Northrop, Lockheed Pick up IT Firms

Companies buy into IT business as part of need to meet government's growing demand for network and computer services in addition to defense


Two of the nation's largest defense contractors announced plans to acquire information technology companies in their continuing drive to meet the government's growing demand for computer services as several major weapons systems face cuts.

Northrop Grumman Corp. said it would acquire Chantilly-based Integic Corp., which reported $161 million in revenue last year -- 90 percent of it coming from government contracts. The company's 600 employees, the majority of whom work in Chantilly, would become Northrop Grumman workers if the deal closes, as expected, this spring. Terms were not disclosed.

Bethesda-based Lockheed Martin Corp., which is the Pentagon's largest contractor, announced its planned purchase of Sytex Group Inc. in a $462 million deal. The purchase would give Lockheed 3,000 new employees, 90 percent of whom have government security clearances. Sytex, based in Doylestown, Pa., does about 85 percent of its work for the Defense Department or intelligence agencies, Northrop Grumman said.

Both deals follow the White House's fiscal 2006 budget proposal, which calls for an overall increase in military spending but cuts in some programs, such as Lockheed's F/A-22 Raptor fighter jet, and elimination of others, including a new generation of nuclear submarines.

Jon B. Kutler, chairman and chief executive of the investment banking firm Jefferies Quarterdeck LLC, which represented Sytex in its deal with Lockheed, said both acquisitions fit the recent trend of large contractors expanding from hardware into high-tech services.

"What we see here are the contractors continuing to strategically place themselves where their customers want them to be," said Kutler.

The government information technology sector remains fragmented, with a few large companies exceeding $1 billion a year in revenue and most of the rest taking in less than $100 million. Kutler said Sytex and Integic are among a small group of firms that fall somewhere in the middle.

Integic, which was founded in 1990 as Universal Systems Inc., specializes in software that helps government agencies manage documents. Among its customers is the Defense Department, where Integic has been picked to help create a single electronic system for monitoring the health care records of past and present members of the armed forces. The company yesterday referred requests for comment to Los Angeles-based Northrop Grumman.

Northrop Grumman spokesman Frank Moore said the acquisition is designed to complement moves the company has already made to strengthen its operations in health care IT work. The company, which had nearly $30 billion in revenue in 2004, expects the acquisition to add to its earnings by 2006.

At Lockheed, company spokesman Jeff Adams said the acquisition of Sytex will provide an immediate lift to the IT division, which is one of the company's fastest-growing units. Sytex -- which has 1,000 employees with top-secret clearances and 500 with even higher-level clearances -- has focused in areas such as counterintelligence, counter-terrorism and special operations. "It's a wonderful fit when you look at their skilled employees," Adams said.

Shares of Northrop Grumman fell 26 cents yesterday to close at $53.05. Lockheed stock also declined slightly, falling 11 cents to close at $59.19.