Booz Allen Plans to Spend Big on Acquisitions

Booz Allen plans to spend about $4 billion between April 2022 and March 2025, largely on acquisitions, executives said last week at the company’s investor day. That is up from the $1.3 billion it spent in total during the past four fiscal years, the most recent ending in March. Most of that money went to share buybacks and dividends.

The shift comes as competitors—including Leidos Holdings Inc. and Science Applications International Corp. , which were one company until a 2013 spinoff—are snatching up other businesses. This year has been busy for mergers and acquisitions, with the value of announced deals world-wide climbing to $4.46 trillion as of Oct. 11, up 84% from the prior-year period, according to data provider Refinitiv.

Leidos, a national-security company, last week said it plans to deploy $3.5 billion in capital through 2024 pending board approval, with 64% of the total going toward a mix of acquisitions and share buybacks. The remainder would be spent on dividends, capital expenditures and paying down debt, it said.

Leidos said it invested about $4.9 billion over the 2½ years ended in June, the majority of which went toward acquisitions. In May, it paid $380 million for Gibbs & Cox Inc., a ship-design firm.

Booz Allen intends to tap $1.6 billion in liquidity on its balance sheet, which includes cash and access to a credit line of about $1 billion, Mr. Howell said. The company’s cash and cash equivalents totaled $621.9 million as of June 30, a 0.2% increase from a year earlier, according to a regulatory filing.

“We want to put that capital to good use,” Mr. Howell said, referring to the $1.6 billion.

Booz Allen in July said its revenue rose 1.7% to $1.99 billion in the quarter ended June 30 from the prior-year period. Its net income fell 29% to $92.1 million, in part due to acquisition-related costs. The company will continue to look for small and midsize firms as part of its annual review of more than 100 potential acquisition targets a year, the CFO said.

In June, Booz Allen acquired Liberty IT Solutions LLC, a Herndon, Va.-based healthcare-focused IT consulting firm, for $725 million. That was followed by a deal last month to buy the remaining stake in Tracepoint, a cybersecurity services provider, for an undisclosed amount.

The company is considering more acquisitions similar to the Liberty deal, in part because it expects greater demand for those services, Mr. Howell said. “Having future transactions like that would sort of be the sweet spot,” he said.

Booz Allen will also look at acquisition targets specializing in services involving cybersecurity, artificial intelligence, data analytics and other aspects of digital transformation, Matt Calderone, the company’s chief strategist, said at its investor day last week.

Mr. Howell said the acquisitions are expected to help boost the company’s revenue, which it forecasts will grow to about $8.6 billion in the year ending March 31, 2022, up 10% from the previous year.

The biggest challenge for Mr. Howell will likely be in integrating the company’s acquisitions due to the limitations of virtual communication during the Covid-19 pandemic, said Sheila Kahyaoglu, a senior equity research analyst at investment bank Jefferies Group.

“Maintaining the people and the culture is probably something that they will focus on much more than other companies,” Ms. Kahyaoglu said. “Integrating a people-centric business in a virtual environment, you want to make sure you don’t lose headcount.”

The company had about 28,600 employees as of June 30, up 4.4% from a year earlier, a filing shows.

Write to Mark Maurer at [email protected]