Serco to acquire Northrop’s training business for $327M

Serco Inc. CEO Tom Watson says the acquisition of Northrop Grumman's training business brings the size the company needs to chase bigger opportunities. Courtesy of Serco.
Tom Watson, chief executive of Serco Inc., describes to us the company's strategy to further expand its military training capabilities and space work through the transaction.
Serco Group's North American subsidiary has agreed to acquire a Northrop Grumman training services business in a move to push annual revenue beyond the $2 billion mark.
Northrop’s mission training and satellite ground network communications business brings to Serco Inc. new customers within the Army and Air Force, as well as space-related work.
“There is no overlap in our portfolios,” Serco Inc. CEO Tom Watson told WT on Thursday. “It doubles our Army business and nearly doubles what we do with the Air Force.
MT&S expects to record $300 million in revenue for 2025 on an 11% underlying operating profit margin, which Watson said is in-line with Serco Inc.’s margins.
Prior to this agreement, Serco Inc.'s most recent acquisition came in 2021 through its buy of Whitney, Bradley & Brown.
By adding MT&S, Serco Inc. continues its shift into higher-end services that began with the 2018 purchase of BTP Systems.
Serco Inc. gained more satellite communications and radar engineering services when it acquired BTP. In 2019, Serco Inc. bought the naval design and systems engineering business of Alion Science & Technology Corp.
The purchase of WBB further expanded Serco Inc.'s advisory, engineering and technical services.
Watson said Serco Inc. remains a services company at its core, but "isn’t just about providing bodies."
“We are very proud of our front-line services, but now we have people pulling cable and doing high end digital engineering work on the same platform,” Watson said. “It’s the whole life cycle.
Serco Inc. has expanded from slightly under $900 million in revenue for 2017 to more than $2 billion today, he said. The company's headcount will also grow by another 1,000 people to having approximately 10,000 employees.
With the addition of the Northrop business, Serco significantly adds to its training capabilities. Its head count will also grow by another 1,000 people, many with clearances. After the transaction closes, Serco will have nearly 10,000 employees.
Serco Inc. has a training business, but Watson said that unit did have the scale and the past performance to go after larger opportunities.
MT&S specializes in live, virtual and constructive training. The unit designs tools simulate combat environments across warfighter domains.
The core piece of MT&S' training portfolio is the Air Force’s Distributed Mission Operations Network, which connects simulator platforms and can operate across more than 100 Air Force sites. That contract is worth up to $800 million over 10 years.
Watson said that is the largest contract in MT&S' portfolio and they secured the recompete in December.
The predecessor contract was worth $500 million so the higher ceiling means there will be opportunities for organic growth through that vehicle, he added.
While an attractive and growing business, Northrop MT&S is not where its soon-to-be former owner wants to grow.
"This is an important capability for our customers, and we expect the team to continue to deliver world-class training services under new leadership, allowing us to focus on our core business," Northrop CEO Kathy Warden told investors during an earnings call Thursday.
But for Watson and Serco Inc., the business is exactly where they want to grow and brings capabilities needed by its defense customers.
“It’s about readiness and efficiency,” he said.
The Trump administration has also made it clear those areas are top priorities, Watson said.
In addition to its training work, Watson said MT&S also aids Serco Inc.'s space strategy with the addition of software development skills for optimizing satellite ground stations.
Watson said Serco Inc. now has the size, capabilities and past performance to pursue more Space Force and other customers.
Serco Inc.’s business mix will become roughly two-thirds in defense and one-third civilian after the transaction's closure. Watson said a future acquisition could come on the civilian side of the market.
“I’d like to do something to diversify our fed-civ business, but our focus is on organic growth,” he said.
Serco and Northrop expect the MT&S transaction to close sometime in the middle of this year after going through regulatory approvals. That process includes a review by the Committee on Foreign Investment in the U.S. because Serco Inc.'s parent company is headquartered in the U.K.
Baird acted as an adviser to Northrop Grumman.
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