“Private equity firm Kohlberg & Company has struck a definitive agreement to divest ENTRUST Solutions Group, a prominent engineering and consulting provider in the utility sector, to Leidos Holdings for $2.4 billion in cash. This move bolsters Leidos’ position in energy infrastructure, effectively doubling its existing $600 million engineering business while expanding into gas and electric generation markets. The transaction underscores growing investments in grid modernization amid rising power demands and resilience needs.”
In a significant move within the private equity and defense contracting landscapes, Kohlberg & Company has agreed to sell ENTRUST Solutions Group to Leidos Holdings in an all-cash transaction valued at approximately $2.4 billion. This deal highlights the increasing convergence between traditional defense expertise and the burgeoning demands of energy infrastructure, as utilities across North America grapple with modernization imperatives driven by renewable integration, aging systems, and heightened reliability requirements.
Deal Overview and Key Terms
The agreement positions ENTRUST, a specialized firm in utility engineering and consulting, as a strategic addition to Leidos’ portfolio. Leidos, known primarily for its work in national security, intelligence, and health sectors, sees this acquisition as a gateway to deeper penetration in the utility market. Funding for the purchase will come from a mix of new debt issuance, existing cash reserves, and commercial paper, reflecting Leidos’ strong balance sheet and access to capital markets.
To provide clarity on the transaction’s structure, here is a breakdown of the key deal terms:
| Aspect | Details |
|---|---|
| TransactionValue | $2.4billionincash |
| Seller | Kohlberg&Company |
| Buyer | LeidosHoldings(NYSE:LDOS) |
| TargetCompany | ENTRUSTSolutionsGroup |
| ExpectedClosure | Secondquarterof2026,pendingregulatoryapprovalsandcustomaryconditions |
| Advisors(Seller) | HoulihanLokeyandPerellaWeinbergPartners(financial);Ropes&Gray(legal);KPMG(accounting) |
| Advisors(Buyer) | Citi(financial);DavisPolk&Wardwell(legal);PwC(accounting) |
| FundingSources | Newdebt,cashonhand,commercialpaper |
| AccretionImpact | ImmediatelyaccretivetorevenuegrowthandadjustedEBITDAmargins;accretivetonon-GAAPdilutedEPSin2027 |
This structure ensures a smooth handover, with ENTRUST’s operations integrating into Leidos’ energy division without immediate disruptions.
Strategic Rationale and Synergies
The acquisition aligns with broader industry trends where defense contractors are diversifying into civilian infrastructure to capitalize on stable, long-term funding streams. Leidos’ current energy infrastructure engineering segment, which generates around $600 million annually and has achieved double-digit growth and margins over the past eight years, will essentially double in scale through this deal. ENTRUST brings expertise in gas and electric utilities, extending Leidos’ reach from transmission and distribution to full-spectrum power generation, including renewables and emerging technologies.
Key synergies include:
Expanded Customer Base : ENTRUST serves a diverse array of utilities, operators, and industrial clients across electric distribution, transmission, substation design, gas integrity management, and data solutions. This complements Leidos’ focus on commercial electric utilities, creating a more comprehensive service offering.
Innovation in Grid Resilience : With U.S. utilities projected to invest upwards of $1 trillion over the next decade in modernization efforts, the combined entity can address critical challenges like extreme weather events, cybersecurity threats, and the integration of renewable sources. ENTRUST’s automation and consulting services will enhance Leidos’ ability to deliver end-to-end solutions.
Workforce Amplification : The merger unites over 5,500 energy professionals, fostering a talent pool equipped to tackle complex projects in data centers, renewable gas, and digital networks for cooperatives, municipalities, and government entities.
Market Positioning : By entering the gas utility space, Leidos gains exposure to resilient budgets less susceptible to defense spending fluctuations, supporting its NorthStar 2030 growth strategy that emphasizes secure energy infrastructure.
Executives from both sides have emphasized the fit. The deal not only accelerates Leidos’ expansion but also validates Kohlberg’s value-creation approach, having grown ENTRUST through organic initiatives and strategic bolt-on acquisitions since 2019.
Company Profiles
ENTRUST Solutions Group
Founded over two decades ago, ENTRUST has evolved into a powerhouse in utility engineering with more than 3,200 employees operating from over 40 locations across all 50 U.S. states and Canada. The firm specializes in comprehensive services that span electric power generation, transmission, substation, and distribution; gas distribution and transmission; inspection and construction management; regulatory compliance consulting; automation; and data analytics. Notable achievements include ranking in the top 20 of the ENR Top 500 Design Firms in the power sector and maintaining a licensed professional engineering presence in every state.
