Government IT Outsourcer And Big Shareholders Plan To Cash In

A leading government outsourcer and six of its large shareholders plan to cash in on the government's growing demand for outside contractors.

SRA International Inc. said Thursday that it would sell 2.75 million shares of its class A stock, with all but 257,000 shares being newly issued by the company. With the stock hovering in the $28 a share range late in the week, total proceeds before underwriting, discounts, and commissions could reach $77 million. SRA and the selling stockholders will also grant the underwriters an overallotment option to purchase up to 412,500 shares of class A common stock, of which 33,878 shares will be issued by SRA and 378,622 shares will be sold by the selling stockholders. At $28, the additional shares would sell for $11.55 million, bringing the total value of the sale to about $88.55 million.

SRA plans to use its proceeds for general corporate purposes, including working capital and capital expenditures. A portion of the proceeds could be used to acquire new businesses, products, and technologies that complement its business--though in its SEC filing, the company said it had no specific acquisitions planned. Analysts tracking the government IT outsourcing market have predicted further consolidation of that sector, with existing companies getting bigger through acquisitions.

The value of SRA shares has soared this past year by nearly a third as demand--and perceived future demand--for government IT outsourcing contracts grows. In its prospectus, SRA notes that the federal IT market is expected to grow at an annual rate of 8.5% by 2008. Companies such as SRA that are well-entrenched in providing government contracts are expected to reap the benefits of future governmental outsourcing contracts.

The largest block of non-company shares being offered--187,000--is held by five executive officers and directors. The single largest number of shares being sold by an individual is 90,000, by Edward Legasey, executive VP and chief operating officer. The Fuller Foundation, the development arm of the Fuller Theological Seminary in Pasadena, Calif., will sell all of its 70,000 shares. Also selling shares: CEO Ernst Volgenau, (40,000); and senior VPs Renato DiPentima (32,000), Barry Landew (15,000), and Stephen Hughes (10,000).

Even with the sale, the percentage of stock the individual sellers hold in the company will decrease marginally. For instance, Volgenau will own 29.8% of the class A stock after the sale, down from 33.3% now.