4 / 47
3
2015 Year in Review
2015 Defense and Government Services M&A Trends
Continued Activity by Private Equity and Portfolio Companies
One of the most impactful trends in Defense and Government Services M&A in 2015
was a significant shift in buyer composition. In 2014 public companies accounted for
48% of M&A activity and private equity accounted for 22% of completed transactions.
In 2015 there was a resurgence of activity by financial sponsors and sponsor-backed
portfolio companies; private equity has played a role in nearly 35% of 2015
completed transactions driven in large part by a robust lending environment and
reduced competition from larger buyers that were focused on portfolio shaping. In
that same time period public company activity decreased to 40% of M&A
transactions completed.
Source: InfoBase; Capital IQ, Public Filings, TMG Proprietary Research as of 12/31/15
Activity by Private Equity
Government Service Primes Dominate M&A Activity
M&A activity in 2015 was driven by a range of factors including buyers focusing on
lowering costs, acquiring targets that drive growth by adding new capabilities and
customers and restructuring efforts to focus on core business lines. In an ever
changing budgetary environment, large IT primes focused on strategic moves to
make the company more cost competitive. CSC spilt its business into two companies
in May, in August announced its government services business would merge with
SRA, and renamed the combined company CSRA upon the deal closing in
November. The company is now the largest pure-play government IT service
provider with estimated revenue of $6 billion. In December L-3 announced that it was
divesting its National Security Solutions business to CACI to focus on its core
electronics business. Under CACI, the NSS business unit will benefit from a more
competitive rate structure and is expected to be more profitable due to synergies
between the companies. Lockheed Martin has publicly announced that it is
considering a spin-off of its $6 billion Information Systems & Global Solutions
business in order to position itself more competitively in the market, bolster growth
and streamline services. Northrop Grumman has yet to publicly comment on
potential M&A activity, but the company has undertaken a significant internal
reorganization and may be positioning itself for future divestitures. BAE
unsuccessfully pursued the sale of its US National Security unit in 2015 but is widely
expected to test the market again in 2016.
merged with
acquired
National
Security
Solutions
acquired
Contemplated Activity:
Notable Prime M&A Activity
sold
to
invested in
portfolio company
acquired
portfolio company of
portfolio company of
merged with
acquired
Government Solutions
acquired