Consolidation among companies in the government services sector over the last half-decade has inevitably led market observers to ponder the prospects of merger-and-acquisition deals between the largest GovCon platform and product makers.
At various points over the last six months, chief U.S. military weapons buyer Frank Kendall has expressed his concerns over the idea that the number of prime defense contractors could shrink in numbers and potentially reduce market competition in the area.
He first told a group of defense reporters in early October that the Defense Department wanted to work with Congress on legal tools to maintain the current prime defense composition as is, then subsequently took to CNBC’s airwaves a couple of weeks afterward to reiterate that message.
On Wednesday, the Justice Department and Federal Trade Commission weighed in on the matter and said they also want to use their status as antitrust agencies to “work closely” with the Pentagon to analyze any potential merger or acquisition in the defense industry.
Both the FTC and DOJ described their “necessarily general” antitrust guidelines as applicable to the defense sector but also highlighted its unique aspects affected by any major deal or acquisition.
“(We) also consider… high barriers to entry, the importance of investment in research and development, and the need for surge capacity, a skilled workforce, and robust subcontractor base, ” the joint statement said.
A Pentagon spokesperson subsequently told Reuters DoD has ended its push for new legislation to regulate GovCon M&A deals for national security reasons.
All of the U.S.’ “Big Five” contractors (Boeing, General Dynamics, Lockheed Martin, Northrop Grumman & Raytheon) and other primes will report first quarter earnings in April’s final week, which gives analysts their chance to get industry’s point-of-view on the M&A landscape.
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