Good morning. Thank you for standing by, and welcome to the Booz Allen Hamilton Management Conference Call. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions. I'd now like to turn the call over to Mr. Rubun Dey.
Thank you. Good morning, and thank you for joining us to discuss today's announcement regarding Booz Allen's agreement to acquire Liberty IT Solutions LLC. We hope you've had an opportunity to read the press release that we issued earlier this morning. We have also provided presentation slides on our website. I'm Rubun Dey, Head of Investor Relations, and with me are Horacio Rozanski, our President and Chief Executive Officer, Kristine Martin Anderson, Executive Vice President and Civilian Services Group Lead, and Lloyd Howell, Executive Vice President, Chief Financial Officer, and Treasurer. As shown on the disclaimer on slide two, please keep in mind that some of the items we will discuss this morning will include statements that may be considered forward-looking and therefore are subject to known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results.
Those risks and uncertainties include, among other things, general economic conditions, the availability of government funding for our company's services, and other factors set forth under the forward-looking statements disclaimer included in today's press release and in our SEC filings. We caution you not to place undue reliance on any forward-looking statements that we may make today and remind you that we assume no obligation to update or revise information discussed on this call. During today's call, we will also discuss some non-GAAP financial measures and other metrics which we believe provide useful information for our shareholders.
We include definitions and reconciliations, where appropriate, of non-GAAP measures in our presentation slides. Finally, I will note that we are approximately two weeks from our fiscal year-end earnings call, where we intend to share details of Booz Allen's full fiscal year 2021 performance and provide forward-looking guidance. With that in mind, today we will only discuss the Liberty acquisition we are announcing this morning and its expected discrete impact on our financials, subject to final closing conditions. It is now my pleasure to turn the call over to our CEO, Horacio Rozanski.
Thank you, Rubun, and good morning, everyone. Thanks for joining the call on short notice. We are very excited to announce today that we have entered into a definitive agreement to acquire Liberty IT Solutions for $725 million. The transaction is subject to customary closing conditions, including regulatory approval. We believe the combination of our companies will create significant value for our shareholders, clients, and the people of both Liberty and Booz Allen. As those of you who follow us closely know, we have recently started talking about acquisitions as strategic accelerators. We believe that speed and scale in the use of disruptive technologies such as digital transformation, cyber, and AI are the key to the future of our clients and their missions. You have also heard us say over the years that we have three co-equal criteria for acquisitions: strong strategic fit, values-based cultures and workforces, and compelling financials.
Not too many assets come close to our high standards. We are very pleased because Liberty fits all three so well. First, this acquisition is directly on strategy. Liberty is a recognized leader in digital solutions with deep expertise in cloud, low-code, no-code, and DevSecOps. These capabilities complement and deepen Booz Allen's already robust offerings in digital transformation, especially in our health portfolio. Together, our two teams will serve clients better, accelerate our ability to inject leading technologies into missions, and increase growth in this fiscal year and beyond. Culture is also critical for us, and Liberty is a tremendously impressive organization. They share our values, our passion for people, innovation, and technical excellence, and our commitment to helping clients use technology to transform missions.
From day one, it has been clear that Liberty would be a great cultural fit and that our two workforces would enjoy working together. And third, this is a financially attractive acquisition. We expect Liberty to be immediately accretive to our revenue growth, Adjusted EBITDA margin, and Adjusted Diluted Earnings Per Share. The transaction has been approved by the Board of Directors of Booz Allen, and it's expected to close in the first quarter of Booz Allen's fiscal year 2022. On behalf of the leadership team, I want to thank everyone at Booz Allen and Liberty that has worked so hard to complete the agreement we are announcing this morning.
We could not be more excited about the value that this acquisition will create for our shareholders, our clients, and our people. With that, Kristine will speak next about how Liberty will strengthen our position in the market, followed by Lloyd, who will take you through the financial aspects of the transaction. Kristine, over to you.
Thank you, Horacio, and good morning, everyone. Today is certainly a milestone day for us. The combination of the Liberty and Booz Allen teams will accelerate the current strong growth in our civilian services portfolio by enhancing our ability to deliver end-to-end digital solutions. Across the federal civilian market, Booz Allen is proud to deliver innovative technology, bold thinking, and leading solutions to a variety of essential missions serving the nation's domestic agenda. Our robust portfolio of secure, modern digital solutions and skilled technical talent put us at the core of many of our clients' most critical priorities, which has and will continue to fuel our multi-year growth.
