Page 54 - FCW, March 2017

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March 2017 FCW.COM
WTInsider
The mergers that
mattered in 2016
Three big deals dominated last year, but more than 70 significant mergers and acquisitions are reshaping the federal IT market
BY NICK WAKEMAN
Often it isn’t until we have the complete roundup of mergers and acquisitions for a given year that we realize how many important deals occurred in the govern- ment market.
At Washington Technology, we con- duct an annual review of all the M&A deals that closed in the previous calendar year. And in 2016, despite the uncertainty of an election year and a relatively flat federal budget, the market experienced a strong level of deal-making with 71 closed transactions.
Among those deals, 10 stood out, and three were tapped as the best deals of the year by our panel of judges, which consists of M&A experts with investment and legal backgrounds.
The top three deals of 2016 are:
• Leidos’ acquisition of Lockheed Mar- tin’s IT business.
• ASRC Federal’s acquisition of Vis- tronix.
• Arlington Capital Partners’ creation of a new platform through multiple deals.
Each of the three is notable for different reasons, such as significant shifts in strategy or a new combination of capabilities.
The biggest headline-maker, of course, was the Leidos-Lockheed Martin deal, which was worth $4.6 bil- lion. Lockheed Martin spent nearly two decades building its IT business through a large number of acquisitions and made its last IT-related purchase just months before announcing its decision to divest the business known as Information Sys-
tems and Global Solutions.
The IT business didn’t fit with the
company’s vision of its future as a pro- vider of major defense and aerospace platforms and the products and services needed to support them. Products such as the F-35 fighter, Sikorsky helicopters, space platforms and mission-critical sys- tems have higher profit margins and lon- ger tails of support and services. They also aren’t as vulnerable to the budget volatility of the IT market.
Lockheed Martin was finding it dif- ficult to maintain its competitiveness because it couldn’t support the IT mar- ket’s lower margins. But Leidos’ business model is built around the dynamics of the IT market, and acquiring what Lockheed Martin didn’t want made good sense. The deal doubled Leidos’ IT business, which now stands at about $10 billion in annual revenue.
The company also diversified its port- folio so that 27 percent of its revenue now comes from civilian customers, 27 percent from intelligence, 29 per- cent from defense and 16 percent from health IT.
It has been about seven months since the deal closed, so in many ways it is still too early to tell if Leidos’ big bet will pay off. But the company said it had immediately identified $21 bil- lion in opportunities it could now pur- sue. Many of them are in hot market areas such as C4ISR, cybersecurity, IT modernization, data analytics and agile software development.
ASRC Federal’s acquisition of Vistro- nix caught people’s attention for differ- ent reasons. ASRC Federal is the gov- ernment contracting arm of the Arctic Slope Regional Corp., an Alaska Native Corporation. Although ANCs have long been known for their prowess in the gov- ernment contracting market, they haven’t often made significant acquisitions.
The success of most ANCs centers on how they use small-business programs to win government contracts. With the acquisition of Vistronix, however, ASRC Federal is making the statement that it can compete and win in the full and open market.
Vistronix had been a dealmaker after the private equity firm Enlightenment Capital took a major stake in the compa- ny in 2013. The subsequent acquisitions created a company with deep capabilities in the intelligence market.
As part of ASRC Federal, Vistronix continues to operate as a wholly owned subsidiary with much of its management team still in place.
In many ways, Arlington Capital’s creation of Polaris Alpha is an old story in the M&A space: A private equity firm buys a company and creates a platform for more deals.
Arlington Capital bought EOIR Tech- nologies in June and bought two more companies in November, then merged them together to create Polaris Alpha. It has already made one deal in 2017 by adding Intelesys.
But what caught our attention is the