August 14, 2018 | International, Aerospace, Naval, Land, C4ISR
By: Jill Aitoro
WASHINGTON — The secret to tackling the defense information technology market may be scale.
Looking specifically at the pure-play IT companies that landed on the 2018 Defense News Top 100 list, many of those that have doubled down in some capacity saw defense revenue increase during fiscal 2017. That came on the tail end of another trend among the largest defense primes, to get out of the IT business.
“The evolution started a couple years ago, where the large defense primes who had boned up on IT service work during the war [on terror] started to realize that for a variety of reasons they might not be able to compete as effectively, or extract the returns they want out of a business like that,” said Jon Raviv, senior analyst and vice president for aerospace and defense at Citi Research.
Divestitures followed, and pure-play IT companies were able to quickly scale up not just in size and their ability to support massive contracts, but also in capability set. The acquisition of Lockheed Martin's IT business transformed Leidos from a $5 billion company to a $10 billion company. That deal closed in late 2016, explaining how the company saw double-digit growth in defense revenue in both 2016 and 2017 — despite the buy actually making the company less defense heavy overall.
Similarly, CACI closed on the acquisition of L3 Technology's National Security Solutions for $550 million in February 2016 — three months before the end of its fiscal year. The associated revenue contributed to the 16 percent increase in defense revenue during 2017.
Leidos CEO Roger Krone, in an interview with Defense News in 2016 soon after the acquisition closed, pointed to “scale, but not scale for scale's sake” as a big factor in the buy — noting, too, the importance of balancing the portfolio and geographic distribution. He also pointed to sheer numbers — 15,000 employees specifically — many with security clearances.
The trend does seem to be continuing. CSRA chose to not participate in the 2018 Top 100 because its $9.7 billion acquisition by General Dynamics closed by the time data collection for the list kicked off. While General Dynamics is a top defense prime, its IT business functions as a largely separate entity, similar to the pure-play IT companies. The acquisition of CSRA, which reported $2.25 billion in defense revenue for fiscal 2016 — will add significant scale to GDIT. It is also likely to influence the company's Top 100 rank next year.
The future promises more cyber and IT-related merger and acquisition activity in the vein of that deal, according to Daniel Gouré, a vice president with the Lexington Institute think tank.
“Raytheon is still in acquisition mode with cyber, so it's an area that's still kind of churning,” he said. “I wouldn't be surprised to see some of these big players acquire some of the more defense-oriented cyber players.”
Unclear is what the sweet spot may be for those exclusively IT-focused firms.
“Where we sit right now, it's not clear what the right size is,” Raviv said. “GDIT and Leidos are about $10 billion in sales; SAIC and CACI and ManTech are lower tier. All of those companies say they are happy with scale but could do a deal. Whether they call it scale, or marrying capability sets — it's all marketing, I suppose.”
And there are other tactics that achieve scale without acquisition. Perspecta emerged on the 2018 Top 100, having launched June 1, 2018 through the combination of DXC Technology's U.S. public sector business, Vencore, and KeyPoint Government Solutions. As one entity, Perspecta reported $2.73 billion in defense revenue and ranked 37. To put that in perspective, Vencore ranked 67 in last year's list, with $886.59 million in defense revenue. And all of these pure-play companies are increasingly marketing themselves as conduits to the “nontraditional players” that the Pentagon is so keen to attract. Amazon Web Services, for example, will often partner with government IT companies on defense contracts to hand off some of the contracting morass.
That said, for all the potential, the bulk of the defense IT market is notoriously fickle. Services often set aside IT projects in an effort to preserve platform buys, and margins can be low. Agencies also struggle to balance upkeep of existing systems versus modernization efforts versus research and development into the next great technological marvel.
But as Raviv noted, it's all IT.
“Yes, there are companies working on high-end cyber, the ability to launch attacks through cyberspace or to harden the communication node on a new missile so it can't be hacked by, say, China. And while the word cyber came up a lot three or four years ago, now you hear a lot about AI, autonomy and machine learning. But it's all technology. And it's a lot of smart people working on a lot of advanced things many of us don't understand.”
May 26, 2022 | International, Aerospace
After finishing up at Black Flag, the Australian Wedgetail flew to Tyndall Air Force Base to take part in an air-to-air live fire evaluation event.
December 17, 2020 | International, Land
By: Jen Judson WASHINGTON — Joint Light Tactical Vehicle-maker Oshkosh Defense announced it has agreed to buy engineering company Pratt Miller, which brings with it artificial intelligence, autonomy and robotics expertise. Oshkosh said in a Dec. 15 news release that it has entered into a definitive agreement to acquire Pratt Miller in a cash-free, debt-free purchase price of $115 million. The New Hudson, Michigan-based Pratt Miller will keep its name, team, facilities and branding, according to the statement. The engineering company was founded in 1989 and is becoming known for its robotics capabilities. The firm recently won a U.S. Army contract in a partnership with QinetiQ to provide prototypes of the light variant of its Robotic Combat Vehicle for evaluation. Pratt Miller also won a contract to develop a design to integrate a new weapon system onto a Stryker combat vehicle under the Stryker Medium Caliber Weapons System lethality program. It is partnered with Rafael in the competition in which government testing of offerings is ongoing. The Israeli government recently expressed enthusiastic interest in mating Oshkosh vehicles with Rafael's Iron Dome missile defense system. In addition, Pratt Miller was one of six companies chosen by Army Futures Command to work on ways to improve the currently cumbersome, taxing and sometimes risky munitions resupply system for field artillery units operating M109 Paladin howitzers. “Pratt Miller has made significant advances in dynamic growth areas such as artificial intelligence, robotics, autonomous and connected systems and electrification,” which puts Oshkosh more into the robotics game than ever before. “We believe combining Pratt Miller's engineering expertise with Oshkosh's innovation and operational strengths will enable us to better serve customers and position our Company for growth,” John Pfeifer, Oshkosh Corporation president and chief operating officer, said in the statement. “Pratt Miller's motorsports heritage has created a culture of speed and agility that has defined our success,” added Matt Carroll, the company's CEO. “Oshkosh is an ideal partner for us to apply that mindset to some of the most significant challenges facing customers today. Together, we expect to grow our decade-long partnership and expand our pipeline of new business opportunities. We look forward to learning from one another and continuing to innovate to bring market-leading products to our customers.” The buy, which is subject to customary closing conditions, should be complete in the first quarter of calendar year 2021, the statement noted. The acquisition also could give Oshkosh more leverage in competitions like JLTV re-compete effort which has recently kicked off and the Optionally Manned Fighting Vehicle program to replace the Bradley Infantry Fighting Vehicle. A request for proposals for the OMFV program is expected to drop by the end of the week. https://www.defensenews.com/land/2020/12/15/oshkosh-buys-pratt-miller-for-115m/
July 23, 2024 | International, Aerospace
The move reflects the training needs to align pilot’s skills to the evolution dictated by modern multi-domain battlefields, combat air technology, and information management.