Less than one month into 2017, the federal contracting community has already witnessed its first major IT-related acquisition.
On Friday, Herndon, Virginia-based Harris Corp. announced it will sell its government IT services business to an affiliate of New York-based private equity investment firm Veritas Capital for $690 million.
Harris currently holds a variety of important federal IT contracts, including support for NASA’s Space Communications Network and Deep Space Networks; ground stations that transmit weather data for the National Oceanic and Atmospheric Administration and numerous others with the State Department and U.S. Army, Navy and Air Force.
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An increase in defense spending, as some have forecast under President Donald Trump’s new administration, could potentially make those military contracts more lucrative, which would be a boon to Veritas’ portfolio.
Matt Hummer, director of analytics at big data firm Govini, told Nextgov Veritas has a history of these kinds of plays.
"Veritas has a track record of making big macro bets," he said. "In the lead-up to the implementation of the Affordable Care Act, Veritas sold Vangent to General Dynamics for $960 million, giving GDIT its strong footprint at [the Health and Human Services Department]. Since the sale, GDIT has captured $4 billion in contracts at HHS mostly related to the implementation of the ACA."
One piece of IT-related business Veritas will not receive is Harris' business with the Federal Aviation Administration for air traffic management, according to a statement from the company.
All told, Harris still expected its IT services unit to generate approximately $1.07 billion in revenue over fiscal 2017. It’s the second large move in recent months for Harris, which sold Harris CapRock—its satellite communications business—to Hong Kong-based SpeedCast for $425 million in November.
In a statement, William M. Brown, president of Harris, said the moves allow the company to focus better on the best of its business units.
“Today’s announced divestiture, coupled with the recent sale of CapRock, reflects our strategy of optimizing the business portfolio to create shareholder value,” Brown said. “These divestitures sharpen Harris’ focus on growing core franchises where technology is a key differentiator, providing compelling value to our customers.”
The deal is reflective of what analysts believe will be a busy year for mergers among IT contractors. Around this time last year, Leidos bought Lockheed Martin’s IT business for $5 billion, setting the stage for M&A activity in 2016.