Under the terms of the deal, Bethesda, Maryland-based Lockheed will pay a net consideration of $462m, which includes $13m in cash to take over Doylestown, Pennsylvania-based Sytex, which provides a range of network and systems integration services primarily for the DoD.

Lockheed Martin had planned to build up its IT services interests through the takeover of defense sector services firm Titan. However, this $1.2bn takeover was terminated in June 2004, because Titan had failed to resolve a US government investigation for bribery by a second deadline, which ended on June 25, 2004. The investigation centered on allegations that the company had made illegal payments to certain international officials. Titan’s reputation was also tarnished by the prison abuse scandal in Abu Ghraib prison in Iraq where certain Titan contractors were working.

Had the Titan deal gone through, Lockheed Martin would have taken on an additional 12,000 employees based across 41 states in the US, and 12 locations worldwide. It would also have gained an additional $2bn in annual IT services revenue.

However, Sytex, which operates through three subsidiaries including Sytex Inc, Information Network Services, and MacAulay Brown Inc, employs more than 3,000 people in the US and Latin America, and generated some $425m in revenue in 2004, up nearly 50% on 2003.

The company generates 85% of its revenue from the DoD and intelligence sectors for which it provides a range of services including command and control, communications, computers and intelligence, network security, security assistance and training, integrated logistics, and business management. The company is also targeting emerging technology areas such as radio frequency identification, biometrics, computer forensics, and services for the Department of Homeland Security.

Lockheed Martin emerged as one of the 10 largest IT services firms worldwide in 2004, according to ComputerWire’s IT services rankings. The company reported revenue of $7.65bn, from its two IT services divisions, Integrated Systems & Solutions, and Information & Technology Services, up 16% on 2003. The divisions also made an operating profit of $619m, up 20% on the year. This put the company in ninth position, ahead of Capgemini, which made revenue of 5.7bn euros ($7.41bn) in 2003.

The rate of M&A activity continues to increase. ComputerWire tracked 262 deals involving IT services vendors in 2004, compared to 191 in 2003, 117 in 2002 and 111 in 2001. The size of these deals has also increased: the top 20 M&As in 2004 had an average value of $550m, compared to $504m in 2003, $355m in 2002 and $316m in 2001.

Lockheed Martin itself made a small acquisition in December 2004 when it took over Stasys Ltd, a UK-based company that specializes in the defense sector, with 200 employees that provide tactical data link integration, requirements management, modeling and simulation, and air traffic management consulting.

The Sytex acquisition also ranks as the largest services takeover so far in 2005. It is some way ahead of the planned 350m euro ($455m) acquisition of Dutch services provider PinkRoccade by rival Getronics, which is expected to take place over the next few months.

The deal has yet to be reviewed under the Hart-Scott-Rodino Antitrust Improvements Act, and depending on a favorable outcome, Lockheed said the acquisition is expected to close in early 2005.