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By Nick Wakeman

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Nick Wakeman

TASC deal done, Engility embarks on transformation

Engility is calling the acquisition of TASC -- which closed today -- “transformational,” and looking at some of the facts and figures, it is easy to see why.
  • 850 more contracts and task orders, brining Engility’s total to 2,000.
  • $35 million in cost savings by the end of 2016, and $50 million by 2018.
  • New business mix of 47 percent defense and 53 percent intelligence and civilian, compared to 61 percent DOD and 39 percent intelligence.
  • New capabilities in intelligence analysis, space systems, cyber forensics, ISR and geospatial intelligence.

Since the deal was first announced in October, executives on both sides of the deal have been working on an integration plan so that customers and employees alike saw a seamless combination of the two, said CEO Anthony Smeraglinolo.

The next 60 to 90 days will have a focus on communications with employees and customers to make sure nothing was missed during the planning phase, he said. But the focus is moving forward and making the $1.3 billion acquisition pay off.

“We know each other very well now,” Smeraglinolo said.

The combination creates a company with nearly $2.5 billion in annual revenue and earnings of $210 million.

Part of the investment strategy is on the cost savings mentioned earlier. Most of that will come from eliminating redundancies in the back office functions in the short term. “You don’t need two HR systems or accounting systems,” he said.

The longer term savings, which push up to $50 million, will come from reducing the company’s real estate footprint. Realizing those savings takes longer, the company set a 2018 deadline, Smeraglinolo said.

Another critical component of the strategy is bringing more affordable solutions to customers. When the deal was first announced, Smeraglinolo spoke about how the added scale of TASC will help the company become more cost competitive with other contractors.

It's affordability and cost competitiveness is something Engility executives see as a differentiator for the company.

“We are very excited about this new opportunity,” he said. “We feel we have the critical mass now to go after any size job we decide to go after and have a strong probability of winning.”

The company is still identifying opportunities where the combination of TASC and Engility equal more than one plus one.

There are customers with whom the companies separately had a presence but not enough to be a prime. That has changed now, said Craig Reed, senior vice president for strategy and corporate development.

One plus will be that each company now has access to new task order contracts that will offer a new vehicle for selling their offerings, the executives said.

For example, Engility holds positions on the GSA OASIS contract, SeaPort-e, LOGWORLD, Alliant and CIO-SP3. TASC also brings along several IDIQ contracts in the intelligence market, said John Hynes. Hynes is the former CEO of TASC and is now Engility’s chief operating officer.

The closing of the deal also is nice payout for Engility shareholders, who received an $11.43 per share special dividend. The reason for the dividend is that TASC owners, the private equity groups KKR and General Atlantic, will become 51 percent owners of Engility’s stock – though they won’t have a 51 percent of the voting stock.

A payment to Engility shareholders was necessary to make the balance of ownership work out, Smeragilinolo said.

The TASC name, which is revered in many circles, will not go away. In the intell market, they’ll go to market as TASC, an Engility company. In all other areas, the two companies will be completely integrated, he said.

The next step will be seeing what they win that they couldn't win before. That'll be the proof of the transformation.

Posted by Nick Wakeman on Feb 26, 2015 at 9:30 AM

Reader Comments

Tue, Mar 3, 2015

I am in agreement with both recent comments. I too am a former TASC employee of 20+ years. During that time I saw 4 different owners; all positive for the first year or so, but as costs become critical in order to be competitive to win the “body shop” work, the smartest and most experienced personnel leave on their own or are asked to leave because of limited OH budgets. Many government clients want and need smart, competent, and experienced personnel and are willing to pay for them. But with too much emphasis on low cost, that hurts the client who will pay more for the best – TASC’s original vision. Good luck Engility!

Mon, Mar 2, 2015 Lee

Moderation by Engility? Only two comments?

Fri, Feb 27, 2015 Lee

TASC employees can look for pay/benefits cuts and an undermanned/under experienced HR and support staff (who, in large part will try hard, until they get fed up and quit). Customers get low price, technically acceptable (read "barely capable of mundane tasks") and in the end, lots of people, especially line employees and customers, lose.

Fri, Feb 27, 2015

Working on my doctoral in business, and having been a former employee of TASC, it is now easy to recognize the shortcomings of TASC. They had been a large shop of smart people, but with centralization, treated their outer offices and people as red-headed step children. If you were not part of the Chantilly "club," one just would not be perceived as positively. There were also folk promoted at Chantilly (as opposed to outlying offices), that gave a general perception of favoritism. Centralization works, if done properly, and TASC did not tackle this well. Another area is for the CEO to carry the company mission and vision forward, and the 2-3 CEOs that I experienced, carried the vision forward with NOTHING but an e-mail. Success in this area is to carry the mission to the managers, and the managers to the people...when people talk to the managers, and the managers are clueless, there is an obvious breakdown. I was very impressed with the organization as a whole, and the tuition and educational funding was the best in the industry. In my humble opinion, upper management was not as in touch as it SHOULD have been, but studying for a business doctoral makes me particularly biased about business practices. I truly hope that this new development will be the impetus to run the business properly, and not out of a kingdom in Chantilly. They do have the potential to be very great!

Thu, Feb 26, 2015 Digital Anal yst

Overhead saving in prof. services mergers is Never >10%. Disruption is usually the cause of 25%, or more, in net profits, as tons of money gets dropped on the floor. 10-20% of customers get nervous, and some leave; in part, the problem is improbable or just incompetently delivered explanations of the business case to customers. Brain drain: be prepared to lose 20% of top flyers.
Dissension, bickering, dithering, and worse will bleed 20% of executive time over the first 18 mod. Diversity progress will be stalled. Mergers are very difficult to pull off, especially when the market is flat and has recently falling; worse, since this deal may have been done "at the bottom" improvements can be attributed at least to increases in Federal spending than the brilliance of the acquirer and acquired managements (who have been bought off, eh)? Happy landings.

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