This includes work in the healthcare space, where we are partnering with our clients to reform and transform healthcare delivery and benefit determination, expanding access to top-quality, cost-effective healthcare for active-duty military, veterans, and citizens, as well as serving at the forefront of public health and research missions. Today, as the pace of modernization accelerates, our clients have an increasing need for complex digital transformation capabilities. We are helping meet those needs across a focused set of enduring missions, and Liberty's capabilities will strengthen our ability to deliver that effective, efficient transformation together. Liberty brings a proven track record of IT modernization implementations, making it a top-tier provider of solutions in the federal healthcare space.
Its industry-recognized leadership in the development of APIs, as well as implementing cloud and low-code, no-code solutions, will broaden and deepen our offerings and strengthen Booz Allen's market position as the premier technology integrator in the federal sector. As Horacio noted, culturally, Liberty has a strong alignment with Booz Allen on purpose and values. We both share a deep commitment to our people, to our clients, and their missions, to delivering solutions with integrity and ingenuity, and to corporate social responsibility. Liberty's talent includes a top-notch team of solution architects, engineers, and other highly skilled professionals. Liberty delivers excellent work. They are entrepreneurial and have a history of solid operational performance. They have high customer satisfaction scores and have shown an ability to win strategic work at scale. Our philosophy of putting our customers and our people first is aligned, and the fit is excellent.
And finally, Liberty has a dedicated Salesforce training program, which we look forward to scaling. Its Agile Center of Excellence in Melbourne, Florida, strengthens our value proposition with both clients and our people. I look forward to connecting this talent with our Charleston, South Carolina, digital hub. The breadth and depth of Liberty's people and capabilities complement our existing digital solutions and software development, AI, machine learning, and cyber.
By integrating them, we will amplify our delivery of advanced end-to-end technical solutions to federal healthcare clients and over time across all of our markets. Again, I want to share my excitement about this acquisition and gratitude to all who made today's announcement possible. As the leader of our civilian services business, I look forward to seeing the tremendous benefits of this combination and the value it brings, especially to our clients and people. With that, I'll turn the call over to Lloyd for the details on the numbers.
Thank you, Kristine, and good morning, everyone. I'll start by walking through some of the financial terms of the transaction. As Horacio noted, we expect to pay $725 million for Liberty after adjusting for an estimated $73 million-$83 million in estimated tax benefits. This represents a transaction multiple of approximately 13.5x Liberty's expected Adjusted EBITDA for Booz Allen's fiscal year 2022 at the midpoint. As a reminder, we expect the deal to close in the first quarter of Booz Allen's fiscal year 2022 and anticipate a partial year contribution from Liberty. We have sufficient available cash to fund the transaction, but are exploring options for the final funding mix of cash and debt financing pending market conditions. Let me turn now to the expected financial benefits of the transaction. As Horacio and Kristine mentioned, Liberty has positioned itself at the center of the client's mission.
This is evidenced by some critical new business wins, and Booz Allen will support Liberty in scaling up those opportunities. We expect Liberty to generate approximately $300 million-$340 million in annualized revenue for Booz Allen's fiscal year 2022, supported by its backlog of approximately $2 billion as of March 31st, 2021, and double-digit organic revenue growth through at least Booz Allen's fiscal year 2023. We expect revenue synergies to be minimal in year one as Liberty focuses on ramping up recent business wins. However, we have identified at least $200 million in annualized revenue synergies that we expect to realize by calendar year 2025, driven by expanding our combined digital capabilities across the civilian services portfolio. We expect Liberty to generate approximately $46 million-$50 million in annualized Adjusted EBITDA for Booz Allen's fiscal year 2022.
Our profitability assumptions include minimal cost synergies from the transaction given our intent to invest in and grow the Liberty business. From an earnings perspective, upon closing, we expect a creation of $0.20-$0.24 to adjusted diluted earnings per share in fiscal year 2022, assuming all cash funding. Please note that these non-GAAP profitability measures adjust primarily for the impact of acquisition-related transaction costs and intangible amortization expense. We will provide more color once we close the transaction. In closing, we believe this acquisition falls squarely in line with the M&A strategy we have outlined in the past. We are excited about their technology and expertise and believe that they will elevate the growth outlook for our civilian services portfolio. As you've heard from Horacio and Kristine, we believe Liberty fits strategically and culturally, and the financial outlook is compelling. With that, Rubun, let's go to Q&A.
Thanks, Lloyd. Operator, please open the line for questions.
Thank you. We will now begin the question-and-answer session. If you have a question, please press star, then one on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you need speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then one on your touch-tone phone. And our first question comes from Sheila Kahyaoglu from Jefferies. Sheila, if your line is muted, please unmute yourself. Our next question comes from Louie Di Palma from William Blair.
