Peraton Could Surpass $8B in Sales in 2024, but Will It Go Public?

Updated: Sept. 9, 2024

Will Peraton Issue an IPO?

As Peraton considers going public, it needs to generate predictable revenue and profit streams to avoid pitfalls like failing to meet the company’s forecasted metrics. When the Carlyle Group took Booz Allen Hamilton public in 2010, it ensured investors that the business was in a position to keep expanding and succeed long-term. Peraton’s and Veritas’ leadership teams will undoubtedly take a similar approach. Peraton has become increasingly competitive over the years, and TBR believes it has facilitated sales expansion each year, but it remains to be seen whether Peraton is fully realizing the benefits of cost-saving measures or if it is consistently meeting its revenue goals. If it is not doing either, it will not go public.

 

General Dynamics Information Technology (GDIT) and other unencumbered industry peers have been making rapid investments in emerging technologies like generative AI over the last few years. With Peraton no longer focused on fully integrating its assets, it began to broaden its AI and cloud capabilities more noticeably during 2023 by pursuing strategic relationships with SoftIron and UiPath. These two partnerships, in particular, enable Peraton to leverage SoftIron’s HyperCloud technology as well as the UiPath Business Automation Platform while the company helps clients with establishing their respective cloud networks and streamlining their workflows.
TBR anticipates that Peraton will continue to expand its partner network to operate as a cloud services broker. Peraton is positioning itself to capitalize on federal agencies that are increasingly utilizing an “as a Service” cloud environment model to build their own platforms with desired third-party capabilities as well as the steady funding to accelerate agencies’ digital modernization journeys, which is expected to persist for the foreseeable future.

 

If Peraton falters with this strategy, it can still continue pursuing opportunities related to next-generation national security. TBR estimates that approximately 45% of Peraton’s sales in 2023 came from the DOD and the IC. Peraton focuses on underpinning missions of consequence that have high barriers of entry and receive bipartisan funding, like protecting space systems, in addition to supporting national security initiatives.

 

Veritas disclosed in 3Q24 that it had over $40 billion in assets under management. With interest rates expected to remain at elevated levels through 2024, it is unlikely Veritas will make any more multibillion-dollar acquisitions to further augment Peraton. Veritas has demonstrated flexible ownership over the years to work with Peraton. While Veritas has helped take Peraton to new heights and could pursue a sub-$200 million acquisition to broaden Peraton’s capabilities with emerging technologies, Veritas will cash out sooner rather than later.

 

Peraton has undergone several high-profile leadership changes this year but the most notable announcement is that Steve Schorer will succeed Stu Shea as CEO, president and chairman of the board in September. Schorer was the CEO of Alion Science and Technology before it was acquired by Huntington Ingalls Industries in 2021. Most recently, Schorer has been operating as a senior advisor at Veritas Capital. TBR remains confident that Peraton will go public in 2025 given its recent activity.

Peraton in 2024

The megamerger has given Peraton the necessary portfolio depth and scale to regularly vie with industry leaders such as Leidos for enterprise IT contracts in the $500 million to $2 billion range in the federal civilian and health spaces while also capitalizing on Department of Defense (DOD) Intelligence Community (IC) needs. Now that Peraton’s assets are fully integrated, TBR believes that Peraton is on course to surpass $8.0 billion in annual sales during 2024.

 

Additionally, Peraton’s backlog was last reported at $24.4 billion in the middle of 2022. The company has been placing around 1,200 bids a year worth approximately $40 billion in total. Peraton has not disclosed its current operating margins.

How Peraton Septupled in Size

Private equity firm Veritas Capital officially bought Harris Corporation’s government IT services business for $690 million in 2Q17. The new assets were quickly spun into a stand-alone company, Peraton, helmed by Stu Shea to pursue opportunities in the communications, cybersecurity and space markets.

 

When he was first brought on as Peraton’s president, CEO and chairman of the board, Shea expected that Veritas would financially back his plans for three years before cashing out since the fund was for five years. As part of Shea’s growth strategy, Peraton purchased Strategic Resources International to augment the company’s telecommunication services portfolio in 2Q18 and Solers in 2Q19 to expand its space capabilities. While Peraton did not share the financial values of these transactions, the latter enabled Peraton to generate over $1 billion in annual revenue.

An Arduous Integration Process

In 4Q20, more than three years after appointing Shea, Veritas’ leadership team approached him about Veritas acquiring the IT services operations of three Northrop Grumman business units (collectively referred to as NGIT) and federal IT vendor Perspecta and rolling these assets into Peraton. Veritas purchased NGIT for $3.4 billion in 1Q21, before acquiring Perspecta for $7.1 billion in 2Q21 and bolting on ViON’s cloud operations to Peraton in 3Q23.

 

Anecdotally, Peraton entered this megamerger with industry-leading margins. Following the merger, Peraton’s sales septupled to between $7.0 billion and $7.2 billion in 2021, according to TBR’s estimates, while its headcount surged from 3,500 to 24,000.

 

The largest privately owned federal IT contractor faced hundreds of thousands of obstacles at the start of this integration process, according to Shea. As the leadership team streamlined policies and processes while optimizing the business, they made several notable decisions, such as divesting the systems engineering, integration and support services business to a portfolio company of Veritas. (These assets would later become Arcfield and are still owned by Veritas.)

By divesting this business, Peraton ensured it was fostering ethical business practices by mitigating potential corporate conflicts while narrowing its focus on core operations. In addition to the divestment, Peraton reduced its physical footprint from 150 facilities to less than 100. The company also made sweeping workforce rationalizations, shrinking its post-merger headcount from 24,000 in 2021 to 18,000 by the end of 2022. Concurrent with implementing these optimization efforts, Peraton had to contend with an array of impeding factors that plagued other vendors across the industry including supply chain disruptions, macro inflation and a sustained bid protest environment.

 

Despite this onslaught of obstacles, Peraton has been able to consistently disrupt in the public sector market. The company has been able to successfully compete with Tier 1 vendors to secure high-profile contracts such as the Special Operations Forces IT Enterprise Contract III worth up to $2.8 billion. By August 2022, Shea claimed Peraton only had a few hundred items left to address in its integration master schedule.