ENTRUST’s client roster includes major utilities and infrastructure operators, where it delivers projects focused on grid modernization, renewable integration, and asset integrity. Under CEO Adam Biggam’s leadership, the company has prioritized innovation, such as advanced data solutions for predictive maintenance and emerging technologies for sustainable energy transitions. This has positioned ENTRUST as a go-to partner for protecting and enhancing North America’s critical power infrastructure.
Leidos Holdings
As a Fortune 500 company with annual revenues exceeding $15 billion, Leidos is a leader in science and technology solutions for defense, intelligence, civil, and health markets. Its energy infrastructure arm, though smaller in relative terms, has been a high-performer, focusing on engineering services for electric transmission and distribution. The acquisition of ENTRUST represents a bold diversification step, building on Leidos’ two decades of utility experience to create a leading platform in power delivery.
Leidos’ broader operations include advanced analytics, cybersecurity, and systems integration, which could cross-pollinate with ENTRUST’s offerings to develop hybrid solutions like AI-driven grid monitoring or secure automation for utilities.
Kohlberg & Company
A veteran private equity firm managing around $17 billion in assets, Kohlberg specializes in middle-market investments in healthcare and services sectors. Since acquiring ENTRUST in 2019, followed by a minority recapitalization in 2023, Kohlberg has driven substantial growth by expanding geographic footprint, enhancing service lines, and scaling operational infrastructure. This exit exemplifies the firm’s thematic research-driven strategy, identifying resilient end markets like utilities amid increasing demand for grid development.
Financial Implications and Valuation Analysis
From a financial perspective, the $2.4 billion price tag reflects a premium on ENTRUST’s growth trajectory and profitability. While specific multiples are not disclosed, the deal’s immediate accretive nature to Leidos’ metrics suggests a valuation aligned with high-margin engineering firms in the energy space, potentially in the range of 10-12x EBITDA based on industry benchmarks.
For Leidos, the integration is expected to yield cost synergies through shared resources and revenue upside from cross-selling opportunities. Analysts generally view such acquisitions favorably in the current environment, where interest rates remain elevated but infrastructure spending provides a counterbalance. Leidos’ robust cash flows—supported by a backlog of government contracts—position it well to service any new debt without straining its investment-grade credit profile.
On the seller’s side, Kohlberg’s return on investment underscores the success of its hands-on operational support, transforming ENTRUST from a niche player into a category leader.
Market Reaction and Investor Sentiment
Leidos shares have shown measured response to the announcement, closing recently at $191.23 after a 1.15% dip, with pre-market trading indicating a slight uptick to around $193.40, reflecting a marginal 0.03% decline from there. This subdued movement may stem from broader market caution amid economic uncertainties, but the deal’s strategic merits could drive positive sentiment as details unfold.
Consensus analyst ratings for Leidos remain bullish, with a “Buy” recommendation from multiple firms and average price targets hovering between $184 and $213, implying 10-15% upside potential. The acquisition is seen as enhancing Leidos’ diversification, reducing reliance on defense budgets, and tapping into the secular growth of energy infrastructure. Investors in private equity circles may view Kohlberg’s exit as a positive signal for similar utility-focused assets, potentially spurring more M&A activity in the sector.
Industry Context and Broader Trends
The utility sector is at a pivotal juncture, facing pressures from rising electricity demand driven by data centers, electric vehicles, and industrial electrification. Concurrently, regulatory mandates for carbon reduction and grid hardening against climate risks are fueling massive capital expenditures. ENTRUST’s expertise in renewable gas, emerging technologies, and integrity management directly addresses these needs, while Leidos’ scale can accelerate deployment.
Competitive dynamics in the engineering services market include players like Quanta Services and AECOM, but the Leidos-ENTRUST combination stands out for its focus on high-technical solutions in power delivery. Private equity’s role in consolidating such firms remains prominent, with funds like Kohlberg capitalizing on the infrastructure boom. This deal could set a precedent for further tie-ups between defense and energy players, blending national security know-how with civilian resilience priorities.
In summary of key points:
Enhances Leidos’ utility exposure across gas, electric, and renewables.