Privately held Bethesda, Maryland-based Zen offers systems engineering, consulting, and network services to the government. The company’s clients include The Missile Defense Agency, the Federal Communications Commission and the Federal Trade Commission. Zen has about 275 employees and pulled in some $38m in revenue for a $6.0m operating profit over the twelve months ended November 30, 2005.
The handsome price tag for Zen – more than 50% higher than its annual revenue rate – suggests that the deal could indeed give SI some lucrative federal work. About 60% of Zen’s business comes from the Pentagon, and 80% of its total revenue comes from prime contracts.
Additionally, approximately half of Zen employees hold security clearances at the secret level or above, which is important in winning contracts from the growing pool of defense, intelligence, and homeland security spending.
The deal is expected to close by the end of the current quarter and should be immediately accretive to SI’s earnings.
The company also announced its first-quarter and full 2006 guidance this week that include anticipated contributions form the Zen acquisition. For the current quarter, SI expects earnings between $0.35 and $0.37 per share on revenue in the range of $101m to $105m. Analysts are in the same area with a forecast of $0.36 per share on $105.1m, according to Thomson Financial.
For the entire year, SI believes strong federal demand will yield earnings of $1.63 to $1.67 per share on revenue of $470m to $476m. Analysts are in line with EPS of $1.65, but more sour on the revenue side with calls for $447m.
