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US, European Firms Compete To Buy UK's DSG

Mar. 17, 2014 - 03:45AM   |  
By ANDREW CHUTER   |   Comments
Spinoff: Defence Support Group members work on military vehicles in Camp Bastion, Afghanistan. The UK is looking to sell the state-owned group.
Spinoff: Defence Support Group members work on military vehicles in Camp Bastion, Afghanistan. The UK is looking to sell the state-owned group. (Defence Support Group)
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LONDON — As many as nine companies or consortiums may have passed the first hurdle in their efforts to acquire the UK’s Defence Support Group (DSG), the state-owned military vehicle and small arms maintenance and repair company put up for sale by the British government, sources said.

At least five of the companies approved by the Defence Ministry to move to the next stage of the bidding are thought to be US-owned, they said.

Dyncorp International, General Dynamics, KBR, Northrop Grumman and URS are all believed to be on the list of companies that were told by the MoD last week that their response to a prequalification questionnaire (PQQ) had earned them a pass mark to enter more detailed negotiations, sources said.

It was the second British success last week for engineering and technical services provider URS.

On March 10, the San Francisco-based company was selected alongside PA Consulting and consortium leader Capita to undertake final negotiations with the MoD on a deal to become the strategic business partner for the Defence Infrastructure Organisation (DIO), which manages everything from military accommodation to bases and training grounds.

Other bidders on the shortlist for DSG are thought to include British support companies Babcock International, Carillion and Interserve, alongside plant and machinery manufacturing giant JCB.

In an interim management statement last month, Babcock termed a possible DSG acquisition as a “significant opportunity” for its defense and security division.

It appears most of the serious bidders have made it beyond the PQQ stage. All of the companies were contacted, but either did not respond or declined to comment.

An MoD spokeswoman confirmed the contractors had been informed: “The MoD has completed the short-listing process, parties have been told, and the next step will be to issue the invitation to negotiate.”

The MoD declined to respond to questions about the identities or the number of those parties still involved.

At least two of the bidders are leading consortiums, the sources said.

KBR is teamed with German land systems builder Rheinmetall, while rival Carillion has Caterpillar and Unipart as its partners.

The next stage of the bidding process is expected to open by the end of the month, when MoD and its financial adviser, Lazard, issues invitations to negotiate.

By early summer, a further downselect is expected as the government moves to complete the sale of the company, which has £180 million (US $299 million) in annual sales, by the end of the 2014-’15 financial year, ahead of the general election set for May 2015.

Analysts have forecast the sale of DSG could raise £200 million to £300 million for the government.

The Conservative-led coalition government announced it intended to sell off DSG and some other MoD assets as part of its 2010 strategic defense and security review.

The past few years have been spent knocking the business into shape and establishing an ongoing work stream for DSG. More recently, the sale has run into issues over third-party intellectual property rights.

Putting the operation into industry’s hands is a key part of MoD efforts to improve the way it organizes its land support activities with what is known as strategic support supplier arrangements, where the contractor is responsible for delivering on equipment availability.

DSG dominates the maintenance, repair and upgrade of British armored vehicles and is moving increasingly into work on other vehicle types. The company also is responsible for maintaining and repairing small arms.

A military avionics repair business operated by DSG is being retained in government ownership.

Last week also saw the MoD approach closure on one of its other defense transformation decisions — the appointment of a strategic business partner to help run the DIO.

The consortium led by outsourcing company Capita was named preferred bidder for what is expected to be a 10-year, £400 million deal to manage and improve commercial and change management skills at DIO.

Savings of up to £300 million per year are expected as a result of the change. It will see the consortium, to be paid through an incentive-based arrangement, manage a £3.3 billion-per-year infrastructure budget covering more than 4,000 separate sites and 230,000 hectares of land. ■

Email: achuter@defensenews.com.

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