ANALYSIS

What Leidos' divestiture says about contracting and the federal market

Leidos has divested a piece of its commercial health business to a new owner in a portfolio reshaping move that also illustrates how the market and Leidos' approach to it have changed.

Reston, Virginia-based Leidos has sold its commercial electronic health records consulting business to Ettain Group, an IT staffing and talent management company headquartered in Charlotte, North Carolina.

The Leidos Health LLC being acquired is also a provider of EHR implementation, optimization and go-live services to customers such as commercial hospital groups and other care delivery organizations.

In an emailed statement to WT, Leidos Health Group President Jon Scholl said the divestiture seeks to give the business more focus on core offerings.

“The Leidos Health group creates and delivers solutions and services that drive improvements in patient care and make managing and delivering healthcare less costly and more effective,” Scholl said. “This deal enables the group to focus on digital transformation of federal and commercial customers, highly complex systems integration challenges, and developing software platforms and applications that drive improvements in health costs and quality.”

Now to the backstory. Westfield, Indiana-based Leidos Health LLC was formed by the “old” Science Applications International Corp. before the 2013 split into the companies now known as Leidos and “new” SAIC.

Old SAIC acquired Vitalize Consulting Solutions and MaxIT Healthcare in 2011 and 2012 to further build up a commercial health care business as the federal market began to change with some spending declines and changes in agency buying behavior.

Commercial health then became a cornerstone for Leidos when it opened for business after the split. Leidos then inherited a commercial cybersecurity unit when it merged with the former Lockheed Martin IT services business in 2016.

Leidos and the federal market are now both in different places then where both were before. Leidos sold that commercial cyber business last year and now this health division is going to Ettain Group.

Not that Leidos is completely exiting commercial markets. The company still provides cyber services to customers in highly-regulated sectors, while a release to announce the deal with Ettain Group says Leidos “retains a large healthcare business that serves government and commercial customers.”

Which means Leidos will still have chances to apply lessons learned regarding on how opportunities in those markets must be pursued differently, even if the work is very similar.

Ettain Group announced in conjunction with the transaction a second acquisition that will see it buy Global Employment Solutions, an IT and professional staffing services outfit.

Ettain Group is also getting a new investment to fuel its next phase of growth. Private equity firm Alvarez & Marshal Capital purchased majority ownership of Ettain Group. A&M Capital is the same group that holds a majority stake in health care IT contractor CNSI Corp.

Leidos was advised by Baird and Venable. A&M Capital was advised by SunTrust Robinson Humphrey and Kirkland & Ellis. NMS was advised by Houlihan Lokey and Greenberg Traurig. GES was advised by Houlihan Lokey, Brownstein Hyatt Farber Schreck, and Kirkland & Ellis.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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