Jacobs Acquires TechTeam for $59 M

Jacobs Engineering Group Inc. (JEC) decided to acquire TechTeam Government Solutions Inc. (TTGSI), a wholly owned subsidiary of TechTeam Global Inc. (TEAM) for $59.0 million.
 
Jacobs will acquire 100% stock in the company and the acquisition is expected to close by the end of 2010.
 
TechTeam is an Information Technology (IT) Solutions company, which provides services to the federal, state and local government agencies together with the United States Department of Homeland Security, U.S. Army and U.S. Army Corps of Engineers. Thus, the acquisition will not only increase government customers for IT services, but more and more contracts will also flow in.
 
Jacobs is one of the leading providers of professional, technical and construction services to industrial, commercial and government clients.
 
We believe that Jacobs’ track record of contract wins will help it to perform well in future. Another reason for the company to sustain in these difficult market conditions is its liquidity. The company has maintained a high level of liquidity, with a net cash position of $743 million from $240.4 million at the end of the first quarter of fiscal 2010.
 
The company plans to expand into emerging markets, such as India, China and the Middle East. The emerging markets are expected to perform much better than the developed markets in the coming years.
 
For 2010, management has raised the EPS guidance range from $2.00 to $2.60 to a range of $2.15 to $2.65. However, the very cyclical nature of its business, which is subject to significant fluctuations based on a wide variety of uncontrollable factors, puts a hindrance on the further upgrade of the stock. The company also faces immense risk as it operates in a highly-competitive environment. Thus, we reiterate our Neutral recommendation on the stock.

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