Consolidation accelerates in government contracting. Who’s next in M&A?

Joey Cresta, an analyst with Technology Business Research Inc. in Hampton, New Hampshire, who closely tracks the government services market, wonders if SAIC’s (NYSE: SAIC) deal for Engility — a marriage of two legacy companies providing systems engineering and technical assistance (SETA) services to the government — might signal the beginning of the end of contractors chasing scale.

That advantage, Cresta writes in a new research note, erodes in an era where in-demand, agile tech skills, industry partnerships and expanding intellectual property portfolios will provide more of a competitive advantage than size.

“If SAIC focuses purely on the scale advantage of the Engility deal rather than the IP monetization factor, it could in short order find itself in a race to the bottom,” he adds, “with diminished pricing due to labor automation hamstringing financial flexibility and capacity for continued reinvestment to keep up with the ever-accelerating pace of technological change.”

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