Leidos Holdings (NYSE: LDOS), which has used M&A to build the defense industry's largest IT and services business, is on the warpath again, having agreed to buy privately owned Dynetics for $1.65 billion in cash. The deal should help Leidos keep pace with rivals who have been clawing closer in terms of revenue, and it opens intriguing new growth opportunities for the company.
The deal, priced at about 15 times EBITDA and more than 1.5 times sales, is not cheap, but Leidos is getting one of the crown jewels of defense R&D. Leidos, which in the last half decade has vaulted from the second tier of government services companies to an industry leader, is signaling to the markets that its ambitions go well beyond doing IT and engineering work.
Dynetics was founded in the 1970s as a research shop focused on ballistic missile defense, and over the years has built out its capabilities to include intelligence, missiles, aviation, cyber, and space. The company is based in Huntsville, Alabama, not far from NASA's massive George C. Marshall Space Flight Center and military assets including the Missile and Space Intelligence Center, and over the years has used those local connections to develop an expertise in space.