisory role to Smeraglinolo.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.