General Dynamics CFO: 'You either have to consolidate or get consolidated out'

By Marjorie Censer / February 21, 2018 at 3:31 PM

Acquiring CSRA will help General Dynamics better compete in the consolidating IT services market, GD's chief financial officer said today.

Speaking at an investor conference hosted by Citi, Jason Aiken said services work has been a key part of General Dynamics' sales for many years.

"You take a step back and think about General Dynamics, which is appropriately characterized based on the strong platform positions we have," he said. "But if you look at the makeup of our revenue base, we've actually been . . . 35 [percent] to 40 percent services across our portfolio over the past number of years."

But he said the government IT services market has started to change.

"We've seen over the past several years a consolidation around us in this market, to the point that it's made us instead of a top one or two player, we're now back in the middle of the pack," Aiken told investors. "In a consolidating market, our thesis is that you either have to consolidate or get consolidated out."

The consolidation, he continued, is a reaction to the government's push for lower prices and its increased use of sizeable contracting programs to purchase these services.

"We believe that this is an industry where scale matters, number one from a cost perspective . . . and bringing these two together certainly puts us at the top end of the market in terms of scale," Aiken said. "But also you're seeing a customer environment where  the customer is . . . redoubling their emphasis on IT infrastructure, cyber protections . . . and they're doing so in what we refer to as megadeals."

Aiken said the two companies have similarities, but don't have significant customer overlap. Though both work in the defense, intelligence and federal civilian markets, CSRA and General Dynamics often have different customers within those organizations, he said.

"When you think about those customers and the issues of customer intimacy . . . you've now brought this together in a way that gives you a step a forward," Aiken said.