recommended reading

The $5B Leidos-Lockheed Deal: Size Still Matters

cosma/Shutterstock.com

When Bethesda, Maryland-based Lockheed Martin decided to acquire helicopter producer Sikorsky for $9 billion and announced plans over the summer to spin off its IT business, the move signaled a narrowing of the behemoth contractor’s focus back to its roots in weapons systems and aerospace.

For Leidos, which last week purchased Lockheed’s Information Systems & Global Solutions business for $5 billion, it signaled an intent to corner the federal technology market in part through sheer scale.

The deal effectively doubles Leidos’ annual revenue to $10 billion – close to double the next closest pool of competing IT firms – and comes just a few months after the company secured a $4 billion contract to build the Pentagon’s next-generation health records system.

At first blush, Leidos’ acquisition of a competing IT firm with similar portfolios across the defense, intelligence and civilian sectors might seem counterintuitive to what many experts believe is a changing IT market.

Katell Thielemann, research director at Gartner, said spinoffs and strategic acquisitions generate big headlines about size and scale. The $5 billion Leidos-Lockheed deal is the latest such example, she said, coming on the heels of the CSC and SRA merger, announced last summer. 

Yet, Thielemann’s recent analysis on the evolution of federal buying cycles and the government’s increased need for digital services forces vendors to “think about how they position themselves in this new marketplace.”

She calls this digital influx “the federal IT digi-flip,” and said companies – even the massive IT firms – “need to find a way to differentiate in these kinds of business markets.”

“Everyone is talking about the new scale, but here at Gartner one of the things we’ve been talking about is that the entire federal IT market has changed,” Thielemann said. “Very large IT programs and purpose-built systems and labor-driven business models are really shifting rapidly toward more open source, commercial-off-the-shelf systems. They’re moving to more agile development, DevOps, as-a-service models. We think this notion around agility is as important, if not more important, than that scale.”

Increasingly, large IT projects with proprietary solutions are increasingly being replaced by less risky, agile and open-source solutions or IT as-a-service models, and that’s opened the market to new competitors. Leidos and Lockheed Martin haven’t ignored newer IT solutions, but they didn’t build their entire businesses on them, either. That’s not the case for new classes of competitors that build much of their catalogs on disruptive technologies.

“In effect, what we’ve got is the old tech vendors versus the new tech vendors,” said Andrew Bartels, vice president and principal analyst at Forrester Research. “Many old vendors are struggling with adapting to this new world of (software-as-a-service), analytics or cloud that these new vendors – companies like IBM, Amazon Web Services, Google, Microsoft and Salesforce – are picking up new federal clients in.”

Leidos believes its acquisition will make it competitive even as an expanding list of vendors target new types of federal business that weren’t even feasible five years ago. Even as the intelligence community, defense and civilian agencies are revamping how they buy IT, it’s clear size still matters.

And Leidos clearly has something to gain from the acquisition besides just scale: a bread-and-butter portfolio.

With the Lockheed acquisition, Leidos is “building its presence in older technologies as a foundation so they can use some of the relationships and existing inventory to wrap on top of it things like analytics,” Bartels said.

“They can add new life to old systems,” he added.

(Image via /Shutterstock.com)

Threatwatch Alert

Thousands of cyber attacks occur each day

See the latest threats

JOIN THE DISCUSSION

Close [ x ] More from Nextgov
 
 

Thank you for subscribing to newsletters from Nextgov.com.
We think these reports might interest you:

  • Modernizing IT for Mission Success

    Surveying Federal and Defense Leaders on Priorities and Challenges at the Tactical Edge

    Download
  • Communicating Innovation in Federal Government

    Federal Government spending on ‘obsolete technology’ continues to increase. Supporting the twin pillars of improved digital service delivery for citizens on the one hand, and the increasingly optimized and flexible working practices for federal employees on the other, are neither easy nor inexpensive tasks. This whitepaper explores how federal agencies can leverage the value of existing agency technology assets while offering IT leaders the ability to implement the kind of employee productivity, citizen service improvements and security demanded by federal oversight.

    Download
  • Effective Ransomware Response

    This whitepaper provides an overview and understanding of ransomware and how to successfully combat it.

    Download
  • Forecasting Cloud's Future

    Conversations with Federal, State, and Local Technology Leaders on Cloud-Driven Digital Transformation

    Download
  • IT Transformation Trends: Flash Storage as a Strategic IT Asset

    MIT Technology Review: Flash Storage As a Strategic IT Asset For the first time in decades, IT leaders now consider all-flash storage as a strategic IT asset. IT has become a new operating model that enables self-service with high performance, density and resiliency. It also offers the self-service agility of the public cloud combined with the security, performance, and cost-effectiveness of a private cloud. Download this MIT Technology Review paper to learn more about how all-flash storage is transforming the data center.

    Download

When you download a report, your information may be shared with the underwriters of that document.