Good morning, Lloyd, Kristine, and Rubun.
Good morning.
Good morning.
It appears that a major portion of Liberty's revenue is from the Department of Veterans Affairs. Is this a bet on the Biden administration's priorities and potential shift more towards healthcare IT and digital adoption? And Lloyd, the full form of this deal, do you have any estimate on what percentage of Booz Allen's revenue will come from the VA and health services and general healthcare?
Hey, Louie, you broke up on the second half of your question.
Do you have a general ballpark estimate on what percentage of Booz Allen's revenue is healthcare-related? I remember at, I think it was your Analyst Day, three or four years ago, you had a great chart about Booz Allen's healthcare revenue ramp. So I was wondering how this deal adds to your healthcare exposure.
Hey, Louie. Why don't I start, Horacio? I'll frame the conversation a little bit, then maybe turn it over to Kristine. At the highest level, as we said in the prepared remarks, we have been working on an M&A pipeline that we wanted to use as a strategic accelerator. And what we mean by that is in areas of technology where we believe Booz Allen has a unique position that we can either broaden or deepen, and that we're building those capabilities ourselves. We wanted to see if we could use M&A to get there faster, to get there with more scale, to get there with more certainty. And the Liberty acquisition fits that perfectly, which is why we're so excited about it.
Their digital transformation capabilities, their depth in low-code/no-code, their work on DevSecOps, all really fit so well with what we're already doing in our health business and beyond. We believe that what they do, combined with some of the unique capabilities that we bring around cyber, around AI, and the like, create a very compelling and even more unique proposition, first in our health business and then more broadly. As you know, our health business is roughly around $1 billion. It's a very robust business. It has a track record of growth. Culturally, the Liberty team fits so well with all of Booz Allen and with our health team.
Their commitment to clients and missions is very exciting. And as Lloyd pointed out, this is a great deal financially. So we really hit on all cylinders of what we're trying to accomplish. We expect that this business will have impact initially in our health portfolio and then more broadly after we fully integrate across the entirety of the firm. Why don't I turn it over to Kristine for a little more color?
Thanks, Horacio. I'm really excited about Liberty for a couple of reasons. I think what probably came through at Investor Day, most of my career was spent in healthcare, and I led Booz Allen's healthcare business for a few years. Liberty is doing incredibly meaningful work in health, and now I'm leading our civil business, where I've been working for the last few years to expand our technical business and capability. For acquisition, my number one priority was to expand our capability in solution as a service, where we can combine cloud, low-code, no-code, and integration across software and hardware. Liberty meets all of those. The potential for Liberty is well beyond health, but then when we met the leadership, we were really incredibly excited about the fit. It's a fantastic combination of talented teams who are very passionate about the customer mission.
Horacio mentioned our health business. It is about a little over $1 billion, and it's spread between VA, Health and Human Services, and Defense Health. We have very robust businesses in all three of those and look forward to continuing to grow across the entire portfolio.
Great. Thanks, Horacio, Kristine, and Lloyd.
Thank you.
Of course.
Our next question comes from Sheila Kahyaoglu from Jefferies.
Hi, good morning, guys. Can you hear me this time?
There you are.
So sorry about that. I apologize. I don't know what happened. But just one simple thing, Horacio, you might have color for us who aren't as technology-savvy. Can you delve into low-code, no-code, and what that is really, why it's important in terms of growth? And just looking at Liberty's implied revenue per employee, it's about double what you guys have. So maybe that has something to do with low-code, no-code. But if you could give us a little bit more color.
Again, I can start, but Kristine, I think we'll be able to give you an even better read. But as you know, we've gone from waterfall development to agile development, where we accelerate the delivery of solutions to clients by working in shorter sprints and in loops that deliver capability more quickly. The next generation of this is using existing platforms where we're configuring and bringing commercial solutions so that we go even faster and with more reliability in terms of what we do with clients. Salesforce, which Liberty is really good at, is one of those examples.
And we see the market, again, moving in a direction where clients want to get from concept to solution that much faster, that much cheaper, with that much reliability. And this is where we're excited that Booz Allen already has a leadership position. With the addition of Liberty, we become even more unique.
You did a great job there, Horacio. I'll just add that the big advantage to low-code, no-code is speed, right? It can often take 18 months to launch new functionality with custom code, and with the combination of some agile low-code, no-code delivery, you can start producing results for your customer much quicker in the 90-day, 100-day mark, for example, and so that's really the attraction to it. And there are a series of platforms that become synonymous with the terms low-code, no-code, but really combining that with cloud and making them as a service, and then these APIs, which connect software together and software to hardware, is really where the solution set comes in, and it's very attractive. It's happening in the commercial sector, and the civilian sector follows the commercial sector very tightly.
