PwB,
It's an even worse situation than you describe with limited customer options.
KTOS teams with the big players (Northrup, Raytheon) on several contracts yet competes with these same companies on other contracts. So these larger players also know quite a bit about the company's strengths and weaknesses. With their size and influence, these larger players can make life miserable for the company inside the Beltway.
These major defense contracting companies have no need to merge with a company as small as KTOS. Does nothing for them. Far better to keep them under their thumb as an independent subcontractor.