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By Nick Wakeman

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Nick Wakeman

What's Leidos getting for $5B?

A lot of big numbers are getting thrown around with Leidos Inc. planned $5 billion acquisition of Lockheed Martin’s Information Services and Global Solutions business.

But the question that’s been rattling around my head is, what exactly do you get for $5 billion? Yes, it is 33,000 employees, about $10 billion in combined revenue, and a broader global footprint with a presence in Australia and Europe.

But that’s the 35,000-foot level. Can you get closer than that?

The folks at Govini did a breakdown of what the combined Leidos-Lockheed business mix would look like, and compared it to the rest of its peers.

As the graph shows, Leidos will tower over the rest of the market.

Leidos-Lockheed combination

I also took a dive into the company websites looking at their contract vehicles. Not surprisingly, they hold many of the same large multiple award contracts and GSA schedules.

But there is one notable exception – GSA Alliant. When Leidos was known as Science Applications International Corp., it won a spot on Alliant, but when it split into two companies and renamed itself Leidos, the Alliant contract went to the new company, which retained the old name, SAIC.

So, with the acquisition of IS&GS, Leidos will be back on the Alliant contract.

According to data from Deltek, Lockheed has won 505 task orders worth $871.5 million.

Before its split and moving the contract to SAIC, Leidos had won 523 task orders worth $1.4 billion, between 2009 and 2013, and the Lockheed acquisition will return the lucrative vehicle to the company.

Obviously, Lockheed IS&GS has a large portfolio of projects but in Lockheed’s 10-K filings, the company calls call out five projects as their largest in that group:

  1. Hanford Mission Support, a 10-year, $3 billion Energy Department contract. This was won by a joint venture comprised of Lockheed, Jacobs Technology and WSI. Some of the work includes transitioning workers to virtual desktops and mobile devices and developing information management systems to improve site operations.
  2. En Route Automation Modernization, a multi-billion dollar project to modernize the FAA’s air traffic control system.
  3. Command, Control, Battle Management and Communications. This contract with the Missile Defense Agency dates back to 2002 for Lockheed. It won a $980 million follow-on in 2012 and last year won another follow-on worth $870 million. Work runs through 2017.
  4. National Science Foundation Antarctic Support Program. Lockheed won this $2 billion contract in 2011 to operate and maintain the support infrastructure for U.S. Antarctic Program for the NSF.
  5. Global Information Grid Services Management-Operations. This DISA contract was awarded to Lockheed in 2012 and has a $1.9 billion ceiling over seven years. Under the contract, Lockheed has been providing worldwide support for the GIG, a series of interconnected networks and computer systems. Ironically, the bidder Lockheed bested was SAIC, before it became Leidos.

More broadly, Lockheed IS&GS lists seven capabilities on its website:

  • IT modernization
  • Biometrics
  • Cybersecurity
  • Cloud computing
  • Health
  • Data analytics
  • Air traffic control

In their presentation announcing the acquisition, Leidos identified two areas in defense where the companies have overlapping capabilities – Air Force Combat Mission Support and IT systems design and support.

On the civil side, the overlaps are in health IT as an integrator and in design and implementation; environment management; critical infrastructure support; and airport systems modernization.

New areas that Lockheed is bringing to Leidos in the defense area are:

  • Design, development, integration and support of mission systems
  • Aviation maintenance and logistics
  • National military command center
  • High performance computing

On the civil side new capabilities include:

  • Remote site management
  • FAA modernization
  • Civil IT and security

I think I’ve gotten down to about 10,000 feet from the earlier 35,000 foot view, but there are still a lot of questions to be answered.

The big one is how Leidos will structure the new business. Beyond Roger Krone, chairman and CEO, and Jim Reagan, chief financial officer, we don’t have any insights into what the new company will look like or who the leaders will be.

Leidos is effectively doubling in size, so this will not be a bolt onto its current structure. The company will be something entirely new after the deal closes in the second half of 2016.

Krone and Reagan said that they will know more about what the structure will be as they go through the regulatory review process. I imagine there can be more detailed examinations of Lockheed personnel and operations now that an agreement has been signed.

The hard work and tough decisions still lie ahead.

Posted by Nick Wakeman on Jan 27, 2016 at 12:21 PM


Reader Comments

Thu, Jan 28, 2016

I'm surprised you would buy something for $5B and state that you will figure out how to structure it after regulatory review. Sounds like there isn't a plan. In fact, rumor is they are bolting it on. Stock market seems to be rewarding the decision. Does anyone find it odd that Roger thought they split the old business up because of OCI and not the stated reason of being too big and unwieldy and that by splitting up the two business could focus more? That wasn't that long ago so surely someone in Leidos could have told him the story before speaking to analyst.

Thu, Jan 28, 2016

curious the size chart doesn't include GD IS&T or as a minimum GDIT

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