By Everdeen Mason 
 

Engility Holdings Inc. (EGL) agreed to acquire fellow government contractor Dynamics Research Corp. (DRCO) for $120.9 million as Engility looks to position itself in new, higher-end markets.

Engility will offer Dynamics holders $11.50 a share, a 59% premium over Friday's close of $7.25. The company's shares haven't exceeded the offer price since February 2012.

Dynamics--a provider of information technology services in health care, homeland security, intelligence, research and development and more--has 300 active contracts within organizations such as the Department of Defense. The company has more than 1,100 employees and an estimated annual revenue of $274 million to $277 million for 2013.

"This acquisition is consistent with our strategy to expand and diversify our services offerings and presence with adjacent customers," said Engility CEO Tony Smeraglinolo. The deal will position Engility in new, higher-end markets, he added.

The deal, expected to close in the first quarter, will immediately add to Engility's 2014 earnings and significantly boost earnings in 2015 and on.

Engility is a government services contractor that specializes in technical consulting, program and business support, supply chain services and more. Like many government contractors, the company's bottom line has been impacted by lower contract funding and delays due to the federal budget crisis.

Engility's shares closed Friday at $32.00, with the stock up 66% year-to-date. As of Friday's close, Dynamics' shares were up 24% year-to-date. Neither was active premarket.

Write to Everdeen Mason at everdeen.mason@wsj.com

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