Thank you very much.
Our next question comes from Cai von Rumohr from Cowen.
Thanks so much. Could you maybe give us a breakdown of Liberty's revenues by major customers? And then maybe a little more granularity on the revenue synergies, just, is it with a specific customer? Is it a specific? You mentioned software as a service. Just a little more granularity on the synergies. Thanks so much.
Kristine, do you want to start on the customer profile, and I'll back you up with a little bit more detail on the revenue?
Yeah. In terms of their customer base, it is all in health, pretty much. And the work with the low-code, no-code is really part of the IT modernization work that's happening across the government.
Cai, on the revenue side, as we said in our prepared remarks, certainly $300 million-$340 million annualized in our upcoming fiscal year, but $200 million we expect by calendar year 2025. What's behind that is really our belief that with Liberty, we've got a tremendous number of cross-selling opportunities, leveraging Booz Allen as well as Liberty's channels. With approximately $2 billion in backlog on the Liberty side, we feel there's plenty of upside potential to capture that, if not do a little bit better than that. So we're going to work with Liberty to scale, to meet some of the recent opportunities. And we remain confident and optimistic about our ability to do that.
So is the vision to basically achieve these $200 million with the VA, or is this cross-selling that will address other customers?
Cai, that's a great question. Why don't I start? I mean, they clearly have currently a significant footprint at the VA that complements ours, and then more broadly across health. Our vision is to fully integrate Liberty into a one-team, one-fight concept of Booz Allen, like we've done in the past. Kristine talked about our digital hub in Charleston. They have a significant presence in Melbourne, Florida, which will become a digital hub for us, I'm sure, over time, and all of this is capability that we bring to bear across all of our clients.
You know that when we do integration, we have a playbook, and we're deliberate, so we're going to be deliberate here, but when you think about the $200 million run rate by 2025 of revenue synergies, we have already demand in these capabilities across the entirety of the portfolio, especially in our defense business. We believe that over time, when we're fully integrated, this will open up the doors to bring this capability broadly across all of our clients and, again, in combination of solutions with the rest of the work that we do.
Thank you.
Sure.
Our next question comes from Toby Sommer from Truist Securities.
Thank you very much. How do we think about sort of your build versus buy analysis for these capabilities? And in that context, how comfortable are you that your option value investments in recent years have been placed in the right areas?
Great question. Why don't I start? On the first half of your question, I think I often said that it's interesting that in the past, when we made a build-buy decision, we always decided to build. And that we needed to open the aperture and use M&A as a strategic accelerator. Be comfortable and confident that when we find the right company, one that has the right strategic fit, the right culture, and the right financial profile, we can integrate that into our business and take a couple of years out of the development and scaling of new capabilities. And that's what Liberty will do for us, and we're pretty confident of that. We will continue to build a pipeline of opportunities. We will continue to screen them carefully across the same dimensions that we always do.
And we're going to be, at the same time, deliberate but assertive when we need to be to make speed and strategic speed a constant for Booz Allen. The option value plays are interesting in their own right because there are different business models that complement and, in some ways, assist our core business but have power of their own, either as a different pricing model like Recreation.gov or as entirely new value propositions like Modzy. We're excited about where those are going. They're somewhat different from what we're doing with acquisitions like Liberty, but they're also complementary.
And when you look at it, the totality of what we're trying to achieve is to make sure that Booz Allen continues to be viewed by each one of our clients as the company that can help them use leading technology to accelerate mission, to transform mission, to get to a different place. And this is why we're so excited about Liberty. Their work at the VA has been transformative. We are confident that their work across health is and will be even more transformative in combination with ours. And that what we can do together will benefit the people of Liberty, the people of Booz Allen, and especially each and every one of our clients. Thank you.
We have no further questions. At this time, I will now turn the call over to Mr. Horacio Rozanski for final remarks.
Thank you so much, everyone, for your questions and for joining us this morning. I hope we've conveyed our excitement about this acquisition and the value we feel it will create for our shareholders, for our clients, and for our people. We are equally bullish on the opportunities it will create for people of Liberty and of Booz Allen and how much they're going to enjoy working together. We will learn from each other. We'll build on one another's strengths. And together, we will do even more innovative, impactful, and world-changing work. So again, thank you for joining us today. And we look forward to talking to many of you later this month on our fiscal year-end earnings call. Have a great day.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.