\u201cWe\u2019re just going to go from $4 billion back to $11 billion.\u201d<\/p>\n\n\n\n
That\u2019s what SAIC CEO Tony Moraco told me in early 2015, about a year and a half after one of the biggest corporate splits the government market had seen. The result was the $4 billion company maintaining the SAIC moniker and government IT heritage, and Leidos Holdings, Inc. \u2014 a $6 billion giant focused at the time on national security, commercial health and engineering.<\/p>\n\n\n\n
All journalists have certain stories that, for whatever reason, dominate their reporting for a period of time. As a business journalist focusing on the government market in Washington at the time, the split was one of those for me. For about three years I was talking to leadership from both of these companies constantly. It was fascinating to track.<\/p>\n\n\n\n
And now we\u2019re five years down the road, nearly exactly.<\/p>\n\n\n\n
Well, SAIC has not necessarily reached $11 billion, but that vision was in fairness a bit tongue-in-cheek. We did learn of SAIC\u2019s planned acquisition of Engility, however \u2014 a buy that will make it the second-largest government services contractor behind \u2014 who else? \u2014 Leidos.<\/p>\n\n\n\n
So it\u2019s getting there. And what an interesting road it\u2019s been. I spoke to Moraco on the acquisition and the journey since the legacy SAIC split, and you might say he feels the same. We\u2019ll post that interview next week. <\/p>\n\n\n\n
But beyond their own stories, what\u2019s interesting about the transition of these two companies from the one $11 billion behemoth is the fact that it perfectly encapsulates what\u2019s happened in government services \u2014 an evolution that at its core is driven by the defense-industrial base thinking and then rethinking its own approach for tackling that market. It also is a natural offshoot of the Pentagon\u2019s own technological evolution \u2014 one that is nowhere close to being done.<\/p>\n\n\n\n
Consider that roughly a decade or so ago, the top five defense primes were buying up small IT companies, thinking maybe they too should be capable of providing the proverbial \u201cbutts in seats\u201d for the onslaught of technology projects that would come with modernization of enterprise systems as well as those supporting the war fighter.<\/p>\n\n\n\n
This was big business. Suddenly small cyber companies were selling for far more than their market cap. Companies like the legacy SAIC were competing against not just pure-play services providers and integrators but the biggest defense companies in the world. Splits like the one we\u2019re talking about happened in hopes that it would allow each company to find its own way and target opportunities by eliminating conflict of interests. In those early years, Leidos in particular struggled to define itself, in part because the defense primes didn\u2019t stay in their lane. A lot of companies in the space struggled in fact.<\/p>\n\n\n\n
And then the reality struck that you can\u2019t be all things. Big companies were suddenly taking significant impairment charges tied to acquisitions that didn\u2019t quite live up to expectations \u2014 either because the company overpaid or the purchased company underperformed. And then the flurry of divestitures.<\/p>\n\n\n\n
And those companies with a heritage in services \u2014 such as SAIC and Leidos, as well as others like them \u2014 have been ready to take back what some argue was rightfully their business in the first place.<\/p>\n\n\n\n
Like I said, what an interesting road it\u2019s been. You might call it market correction. Or maybe good timing.<\/p>\n\n\n\n
So are we done? Have we returned to the days when platform manufacturers were platform manufacturers and services companies were services companies, and everyone stayed in their lane, more or less? Will future M&A reinforce these roles, with services companies buying to increase scale?<\/p>\n\n\n\n
Probably not. It\u2019s no secret that a new transition has begun \u2014 perhaps a more substantive one. Modern warfare is introducing news technologies that have the potential to redefine conflicts. Some already are. I don\u2019t think we know just yet what type of company \u201cowns\u201d C4ISR, or electronic warfare, or battlefield networks, or, still, cyber. That leaves both segments \u2014 those large platform manufacturers and the services companies \u2014 vying for their proper place.<\/p>\n","protected":false},"excerpt":{"rendered":"
Have we returned to the days when platform manufacturers were platform manufacturers and services companies were services companies, and everyone stayed in their lane, more or less?<\/p>\n","protected":false},"author":7,"featured_media":32188,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_yoast_wpseo_meta-robots-noindex":"","_yoast_wpseo_meta-robots-nofollow":"","_yoast_wpseo_canonical":"","_acf":"","_yoast_wpseo_primary_category":17,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","_smg_distribution_targets":{"8":{"categories":["govcon","daily-brief","newsletters","home","opinions"],"primary_category":"govcon"},"9":{"categories":["opinion","industry","home","daily-brief","newsletters"],"primary_category":"opinion"}}},"categories":[160,12,36,17],"tags":[],"coauthors":[2572],"class_list":["post-41524","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-daily-news-roundup","category-industry","category-newsletters","category-opinion"],"acf":{"subheadline":"","legacy_arc_id":"2SHVIKAASZEEXBKUH3ZX4SKG7A","arc_canonical_url":"\/opinion\/2018\/09\/20\/the-services-shuffle-are-we-done-yet\/","remove_feature_photo":false,"is_sponsored":false,"subtype":"","redirect_url":"","disable_inline_ads":false,"native_logo_pretext":"Presented By:"},"yoast_head":"\n