The current concern is primarily focused on the largest defense integrators, with less concern about the second tier and below. This is not simply about appearances: the Defense Department prefers the optics of large numbers of Prime bidders as much as the potential cost savings.
But with the Pentagon, and potentially Congress, watching Defense M&A more strictly, what does this mean for the market? After all, Congress has yet to act, and the defense industrial base does not appear to be a high priority of either the Legislature or Executive. Warnings like those last week are intended to head off ‘giant’ mergers before the Pentagon and Justice have to disallow them. Yet the question remains: will the markets listen; will M&A activity continue on its current pace until it is forced to stop, or will self-discipline prevail? For now, consolidation in the lower tiers can continue unabated. At the end of the day, Boeing and Lockheed won’t be allowed to merge, but CSC, SRA, L-3, Engility, Exelis, Harris, ManTech, CACI, and all the others are free to roam.