Shares of Computer Sciences Corporation touched a five-year high Tuesday on reports that Lockheed Martin and three private equity firms plan to offer $12 billion for the information technology provider.

Lockheed is building up its IT services business, and the acquisition of CSC would help the defense contractor to cement its relationship as the top information services provider to the Pentagon, said Philip Finnegan, director of corporate analysis for the Teal Group.

“Lockheed is seen as the preeminent military aircraft provider, but the growth in that sector isn’t going to be there,” said Mr. Finnegan. “If it builds its federal IT business, that helps Lockheed diversify, in terms of the balance between defense and IT, and moves them more into the sweet area of defense, which is in IT services and network-centric warfare.”

Lockheed spokesperson Tom Jurkowsky and CSC spokesperson Mike Dickerson declined to comment, but a Wall Street Journal story about the bid drove shares up $6.75 to close at $58, matching a 52-week high. Earlier, the stock sold for as much as $59.90, its highest level since 2001.

The Texas Pacific Group, Warburg Pincus, and the Blackstone Group are the three firms bidding with Lockheed at $64 to $65 per share, the Journal said.

CSC had $1.22 billion in revenue from U.S. federal government contracts during its first fiscal quarter, which ended in June, up 4.5 percent from the $1.17 billion it sold during the same period a year earlier. About 65 percent of the company’s revenue from government sales comes from the U.S. Department of Defense.

Big Contracts

Much of CSC’s government revenue rests on closing big contracts. During its first quarter, the company announced deals that would be worth $1.6 billion, down 27 percent from the $2.2 billion in government contracts it announced during the same period last year.

The buyout consortium would likely be after the long-term, predictable cash flows from CSC’s corporate contracts. The private equity shops would load the company’s books with debt and look to streamline operations.

CSC had $1.3 billion in long-term debt on its balance sheet as of July 1. It earned $131.6 million on sales of $3.58 billion during its first quarter, up from $110.4 million on $3.29 billion in sales during the same period last year.

Part of the recent success may be the product of increased investment interest in technology. Big deals such as the $11.3-billion buyout of SunGard, (see SunGard Sold), the $2.66-billion acquisition of Agilent’s semiconductor business (see Agilent Sells Chip Unit), and the $1.27-billion deal for medical-device maker Accellent (see KKR Buys Accellent for $1.27B) have been touchstones in a year of increased attention from financial buyers for mature technology companies.

The big buyout shops have found success only recently. Their five-year returns are only 2.9 percent, the study shows (see VC Returns Plummet 147%).

The big winners in private equity world have been the buyout funds, according to a recent study by the National Venture Capital Association. Buyout funds had one-year returns of 26.9 percent during the second quarter, up from 22 percent during the same period last year.