What will the U.S. government services market look like when we enter 2016 and who will be in it? We received some clarity to that question early Thursday morning when Britain’s BAE Systems said it would hold onto its U.S. government manpower and services business and not push forward on efforts to sell the unit.
Market conditions, company valuations, federal budget movement and recent contract wins are the shifting sands that make handicapping the GovCon marketplace and this potential sale a murky equity equation and best left to those with an appetite for risk while eliminating the faint of heart.
BAE launched a review of the business in April after the world’s third-largest defense contractor reported “external interest and a number of enquiries” for the unit that posted $800 million in revenue during its last fiscal year.
GovCon observers are now shifting their attention toward Lockheed Martin and L-3 Communications to find out what those companies will do with their respective government services segments.
Both companies have indicated to Wall Street they would like to reach a decision by the end of this year on whether to sell their respective units as a whole, offload in pieces or spin them off entirely into publicly-traded businesses.
One factor that could decide both outcomes is the Federal Reserve’s December meeting as investors are betting interest rates will rise from the near-zero levels Lockheed cited in its rationale behind the $9 billion Sikorsky acquisition.
Lockheed’s services unit posted nearly $6 billion in 2014 revenue and L-3’s services business recorded $1.1 billion in sales last year.
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