IPO Preview: DynCorp (DCP)

Apr.30.06 | About: DynCorp International (DCP)

This week we should get the planned IPO of US defense and technical contracting services giant DynCorp. DynCorp will trade under the ticker "DCP" on the NYSE.

Credit Suisse Fist Boston and Goldman Sachs (NYSE:GS) are the lead underwriters with Bear Stearns, CIBC, Jefferies, UBS, and Wachovia in the syndicate as well. The expected range for the 25M share IPO is expected to be $15.00 to $17.00, with an expected capital raise of about $365M out of the offering.

It plans to use the proceeds to redeem outstanding preferred stock, pay a $100 million special dividend on Class B shares and repay some debt, including a prepayment penalty. For those of you that do not recall off hand, DynCorp used to be owned by Computer Science Corporation and it was sold to a private equity concern named Veritas Capital in February of 2005 for about $937 Million. So this looks like it is a corporate quasi-repackage as a standalone play that is going to essentially be resold to the public, and it appears that Veritas will still have a two-thirds stake in the recapitalized company.

In the 9-months available from 2005 it disclosed in filings that revenues were approximately $1.4 Billion with pro forma income of $18.1M. As of the end of 2005 it had a reported debt level of approximately $600M and its 40+ active contracts on the books are said to have a current backlog of about $2.7B over the coming years.

One interesting aspect about this IPO in particular is that it may partially set the trend for how the street treats the proposed spin-off of Halliburton's (NYSE:HAL) KBR unit that we should see in the coming weeks to months. The overall expectations for the IPO out of the chute do not look like they are putting it in the "hot IPO" category, but it isn't expected to fall out of bed either. The future of the company has not really been under serious question, but one area that is probably an obvious to watch is the coming elections that would signal any change in the balance of power in Congress and of course any party change in 2008. Despite this as a business environment risk, the company has been around since the late 1940's and has survived and continued to evolve under both Democrat and Republican administrations during times deemed peaceful and hostile.


DynCorp traces its roots back as far as 1946 and now has approximately 14,000 employees in various aspects as a corporate contractor to the US government and its allies. Its customers are the U.S. State Department, the DoD, Army, Navy, Air Force, Marines, and commercial customers in many foreign countries. It specializes in outsourced civilian defense contracting, private security details, law enforcement activities, the war on drugs, technical services, and other critical support areas for numerous government agencies.

In the private security details, you may recall a picture of an Anglo bodyguard for Karzai in Afghanistan that was shown in Barron's under what is frequently referred to as the private warfare sector, and that was a DynCorp contractor. In the security and private warfare activities it competes with Marsh & McClennan's Kroll unit. It competes with Civilian Police International, SAIC, and PAE Group in law enforcement activities. They compete with many companies such as Halliburton's (HAL) KBR unit (also scheduled to come public soon), Babcock International Group, and IAP Worldwide in international logistics and base support operations. It competes in the technical services field against many behemoths such as Boeing (NYSE:BA), Lockheed (NYSE:LMT) and others.

The company's homepage is http://www.dyn-intl.com and its Veritas Capital private equity parent's website is found at http://www.veritascapital.com if you choose to look at the companies yourself.