Defense contractor General Dynamics Corp. (NYSE: GD) agreed to buy CSRA Inc. (NYSE: CSRA) for about $6.8 billion to expand its information-technology services to government agencies and the military.

CSRA holders will receive $40.75 a share in cash, the companies said in a statement. The price is 32 percent above CSRA’s closing level Feb. 9. General Dynamics also will assume $2.8 billion of debt.

The acquisition is the biggest ever for General Dynamics, surpassing its purchase almost 20 years ago of luxury-jet maker Gulfstream. CSRA was formed in 2015 from the combination of Computer Sciences Corp.’s government business with SRA International. The company provides civilian and military information technology including cybersecurity, data analytics and support for companies such as Salesforce and Microsoft.

“We see substantial opportunities to provide cost-effective IT solutions and services to the Department of Defense, the intelligence community and federal civilian agencies,” General Dynamics CEO Phebe Novakovic said in the statement. “It will allow us to deliver even more innovative, leading-edge solutions to our customers.”

Combining CSRA with the existing IT business of General Dynamics will result in a computer-services provider with $9.9 billion in sales, Novakovic said. General Dynamics, based in Falls Church, Virginia, also makes Abrams tanks, nuclear submarines and Gulfstream G650 business aircraft.

General Dynamics’ IT unit had been hit hard by defense cuts under former President Obama. Defense spending should rise now after Congress approved a budget deal earlier this month that includes raising the caps on defense spending by $80 billion over current law in this fiscal year and $85 billion in the one that begins Oct. 1.

The company expects cost savings from the combined IT business will be 2 percent of sales by 2020, or about $200 million. The acquisition will add to earnings and free cash flow in 2019, General Dynamics said.

Stone Key Group provided financial advice to General Dynamics on the deal and Jenner & Block served as legal counsel. Bankers from Evercore and Macquarie Capital worked for CSRA, with Paul, Weiss, Rifkind, Wharton & Garrison as legal counsel.

The transaction, which has been approved by both companies’ boards, is expected to be completed by the first half of 2018. General Dynamics said its net debt will be about $10.5 billion following the deal and “anticipates retaining strong credit ratings.” At the end of last year, the company had net debt of $1 billion, which included $3 billion of cash on hand.

General Dynamics

Bloomberg News