The $9 billion acquisition of Sikorsky Aircraft by Lockheed Martin (LMT) in July was the industry’s largest in 20 years—since the end of the Cold War triggered mass consolidation in the space. But Lockheed’s less splashy announcement at the time was just as important: It wants to sell or spin off its $6 billion government-services businesses.
It’s not the only giant trying to exit the $282 billion government-services industry, which provides things like IT, computer systems, and cleaning to the public sector. As recent belt-tightening erodes government-services revenue, the largest contractors have lost 20% or more of their sales in the space since 2011, according to PwC (PWC) research, and most of the pure play services companies have lost more than 30% of revenues in the same period.
The end result? The next big defense consolidation spree. Scott Thompson, PwC’s U.S. Aerospace & Defense Assurance leader, expects mergers will shrink the number of major players by 50%.
A version of this article appears in the September 1, 2015 issue of Fortune magazine with the headline “A New Wave of Defense Deals.”
