The combination of General Dynamics [GD] with CSRA, Inc. [CSRA] will make it the market leader in Federal Technology Services based on business captured over the past four years, taking over for Leidos [LDOS], according to a new market intelligence report by the strategic advisory services firm Govini.
“This blockbuster merger signals another power play within a market that may continue to see additional consolidation as companies are required to have scale in order to maintain margins,” Govini says in its mergers and acquisition analysis of the pending $9.6 billion deal by GD to combine its Information Technology unit with CSRA to create a new $9.9 billion segment within the company this year.
In terms of estimated 2018 sales, Leidos is protecting a top line between $10.3 billion and $10.7 billion. The Govini analysis looks at business awards captured between FY ’14 and FY ’17 in the area of Federal Technology Services, which it defines as IT services, professional services, and systems engineering and logistics. It says GDIT and CSRA captured a combined $22.7 billion in unclassified federal work in that period, outpacing the $17.2 billion tallied by Leidos, its nearest competitor, by 32.1 percent.
Govini says that federal technology service providers are pursuing “inorganic growth strategies” such as acquisitions to create companies of scale, pointing to the creation of CSRA in 2015 through the combination of the former CSC’s government sector with SRA International, followed in 2016 by Leidos’ acquisition of the Information Systems and Global Solutions segment of Lockheed Martin [LMT].
The analysis also highlights the pending spin off by DXC Technology [DXC] of its public sector business, which will be merged with Vencore and KeyPoint Government Solutions, both of which are portfolio companies of Veritas Capital. It says that DXC, Vencore and KeyPoint captured about $10 billion worth of government awards over the past four years in the technology services area.
“This consolidation is creating significantly larger companies with both Leidos and General Dynamics controlling more contract capture than what may have been possible in an unconsolidated market,” Govini says.
GD announced the deal for CSRA on Feb. 12, saying it will significantly expand its presence with federal civilian agencies such as the Department of Homeland Security, the Federal Aviation Administration and NASA (Defense Daily, Feb. 12). It will also complement GD’s presence with the Defense Department and intelligence community.
Govini says that “The acquisition is a clear indication that General Dynamics is serious about competing in the civilian and public safety markets, areas where General Dynamics did not have significant past performance.” It says CSRA brings $2.7 billion in past performance work the DHS.
The analysis lauds the pending acquisition of CSRA by GD, calling it a “boon” for the two companies.
“Not only will it become the clear leader in the Federal Technology Services market, it will gain access to new client and contracts vehicles portfolios along with augmented competencies that will help ensure short- and long-term company success,” Govini says in the 13-page report.