Is Perspecta on the verge of going private thanks to its biggest shareholder?

One of Perspecta’s largest shareholders, Veritas Capital, is working on putting together an offer to acquire the government technology services company, according to recent filings.

This development is also the first time we get a clear, confirmed glimpse at how Perspecta could be thinking about its future amid investor speculation, media reports and cryptic statements from the company that strategic options are on the table.

In a regulatory filing posted Wednesday (scroll to “Purpose of Transaction), private equity firm Veritas Capital said it is in preliminary discussions with Perspecta regarding a potential transaction and has been granted access to initial due diligence materials. Perspecta officials have not commented beyond the filing, which said the company granted Veritas a limited standstill waiver to proceed.

Veritas owns 11.7 percent of Perspecta’s stock, which was trading at around $26 per share early Friday afternoon for an estimated $4.1 billion total market value.

Veritas has 60 days from Wednesday to make offers or proposals to Perspecta’s board of directors, of which Veritas CEO Ramzi Musallam is a member. It is of course possible that Veritas decides not to make a formal offer. So too is a board decision not to accept it.

In Summer 2018, Veritas merged two of their portfolio companies in Vencore and KeyPoint with the former DXC Technology U.S. public sector business to form the publicly-traded Perspecta. Veritas started out with 14 percent of the stock but has apparently sold off just over 2 percent since then.

Now a two-fold question: Why would Veritas go down the path of taking Perspecta private, and why would Perspecta at least nudge that door open for itself?

"In a market of scale, Veritas is a key contender with portfolio companies like Peraton and Alion Science and Technology to rival any of the larger competimates,” said Jon Yim, managing director at KippsDeSanto & Co, which is owned by Capital One. “A waiver of standstill obligations allows for Perspecta to fully explore their options in an open market.”

Speaking of scale, Perspecta recorded $4.5 billion in revenue for its last fiscal year that ended March 31 2020. Sometime by June’s end, Peraton will triple in size to low-to-mid $3 billion in annual revenue when it combines with the Northrop Grumman IT services business. Veritas is paying $3.4 billion to buy the Northrop IT business and add it to Peraton.

Data from Moody’s Investors Service indicates Veritas’ other government market portfolio firms generated around $2.5 billion in sales during their most recent fiscal years: Alion at $1 billion and Guidehouse at $1.2 billion.

“If successful, along with the previously announced Peraton/Northrop deal, Veritas would own businesses collectively generating more than $10 billion of revenue from government customers,” said Garrett Asta, a senior vice president in Houlihan Lokey’s aerospace, defense and government practice.

“It’s hard to imagine a more knowledgeable acquirer for this business considering Veritas’ extensive legacy and experience in the sector, current ownership stake in the company, prior ownership of Vencore and Keypoint, and experience with DXC on a few fronts.”

To the last point Asta brought up -- Veritas is also a known to DXC. They worked together to create Perspecta, which DXC shareholders owned 86 percent of the stock in at the launch. Late last year, DXC sold its U.S. state and local health and human services business now known as Gainwell Technologies to Veritas for $5 billion.

Another known is the debt markets would support a Veritas acquisition of Perspecta, according to Asta. He pointed out that Veritas has the kind of profile that can bring in equity partners for large deals, including when they worked with Elliott Management to acquire then-public health care software firm Athenahealth in 2018 for $5.7 billion.

Veritas and Elliott also reportedly put in a bid for another publicly-traded company in Cubic Corp. late last year.

One unknown in all of this is what the activist hedge fund Jana Partners would make of it. They first revealed their stake in Perspecta in June of last year and now own hold around 8 percent of Perspecta’s stock. Jana presumably would get to vote on any acquisition offer if made.

The stock was at around $21 when Jana disclosed the investment and is now trading at around $26.