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Reported Potential Deal For Lockheed Could Vault CACI To Top Of Government SP Space

Jimmy Sheridan

CACI could become the largest solution provider for the public sector, with a Reuters report saying that it’s frontrunner in the race to acquire Lockheed Martin’s government IT business.

Reuters cited a number of people familiar with the potential sale of the Lockheed unit who stated that both Leidos Holdings and Engility Holdings - who were weighing an acquisition of the business – changed their minds, feeling that the potential of the segment was discouraging.

If CACI does end up closing a deal, which Reuters says may be around $4 billion, the addition of the Lockheed division would double CACI’s annual sales to between $9 billion and $9.5 billion, establishing it as the world’s largest pure-play government IT solution provider, beating out the recently crowned king of the hill, CSRA, by a considerably wide margin.

[Related: CACI Snares L-3 Government Unit In $550M Deal]

About one-quarter, or $1.2 billion, of CACI’s roughly $4.5 billion in annual sales can be attributed to its recent acquisition of L-3 communications Holdings' government services division earlier this month. CACI bought that group for $550 million.

CACI and Lockheed Martin did not respond to requests for comment from CRN.

The deal could make a lot of sense for CACI, said John Caucis, senior analyst for Technology Business Research. He said a purchase of the Lockheed division makes sense for CACI and fits into how it has conducted business historically. If the deal happens, Causis said CACI will be involved with more government agencies and be in a better place to succeed in an increasingly competitive federal marketplace.

"CACI has this 'We gotta do it now or we will lose the opportunity' mentality," Caucis said. "It sounds to me like they are reigniting their M&A activities."

The acquisition rumors come as another player, CSRA, looks to establish its foothold in the federal marketplace. CSRA was formed Nov. 30 as part of a merger of government IT giant SRA and CSC’s recently spun-off public sector business, which currently has round $5.5 billion in annual sales.

The deal has the potential to greatly benefit CACI’s position in the federal market, Caucis said. While spending is flat-lining, Caucis said companies like CACI can deal with the challenge by diversifying their customer bases and businesses among government agencies.

However, Lockheed has not yet committed to any offer and may still decide to spin off the division rather than sell it. Earlier this month, Lockheed CFO Bruce Tanner said the company would delay its decision on whether to sell or spin off the government IT business until the first quarter of 2016, citing complexities stemming from the number of interested parties. A strategic review of the business, initially scheduled to be completed by the end of this year, will wrap up in the first quarter.

According to Sebastian Lagana, also a senior analyst at Technology Business Research, Lockheed would benefit less from spinning off the company than it would from a direct sale.

"They want that cash infusion," he said.

According to the Reuters report, Leidos and Engility, which are also rumored to be evaluating the division, could re-emerge as bidders again. There is also a potential that the business segment might be sold to an interested private equity firm, Reuters reported.

PUBLISHED DEC. 21, 2015

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