RS Information Systems Inc. (No. 16 on the be industrial/service 100 list with $328 million in sales) has signed a definitive agreement to be acquired by Wyle, a privately held provider of high-tech aerospace engineering, testing, and research services. Terms of the deal were not disclosed. RSIS was be’s 2007 Industrial/Services Company of the Year. The transaction is expected to be completed early this year.
This is the second be 100s information technology company to announce its sale recently. In May 2007, Dimensions International-BE’s 2005 Company of the Year-was sold to publicly traded Honeywell Inc. This trend has been happening for the last few years and is expected to continue, analysts say.
Bereft of the resources of megacompanies and the set-asides and other benefits of smaller businesses, companies in the middle tier are finding it hard to achieve growth, leaving them with two choices: bring in capital to acquire another synergistic business or be acquired themselves.
“It’s a very logical next step, given the space for RSIS to look at an exit strategy,” says John Allen, co-head of the Defense & Government Services Group for BB&T Capital Markets/Windsor Group, a Reston, Virginia-based investment banking firm. “This is part of the natural life cycle for companies in the government IT space.”
John Slye, manager of Federal Industry Analysis for INPUT, a Reston, Virginia-based provider of information services to the government, says that midsize companies are often buyout targets. “The big are getting bigger [through acquisition], and the companies in the midtiers are just squeezed because they can’t be jacks-of-all-trades anymore,” he says. “They can’t be generalists because the larger systems integrators have economies of scale, and they can out-compete them. So what we’re finding is they’re getting a lot of mergers or they’re getting sucked up by companies of the same size or even smaller that have some synergies where they can get together to allow them to compete with the big guys.”
RSIS President and CEO Rodney Hunt owns about 75% of the company’s stock, with the remaining held by partner Ron Trowbridge, RSIS’ executive vice president. Wyle, which is not black-owned, expects the acquisition to increase its 2008 annual revenues to approximately $800 million and the number of employees to more than 4,200.
“It’s a different buyer than one might expect for RSIS. It wasn’t a big name, but it’s a strategic move for Wyle to diversify its business in the government IT market,” Allen says. “RSIS is known as much more of an information technology company in the defense and government services market. And the buyer is more of an engineering-focused and testing-focused business.”
Hunt alluded to the possibility of a deal when his company was named BE’s top business (see “Wired for Success,” June 2007). “I have thought about going public, merging with another company, acquiring companies,” he said during the April 2007 interview. “I’m basically doing my research now so I can make an informed decision about the direction of the company. We’ll need to do something in the next year or