ACS to Buy Lockheed Martin IMS in $825 Million Deal

Affiliated Computer Services Inc. plans to buy Lockheed Martin IMS, the state and local unit of Lockheed Martin Corp., for $825 million in cash, ACS announced this morning.

The deal is the second major transaction in less than a month for Dallas-based ACS. On July 1, ACS acquired the state and local business of Systems & Computer Technology Corp. of Malvern, Pa., for $85 million.

IMS bolsters ACS' business process outsourcing capabilities. ACS is already a major provider of outsourcing services, including Medicaid fiscal agency operations, state health care program management, title records and information systems solutions.

"The acquisition of IMS further solidifies our place in this very exciting, fast-growing market and allows us to accelerate the achievement of our long-term objectives," Jeff Rich, ACS' president and chief executive officer.

IMS will become the fourth largest unit in ACS, Rich said. IMS Chief Executive John Brophy will head the unit, which will keep its Washington headquarters, Rich said.

The acquisition will push ACS' overall revenue to $3.1 billion in its fiscal 2002, according to company officials.

ACS' state and local government revenue will reach an estimated $1 billion annually as a result of the deal, putting the company on par with IBM and EDS in the state and local IT market, said Tom Meagher, vice president of equity research, BB&T Capital Markets, Richmond, Va.

BB&T upgraded ACS from a hold to a long-term buy following the announcement.

"It will improve their competitiveness going forward," he said regarding the planned purchase. "They're going to be a monster player in the state and local market now."

During its fiscal 2001, which ended June 30, ACS' state and local business generated about $400 million. Revenue from the federal government side hit about $700 million, said Harvey Braswell, president of ACS' government services division.

During 2000, Lockheed Martin IMS had $580 million in revenue from serving state and local government agencies involved in health and human services, transportation, public safety and child support. IMS officials said in an earlier interview with Washington Technology that IMS would reach $700 million in revenue during 2001.

During the 12 months ended June 30, IMS pulled in $620 million in revenue.

Lockheed Martin has been trying to sell its state and local unit for over a year as part of corporatewide efforts to focus on its core aerospace, defense and federal information technology business.

ACS is funding the cash deal initially with a $550 million, 18-month credit facility from Bear, Stearns & Co. and Wells Fargo. There also are borrowings on its existing revolving credit facility, and the company is using existing cash on hand.

Permanent financing will be put in place following the close of the deal, which is expected in 45 days following regulatory approval.

About the Authors

Nick Wakeman is the editor-in-chief of Washington Technology. Follow him on Twitter: @nick_wakeman.

William Welsh is a freelance writer covering IT and defense technology.

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