Boeing IT group on the block

Boeing Corp. quietly has tried to sell Boeing Information Services for at least the past three months, sources inside and outside the company confirmed last week.

FCW has learned that Boeing has shopped its federal services business to a number of rival firms, including CACI Inc., Computer Sciences Corp. and the federal division of Unisys Corp.

Boeing Information Services holds major services contracts with the Defense Information Systems Agency, NASA, the Navy's China Lake, Calif., research facility and the National Guard as well as a slew of smaller contracts with total annual revenues of about $250 million per year.

A spokeswoman for Boeing Information Services last week declined to comment on a possible sale, saying "it is policy not to comment on rumors or speculation."

Jon Kutler, president of Quarterdeck Investment Partners, an investment firm active in the federal market, confirmed that Boeing Information Services has been for sale for a number of months, adding that it should attract several potential suitors due to a new interest in the federal services market.

"The market for federal services companies has changed over the past few years," Kutler said. "For a while you could not give them away, but now they're attractive again because they are less subject to the vagaries of the procurement process" than companies that sell hardware, he said.

Kutler added that Boeing's federal services operations also could be attractive to a commercial services company "because Wall Street is in love with commercial services companies" and federal services companies have become almost as attractive. Boeing also might interest a company looking to acquire a number of smaller federal services companies, package them under one roof and then resell them through a process Kutler called "consolidation arbitrage."

Boeing Information Services has suffered from a lack of management attention over the past several years. The parent company has devoted itself to problems on its airplane manufacturing operations as well as with large-scale acquisitions of McDonnell Douglas Corp. and a portion of Rockwell Corp., Kutler said. This contrasts with Northrop Grumman Corp., Kutler said, "which is showing huge interest in this sector."

Kutler said he could not put a price on the value of Boeing Information Services but said the purchase price would reflect the value of the contracts and the other key asset of any services company: its personnel.

Eben Townes, vice president of Acquisition Solutions Inc. agreed. "When you buy a services company, you are essentially buying a revenue stream and an earnings potential. The assets are the people and their contacts," he said.