Two of the country’s 25 largest government contractors announced a transaction this week long anticipated by market observers as one of many in the sector’s ongoing shift in composition.
CACI International, ranked 25th on Bloomberg Government’s fiscal year 2014 report, will purchase the government services segment of L-3 Communications for $550 million in a deal the companies expect to close by March of next year.
L-3, listed 8th on that “BGOV 200” study, views the sale as an opportunity to gain more focus on its defense technology portfolio and meets its stated goal to spin or sell the services segment by the year’s end.
On the buyer’s side, CACI sees an opportunity to further grow its presence in the intelligence and national security community as CEO Ken Asbury described to investors in a subsequent call to discuss the deal.
Asbury described to analysts a government services market he views as having more stability now compared to the previous few years.
“We’re seeing the market has settled to a certain set of rates for those of us out of manufacturing environments so it’s easier for us to adjust. The phenomenon we’re seeing in market place is pure-play companies in our space are showing the ability to overcome budget difficulties and see modest growth.”
Wall Street seems to view the contracting sector now as having the kind of stability Asbury described as ourGovCon Index has shown a double-digit recovery in the fourth quarter from a sluggish July-September.
To date, the Index has shown a rally of almost 13 percent from its Sept. 30 close to completely reverse its third-quarter decline of 5 percent and as discussed here previously, investors appear to anticipate more activity in the defense-GovCon sector with the global terrorism environment garnering more attention.