Top 100: KBR bets on government services with Wyle, Honeywell deals

The most recent wave of consolidation among publicly traded government services companies over the past two years involved many of the usual suspects, or the “blue bloods” of contracting.

All those who acquired businesses had differing strategies in their buys but cited many of the same reasons at the core: a need and desire to add both size and new market channels.

Included in that group is KBR, the Houston-based engineering services company known more for its large construction business primarily in the energy market. Last year’s acquisitions of Wyle and the former Honeywell Technology Solutions Inc. quickly transformed KBR into major government services player.

After a three-year absence, KBR returns to the 2017 Washington Technology Top 100 rankings at No. 23 with nearly $1.1 billion in prime contracting dollars. And this new era of KBR represents a change in direction its government services business toward work outside of conflict-based services that once defined KBR.

Byron Bright, president of the KBRwyle segment, told Washington Technology its pre-acquisition government profile was “one-dimensional” with strong ties to overseas contingency operations and had “very little” presence inside the U.S.

“This was a pretty big step for KBR as a company and those were really transformative acquisitions for us,” Bright said. “We were looking to find companies that filled out our geographic footprint and we were also looking to have better access to our clients’ funding streams.

“Now we have access to all of the major funding streams whether they be RTD&E, O&M money or some of the civilian agencies like NASA. We have a much broader profile and opportunity set with our clients,” he said.

The new KBRwyle segment generates 74 percent of its revenue within the United States and the remaining sales come from work in the Asia-Pacific region, Europe, the Middle East and Africa.

On an overall basis, KBR reported $663 million in government services revenue at 13 percent of total sales in 2015, its last full year pre-acquisitions. Fast forward to this year and KBR expects to report $2.7 billion in government services revenue at 45 percent of total sales, KBR executives said at their investor day presentation in May.

Wyle and HTSI also added 7,000 new employees to KBR and the company now counts nearly 15,000 employees in its government segment. Bright told Washington Technology those added workers included many scientists and program managers with a “strong majority of those professionals inside the U.S.”

“We were known as a strong maintenance and O&M provider but wanted to continue to fill out our profile in systems engineering, scientific support, consultancy services and technical specialties a well-rounded professional services firm has,” Bright said.

In last year’s announcements of both acquisitions, senior KBR executives cited the moves as part of a wider corporate strategy to diversify and “de-risk” the company’s revenue profile from reliance on its traditional hydrocarbons business.

Another component of that, Bright said, is to unlock synergies between the engineering and construction business focused on hydrocarbons and the government services business. Both sides of the business involve long-term, complex contracts for large programs that require similar types of work, according to Bright.

“In terms of how we deliver work, there are significant synergies with program management skill sets like the complexity of designing and delivering an offshore, oil platform,” Bright said. “Putting something in space is hugely complex, and dealing with government requirements to do something like that.

“That’s an important part of the global strategy at the corporate level, in addition to being a major player in the government sector and how it fits into the bigger picture,” he said.

One of the highest-profile contracts in KBRwyle’s portfolio is the 10-year, $1.4 billion NASA Human Health and Performance contract awarded in 2015 for medical and other safety-related support services. NASA and the Navy are KBRwyle’s second and third-largest government customers by revenue, Bright said.

Wyle’s relationship with NASA in fact dates back to 1968 and was an example Bright cited of the “deep domain expertise” KBR sought in its acquisitions.

“We’ve touched every astronaut in space heritage orgs; not a lot say can do that,” Bright said.

KBRwyle’s largest customer is the Army and a “key core client” both in the U.S. and overseas, Bright said. The company is part of the branch’s LOGCAP IV contract for worldwide logistics services.

LOGCAP IV ends in 2018 and the successor LOGCAP V vehicle, worth up to $150 billion, could see a request for proposals released by October of this year. An award is due to follow in June 2018, according to Deltek.

Bright said KBRwyle’s other services for the Army include pre-positioned stock programs, systems engineering, missile defense and aviation.

KBRwyle also holds the “largest contingent of contracts” to support Navy test pilots, Bright said. The acquisition of Wyle brought to KBR a three-decade relationship with the Naval Air Systems Command that includes the entire F-18 program lifecycle, he said.

KBR has targeted a compound annual growth rate of between 5 percent and 8 percent for government services through to 2021, executives said in their investor day presentation. The company is focusing on organic growth and integrating the acquired business but would consider other bolt-on deals “where it makes sense,” Bright said.

KBR also views the funding streams it derives revenue from as stable in light of the uncertain budget dynamic in recent years, Bright said.

“In general we feel very positive about where we sit inside those funding levels,” Bright said. “I think the budget cycles have stabilized over the last several years. Our clients have adjusted to the various continuing resolutions and such. We don’t see that as a driving factor in our business.”