Exclusive: U.S. government contractor Engility explores sale: sources

WASHINGTON (Reuters) - U.S. defense contractor Engility Holdings Inc EGL.N is exploring a sale, amid a wave of consolidation in the U.S. government services sector, three people familiar with the matter said on Wednesday.

The development is the latest example of how increased defense spending under U.S. President Donald Trump and the Republican Party is driving contractors to pursue mergers so that they have more scale to bid on bigger projects, spanning everything from outdated computer systems to antiquated cyber security.

Engility has attracted interest from companies that include CACI International Inc CACI.N and Science Applications International Corp (SAIC) SAIC.N, though deliberations are at an early stage and may not lead to a deal, two of the sources said.

The sources asked not to be identified because the talks are confidential. Representatives from Engility and CACI did not immediately respond to a request for comment. A SAIC representative declined to comment.

Chantilly, Virginia-based Engility provides skilled personnel to U.S. departments of defense, homeland security and justice, among others. It has a market capitalization of $1.2 billion.

Engility is no stranger to dealmaking. It acquired privately held peer TASC for about $1.1 billion, including debt, in 2014. At the time, TASC was controlled by private equity firms KKR & Co Inc KKR.N and General Atlantic LLC, who took Engility shares as well as seats on Engility's board as a part of the deal. KKR and General Atlantic now own close to half of Engility.

In April, weapons maker General Dynamics Corp GD.N bought CSRA Inc for $9.7 billion to expand its government services business, after CACI withdrew its offer for CSRA following a bidding war.

Beyond General Dynamic's purchase of CSRA, many companies in the government services sector have struck deals this year, including DXC Technology Co DXC.N, which combined its U.S. public-sector business with Vencore Holding Corp and KeyPoint Government Solutions to create an independent, publicly traded company serving U.S. government clients.

Reporting by Mike Stone in Washington, D.C.; editing by Diane Craft