Digital Intelligence Systems seeking acquisitions to expand federal presence, CEO says


The below article is currently appearing on Mergermarket — a business wire service with publishing outlets across the globe and access to industry influencers. To download a PDF version, click here.

Digital Intelligence Systems seeking acquisitions to expand federal presence, CEO says

By Rachel Stone
April 21, 2021

Digital Intelligence Systems (DISYS), a closely held IT staffing and outsourcing firm, expects to pursue acquisitions to round out its IT staffing portfolio and increase its presence in the federal sector, said founder and CEO Mahfuz Ahmed. The McLean, Virginia-based company could close a smaller deal in the USD 50m-USD 75m range this year and expects to close a larger deal next year, Ahmed said. It is in discussions with a smaller federal integrator that would increase the company’s exposure to federal customers, he said, noting that the companies have not yet started due diligence.

Although it has the proper clearances to work in the federal sector, DISYS’s presence is “close to non-existent” today, with maybe USD 30m of its revenue stemming from federal customers, Ahmed said. It ultimately aims for federal customers to account for about 30% of revenue, he added.

It also expects to round out its IT staffing portfolio, focusing on companies in the Southeast and Midwest, the CEO said. The company’s sweet spot in a target’s revenue size is USD 75m-USD 300m, he said, adding that smaller acquisitions take just as much effort and energy to integrate.

To finance future deals, DISYS plans to use a combination of cash on hand and debt, Ahmed said. Carlyle, which along with Wells Fargo Bank provided debt financing for DISYS’s recent acquisition of Signature Consultants, will likely be the company’s debt partner moving forward, he added.

Earlier this month, DISYS announced the acquisition of Signature Consultants, a Fort Lauderdale, Florida-based staffing solutions provider. Signature had revenue close to USD 435m, and DISYS had about USD 430m in revenue, according to the CEO, who declined to comment on deal financials.

Ahmed expects the combined company to hit USD 920m in revenue organically this year, potentially nearing USD 1bn with a small acquisition, he said.

Although DISYS was hit early in the COVID-19 pandemic, demand recovered, and it grew revenue organically 3.5% in 2020, Ahmed said, adding that Signature grew more than 8% last year. It has an “industry standard” EBITDA between 4%-6% of revenue, he said, declining to provide specifics.

DISYS, which has about 10,000 employees globally, targets Global 1000 companies and midmarket companies with USD 500m-USD 2bn in revenue, Ahmed said. It has about 520 active customers and contracts with more than 1,000, he added.

On Assignment [NYSE:ASGN], is one of the company’s biggest competitors, along with TataConsultancyServices [NSE:TCS], Infosys [BOM:500209][NYSE:INFY], Wipro [NYSE:WIPRO], Capgemini [EPA:CAP], and Atos [EPA:ATO], Ahmed said. Although it competes against these public companies, DISYS does not expect to go public, the CEO said. “I will do it only if I have to,” he said, highlighting the greater ability of a private company to give a new program time to incubate and correct mistakes. “I am wary of quarter-to-quarter management of expectations. I think that sometimes leads to a short-term focus rather than a long-term focus that we want to have.”

Ahmed is the majority owner of DISYS. President and COO Maruf Ahmed, Mahfuz Ahmed’s brother, is a minority stakeholder. Weston Presidio acquired a 20% stake in the company in 2012, but the brothers bought that stake back concurrent with the company’s acquisition of Signature, Ahmed said.

It uses Cooley for legal counsel, Alvarez and Marsal for quality-of-earnings analyses, and BDO for accounting.

__________________________________

Mergermarket was founded in 2000 and has 67 locations across Europe, North & South America, the Middle East, Africa, and Asia-Pacific.

Mergermarket has the largest team of dedicated M&A journalists and analysts in the world and is part of Acuris — an organization specializing in creating and curating insights and information in a wide range of markets.