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Private Investors Acquire SRA International for $1.9 Billion

Just two months after announcing it had retained investment bankers to consider a possible sale to another firm, SRA International Inc. said it is being acquired in an all-cash deal worth nearly $1.9 billion.

SRA counts the Pentagon and Department of Homeland Security as major clients and itself has a history of growth through strategic acquisitions that in recent years have increased its business for cyber security and air-traffic control.

Providence Equity Partners, a private investment group, said that after the purchase it intends to retain SRA’s senior managers and the company’s headquarters in Fairfax, Va. Analysts said they also expect the sale to generate few layoffs among SRA’s roughly 7,300 employees.

They noted the SRA deal occurs at a time of increasing merger and acquisition activity among federal contractors, particularly information technology (IT) providers. However, the structure of this deal is much different, observers said.

Indeed, in contrast to an industry consolidation, SRA did not sell to another federal contractor looking to enter new markets while cutting overhead for employees and research activities.

“We believe in the merits of this transaction,” because it is the best interests of shareholders, employees and SRA’s sprawling customer base, said Ernst Volgenau, the company’s founder and chairman.

“We also look forward to partnering with Providence, whose values and culture are consistent with SRA’s long-standing ethic of honesty and service. We believe these characteristics are critical as we continue to build SRA and sustain its competitive positioning for the future.”

Volgenau owns several million shares of common stock and will retain a substantial equity interest after the sale, Providence Equity said. The investment firm also said it will soon take SRA private, meaning the IT contractor’s shares will no longer be traded in public equities markets.

In acquiring SRA, the investment firm will receive enormous cash flow, analysts said. SRA recently reported it has a $5.0 billion pipeline of orders, including more than $1 billion in funded contracts.

For instance, SRA won a Global Battlestaff and Program Support contract in May 2010 from the United States Special Operations Command at MacDill Air Force Base, Fla. The award is worth an estimated $1.5 billion over five years if all options are exercised.

The following month, the company became one of six major IT players to land a portion of a Defense Intelligence Agency multi-award contract with a total value of $6.6 billion.

Founded in 1978, SRA has a market cap valued at about $1.78 billion and has grown aggressively in recent years through acquisitions, making three in 2010 alone. Besides the Pentagon and Homeland Security, the firm also serves the intelligence communities with a wide range of offerings, including cyber security.

Meanwhile, SRA has in recent years moved aggressively into air traffic safety, a market analysts say is worth several billion dollars. That’s because the Federal Aviation Administration is replacing radar technology that dates to World War II with an advanced digital system.

In July 2008, the company paid $125.5 million to acquire Era Systems Corporation. Little known until recently, the Era subsidiary features sophisticated, proprietary surveillance technology originally developed in Czechoslovakia.

As a result, the company has landed contracts at nearly two dozen airports in the U.S., several of them among the nation’s busiest. These include Boston Logan, Houston, JFK and La Guardia in New York and Las Vegas.

Then again, air traffic management would seem a natural fit for Stanton D. Sloane, SRA’s CEO. Sloane not only has a doctorate degree in business, he is a former helicopter flight instructor and also is a licensed jet pilot.

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Michael A. Robinson has written articles for some of the nation's more prestigious publications. As...