Grundman cited in Defense News, “Sikorsky Deal Could Presage Industry Realignment”

25 July 2015 • 0 Comments

“Steve Grundman, a former Pentagon industrial policy chief who now is a consultant and member of the Atlantic Council, said he doesn’t see any obvious deal-breakers, but he expects the antitrust regulators in the Department of Justice will subject the purchase to close scrutiny. Should the deal go through, it would not mean that regulators–or top industrial policy officials inside the Pentagon–have established a precedent and given the go-ahead to similarly sized deals in the future, he said. ‘The potentially presidential character of this merger for corporate strategy is [that] it may signal [to] other companies that the marketplace for large systems integration is gone; if you want to be a major prime contractor in the US defense market going forward, you’re going to have to bring a platform,’ he said. In a previous era of defense contracting, large systems integration, or the ability to offer your customer a solution to any military equipping challenge, was seen as a successful business model, he said. Now, the Pentagon has signaled that it wants to serve as its own systems integrator and no longer wants to outsource that function to industry. ‘The marketplace for large systems integration is gone. So if you want to be a prime contractor in this market, you have to have platforms. And if you don’t have platforms, you have to be able to assure yourself you can get preferred access to strategic platforms.’ This helps explain why a company like Lockheed, which does not have recent experience producing helicopters, would want to acquire Sikorsky, he said. ‘If you’re a company like Lockheed Martin, and you want to sustain your position in prime contracting in a broad rather than a narrow scope of products, you need platforms now. Just saying, ‘I’ll system-integrate any problem you got’ is not competitively tractable anymore,’ Grundman said.”


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