CSC Explores the Leveraged Buyout Option
October 1, 2014 Leave a comment
- CSC contacted a number of private equity firms in the first step toward evaluating whether a leveraged buyout that would allow the company to make further adjustments outside of the scrutiny of Wall Street would be a good option.
- Though there are potential benefits associated with going private, even the exploration period can be risky as we all learned from Dell’s protracted 2013 leveraged buyout which put the company’s every flaw in the spotlight for months on end.
CSC has come a long way since the UK National Health Service (NHS) contract went off the rails and the shamed ITSP had to pay its client more than $1 billion for its botched job. Under the direction of current CSC President and CEO Mike Lawrie, the company implemented an extensive restructuring plan that includes some cost-cutting and some realignment of products. So when word hit the street that CSC was talking to private equity firms about a possible buyout, people took notice. After all, we are just a couple of years out from the point in time when industry watchers were speculating on whether CSC would sell itself to the highest bidder.
Executives quoted in reports cautioned that it is very early in the company’s leveraged buyout exploration, which is manifesting itself in talks with a number of private equity firms including Blackstone Group LP and Bain Capital LLC. Company officials admit that it is quite possible nothing may materialize.
That said, there appears to be some interest from equity firms who may see CSC even with its big $8.7 billion market cap as a potentially sweet deal because of its relatively low valuation. There are also some good indicators that while the company isn’t by any means experiencing explosive profit growth, it appears to be on solid financial footing and executing relatively well.
Going private could give CSC some freedom to invest or divest and otherwise adapt without the constant pressure associated with quarterly financials. Yet with some notable exceptions like Dell which closed its own leveraged buyout deal last year, it is unusual to see such a large company take itself private. Whether a buyout actually happens, there is some risk to CSC as Wall Street and the industry alike can pore over CSC’s every flaw and misstep, speculating on what the eventual outcome will be. What is your opinion? Do you think a leveraged buyout will help CSC continue on its successful restructuring path or could it add new obstacles to the road?