Bloomberg News

Detica Agrees to Acquire DFI for About $39.5 Million

February 01, 2007

Detica Group Plc, a computer services provider whose clients include the U.K.'s Ministry of Defence, agreed to buy DFI International Inc. for about $39.5 million to expand in the U.S. national security market.

DFI, a Washington-based consulting firm, provides counter- terrorism research and intelligence analysis, Guildford, England-based Detica said in a statement. DFI clients include the U.S. Department of Homeland Security, U.S. intelligence agencies and the U.S. Department of Defense.

Detica is expanding in the U.S. national security market to benefit from government efforts to combat terrorism, particularly the ``close co-operation'' between the U.K. and the U.S., the company said.

``The U.S. by far is the largest national security market on the planet,'' Detica Chief Executive Officer Tom Black said today in an interview. ``The U.K. is probably number three in terms of spend in this market and the U.S. is ten times the size. We have bought people who really understand how it works and have the contacts to penetrate the market.''

In terms of dollars spent Japan is the second-biggest national security market, Black said.

`Critical Mass'

DFI is led by Dennis Reimer, a former chief of staff of the U.S. Army, Detica said. The senior management team of DFI's government practice will remain with the business, Detica said. The company plans to combine its U.S. national security business with DFI when the deal is completed.

The purchase is ``entirely consistent with the group's stated strategy,'' Peter Whiting, an analyst at UBS, said in an e-mailed research note. ``DFI gives Detica critical mass in the U.S. national security market, with the potential to sell the group's existing skills and technology into a very broad range of U.S. government clients.''

Detica, which has been working with clients in the U.S. national security market for ``several'' years, created a U.S. subsidiary Detica Inc. in May 2004 to make it easier to expand in the market. In September 2005 Detica Inc. received approval to deal directly with U.S. national security agencies.

U.S. Growth

The U.S. national security market currently represents about 8 percent of Detica's revenue, Finance Director Mandy Gradden said in an interview.

``Effectively after a year or two of the deal we would hope to be delivering 20 percent of group revenue out of the U.S.,'' Gradden said. ``Ultimately we would aim to build a business in the U.S. that's the same size as the U.K. business.''

Detica will pay for the DFI purchase by issuing about 800,000 new Detica shares, valued at $5.5 million, with the remaining $34 million to be paid in cash, Detica said. The company said it will fund the cash consideration from its existing cash resources and borrowing facilities.

Detica, which was advised by Amethyst Corporate Finance Plc, said it expects to complete the deal next month. Aronson Capital Partners LLC advised DFI on the deal.

To contact the reporter on this story: Aisha Phoenix in London at aphoenix@bloomberg.net.

To contact the editor responsible for this story: Zimri Smith at zsmith@bloomberg.net.


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