Cerberus Capital Management agreed to acquire DynCorp for $1 Billion on April 12.  DynCorp is a Virginia-based defense contractor who focuses on low-technology, high people-centric government contracts in hostile areas like Afghanistan.  Cerberus, probably best known for its acquisition of Chrysler, sees this as a way to expand its government business. There were four things that I found interesting about this acquisition:

• This takes a public company private which should provide savings, but also means it will likely go public again in a few years when Cerberus wants a liquidity event
• The deal is a leveraged buyout (LBO) and a big one.  The WSJ reports the structure will be 2/3 debt and 1/3 equity, which is much lower than the more recent levels of 50% equity.
• There is a “go-shop” clause.  This provision gives DynCorp a month to find a better deal, which should quash a shareholders suits that it wasn’t a fair price.
• This is essentially one private equity firm selling to another.  So this is financial engineering more than strategic fit.

All in all this deal is another sign of the thaw of the investment communities involvement in M&A deals.   I still contend there is about another 12 months of unique balance in the market between buyers and sellers and I still expect a frothy M&A market starting in mid-2011.

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