US: Private Military Firm Differs from Peers Going Public

DynCorp International Inc., an Irving-based defense contractor that's expected to go public soon, may represent the first of a new generation of defense-related initial public offerings.

The fast-growing business provides security and training for police forces in Iraq and Afghanistan.

Traditionally, defense-related companies that go public provide information technology services to the government or are involved in, say, weapons system technology.

"DynCorp will be the first of its breed to go public that doesn't fit into one of those two categories," said John Allen of BB&T Capital Markets, an investment bank that specializes in government contractors.

"The government is moving toward outsourcing other activities like those that DynCorp provide," he added.

DynCorp. announced plans for the public stock offering in a Sept. 29 filing with the U.S. Securities and Exchange Commission.

Its stock will trade on the New York Stock Exchange under the symbol "DCP."

The filing did not specify how many shares the company plans to sell, but it wants to raise $450 million.

The proceeds of the IPO will go toward debt reduction, operating costs and to pay insiders a special $100 million dividend.

Company officials said they could not comment on the offering while the SEC reviews the filing.

Typically, companies complete their IPOs between two and three months after the filing, particularly if investor interest is high.

Jeff Stacey, director of operations at IPO Monitor.com, said he expects the DynCorp IPO to move along quickly.

"The company is in a growth area," Mr. Stacey said.

"We are in a state of war, and there is nobody in Congress who is going to reduce defense spending," he said.

"There are all kinds of niche opportunities for security and defense-related firms," Mr. Stacey continued.

For example, the military increasingly is outsourcing the management of some of its base operations, such as housing, utilities and maintenance to private contractors, he said.

Government and defense contracting companies account for only a handful of this year's 166 IPOs.

That's because it's a relatively mature sector with high barriers for entry, Mr. Stacey said.

"These types of companies typically have to have an office in Washington, D.C., are involved in heavy lobbying efforts and usually have a retired general or two on the board of directors," he said.

However, interest in this area is increasing.

The same month that DynCorp announced its IPO plans, Science Applications International Corp., a San Diego defense company, said it planned to raise $1.7 billion in a public offering.

The sector also got a boost when government contractor NCI Inc. raised $54.1 million in an IPO on Oct. 24.

NCI, based in Reston, Va., designs and maintains computer systems for defense and intelligence agencies.

Shares of NCI have done exceptionally well, rising from $10.50 when first hitting the market to just above $13 - a 24 percent gallop. The stock closed Tuesday at $12.19.

That performance bodes well for DynCorp, and if its shares track higher, similar IPOs are almost sure to follow.

The company reported $1.9 billion in revenue in fiscal 2005 compared with $1.2 billion the previous year.

DynCorp was purchased by Computer Sciences Corp. in 2003.

In February, Computer Sciences sold much of the original DynCorp to Veritas Capital Fund LP, a New York private equity firm.

Veritas will continue to control the company after the IPO, according to the SEC filing.

In addition to training police, DynCorp. is also involved in drug eradication efforts, de-mining services and aircraft maintenance.

But its operations in Iraq and Afghanistan accounted for about 37 percent of its revenue.

Its employees in these countries are often targets of the insurgents. Seventeen DynCorp employees have been killed since 2003.

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