M&A

NCI agrees to $283M buyout deal with HIG Capital

(Editor's note: this story was updated Monday afternoon with official comment from NCI)

NCI Inc. said Monday it has agreed to be acquired by global private equity firm H.I.G. Capital for approximately $283 million in cash almost two years after the government IT services contractor first disclosed it would examine strategic alternatives for itself.

Both parties expect to close the deal in the third quarter and its closure is not contingent on financing. H.I.G. will commence a tender offer no later than July 17 to acquire all outstanding NCI stock at $20 per share versus its Friday closing price of $21.10. NCI shares opened 5 percent lower on the news.

An NCI spokesperson told Washington Technology via email: "NCI has a policy of not commenting on pending transactions. All material information will be available at the time when the tender offer is launched, currently expected to be by July 17."

This news continues an active year for NCI as the Reston, Va.-based company faced the impact of the embezzlement by its former controller first revealed in January and had indicated to investors in April that 2017 would not be one of growth.

NCI has since bolstered its full-year sales outlook in May to almost 3-percent growth to $333 million. This represents NCI's first organic sales increase in six years to give the contractor a jump-start for what CEO Paul Dillahay described then as a "rebuilding year."

The company sits in the middle tier of public pure-play government services companies at $322.4 million in 2016 sales, well below KeyW Corp. at $535 million and Vectrus at $1.2 billion.

NCI first said in July 2015 it would explore strategic alternatives for itself and has been a focus of investor speculation over its acquisition strategy or a potential sale. Both Dillahay and former CEO Brian Clark have touted NCI's status as a public company in various earnings calls with analysts.

"I think at all times, obviously we are a public company, we are always looking at all alternatives when it comes to strategic options," Dillahay said in an April call.

"Our interest... has been as generally as a buyer, we are also a public company so some ways you might say you are always for sale. I think if the right situation came about, our board would do the right thing and evaluate as they see fit," Clark said in October 2016.

Founder and Chairman Charles Narang will tender all of his shares in favor of the deal. Narang owns 34 percent of NCI's stock and 84 percent of voting power, which gives him the ability to elect all members of the board of directors and control over the company's management and affairs.

Narang founded NCI in 1989 and was succeeded in 2015 as CEO by then-president Clark. Clark left NCI one year later and was succeeded by Dillahay, a CACI International and Lockheed Martin veteran.

NCI also seemingly got closer to a resolution on the embezzlement case earlier this month when Jon Frank pled guilty on federal wire fraud charges and admitted to stealing $19.3 million from the company over six years. Frank faces up to 20 years in prison and his sentencing hearing is scheduled for Sept. 8.

NCI's stock has climbed 51 percent year-to-date and set numerous 52-week highs since the company improved its full-year revenue outlook in May. NCI first started trading on the New York Stock exchange in October 2005.

H.I.G. Capital manages approximately $21 billion of investments in its portfolio and concentrates on companies in the U.S. and Europe. 

The transaction is subject to antitrust review, the tendering of shares in favor of the deal and other closing conditions.

Wells Fargo Securities and Stifel, Nicolaus & Co. are financial advisers to NCI. Paul Hastings LLP is NCI’s legal adviser. Teneo Capital is H.I.G.'s financial adviser. Kirkland & Ellis LLP is H.I.G.'s legal adviser.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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