Is BAE near a deal?

Reuters is reporting that Veritas Capital is poised to acquire the IT and professional services business that BAE Systems has been trying to sell for several months.

The news services reported that the company is in “advanced talks” with Veritas, a private equity group that has deep roots in the market and is the current backer of Vencore and acquirer of Alion Science and Technology earlier this year.

This news follows a report by the New York Post’s business section in October that BAE had ended its auction without finding a buyer.

The Post reported that Leidos came close to making a $1 billion deal, but negotiations fell apart.

BAE is looking for more than $1 billion for its U.S. IT and services business.

Successful or not, BAE’s attempt to shed the business is one of several signs we’ve seen in the last year of a rapidly changing market, and how the IT business is no longer a desirable place for most large defense contractors.

The pressures on margins and growth are driving many companies, most notably Lockheed Martin, to sell their IT business. For others such as Computer Sciences Corp., there is a desire to get out of the government business altogether.

On the bright side, private equity firms such as Veritas see an opportunity to buy these businesses, reshape them and sell.

Veritas backed Vangent and turned it into a $1 billion property. In addition to Vencore – led by some of the same senior executives as Vangent – and Alion, Veritas also owns Keypoint Government Solutions. Some of its past investments include DynCorp, CRGT Inc., McNeil Technologies and Integrated Defense Technologies Inc.

Sometimes Veritas has sold these companies to strategic buyers or other private equity companies. Reuters reported in April that Vencore was up for sale, which wouldn’t be surprising given that Veritas has owned the company for five years.

All this goes to say that we can expect more merger and acquisition activity, especially now that the budget has been settled for another two years.

That added visibility helps when you’re deciding what to buy or what to sell in the federal market.