Just when we thought GovCon was on a merger-and-acquisition hiatus, two deals have garnered our attention this week with one that has definitive effects in the public sector and a second that might.
Our first M&A deal to examine comes from KBR, who has agreed to pay $570 million for engineering services contractor Wyle Laboratories in pursuit of new research-and-development work with agencies in the U.S. to complement KBR’s current overseas work for the federal government.
During a call with investors Monday, KBR CEO Stuart Bradie described the U.S. government services market as one that offers a stable growth path to his company.
“We’ll have two very different sources of revenue to de-risk the government side of our business. There’s good visibility in the government side because of lengths in procurement cycles and we can see what’s down the tunnel 12-to-24 months out, ” Bradie said.
Stable government funding over the long-term helps investors view GovCon as an opportunity for returns even in the midst of spending cuts and economic headwinds, PAE CEO John Heller told ExecutiveBiz in an article published Tuesday.
In that article, Heller updated ExecutiveBiz on the contractor’s activity since its March acquisition by LA-based Platinum Equity and offered other insights into what the investment firm sees in both PAE and the government services market.
The second M&A development that broke this week will have CSC merge into the enterprise services segment of Hewlett Packard Enterprise, one of two companies made out of the former HP.
Part of that deal involves a U.S. public sector component within HPE that would contribute nearly $2.86 billion in annual revenue to the combined company, CSC said in an investor presentation.
One potential wrinkle is CSC’s two-year non-compete agreement with the government technology services spinoff CSRA that forbids CSC from federal market activity and restricts both companies from “certain business activities in certain areas of the U.S. state and local government field.”
So what did CSC CEO Mike Lawrie tell analysts Tuesday regarding the future of HPE’s U.S. public sector business?
“Post-close all options, and I underscore the word ‘all options, ’ would be on the table. But that decision will be approached and looked at after we close the transaction.”
CSRA CEO Larry Prior offered investors this outlook on the merger CSC and HPE expect to close in March 2017.
“As a company, we’ve got a lot of time to think about this… I know our board is tremendously interested in it and we’ll consider it along with all of the other strategic opportunities that will avail themselves in the market over the next year.”
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