Information technology (IT) and consulting businesses have continued to attract private equity attention and dollars.  For IT businesses contracting with the federal government, there are additional attractions for private equity investors.

Benefits of Federal Businesses

For starters, federal government business is not as exposed to the vagaries of the U.S. consumer economy as pure B2B or B2C businesses. It is true that the federal sales cycles can be much longer than in the commercial sector.  However, this cuts both ways as once a contract is awarded, it tends to be relatively long-term (up to five years in most cases) and the Federal Acquisition Regulations (FAR) procurement requirements disincentivize the government from terminating a contract for convenience, thus protecting the business from cost-undercutting, at least until a re-compete.

There are also high barriers to entry into the federal marketplace, including regulatory compliance programs and requirements to demonstrate experience. Finally, the size and creditworthiness of the customer, coupled with the relative “stickiness” of contracts awarded, make these investments financeable by lenders knowledgeable about the sector.  Given these attributes, it is little wonder that more and more private equity sponsors are expanding into the federal market space.


Continue Reading Revisiting Private Equity Investment in Federal IT Contractors

I am excited to be presenting, “Realizing the Desired Reward on Exit,” at the National Defense Industrial Association (NDIA) New England Chapter’s Getting Your Government Contract Business from Spring to Summer event on May 22, 2019 in Burlington, Massachusetts.

This advanced workshop will provide benefit across the spectrum from firms providing services to the federal

Just a few days into Donald Trump’s presidency, he has already taken actions that raise potential challenges and opportunities for federal contractors. In his Memorandum of January 23, 2017, Trump imposed a hiring freeze on civilian employees.  The order also states that “[c]ontracting outside the Government to circumvent the intent of this memorandum shall not be permitted.”  The order requires the director of the Office of Management and Budget (OMB) to “recommend a long-term plan to reduce the size of the Federal Government’s workforce through attrition” within 90 days (i.e., late April of this year). The order will expire upon implementation of the OMB plan.  In the short-term, this creates obvious challenges for agencies and their contractors seeking new employees to perform government services.

Continue Reading New Administration Signals New Challenges and Opportunities for Federal Contractors

Recently, Bass, Berry & Sims co-hosted (along with investment banking firm Bluestone Capital Partners and accounting firm BDO) a CEO panel discussion on “Building Shareholder Value in the Mid-Tier.”  Panelists included Chris Coleman, CEO of LookingGlass Cyber Solutions. Paul Leslie, CEO of Dovel Technologies. and Julian Setian, CEO of SOS International. Tim Garnett of The Avascent Group delivered a keynote presentation. The focus of the event was to discuss strategies for middle-market government contractors to build value for shareholders.

Continue Reading Growth Strategies for the Middle Tier

Recent mergers and acquisitions activity among government contractors has been frothy, especially in the government services sector. What has been driving all the activity? Elevated stock prices and readily available credit has certainly accounted for some of it, at least until the recent decline of capital markets at the end of 2015 and thus far in 2016. However, even with the capital markets decline, there are macro trends specific to government services that at least partially counteract the decline of the broader market and cause many in the sector to remain relatively bullish on continued M&A activity.

The most important of these macro trends are contract vehicle consolidation and a shift toward low price-technically acceptable (LPTA) awards. During President Obama’s term, in the name of budgetary concerns, the administration has worked with agencies to reduce the number of federal contracts by consolidating contracts into fewer and larger vehicles. Mid-sized government services players need to grow larger to be able to continue to compete for these larger vehicles. They often seek growth by acquiring other contractors with sought-after, differentiated capabilities and deep customer relationships. Buyers are choosy when it comes to acquisitions, and contract consolidation has made it more difficult to accurately analyze whether a target’s contracts will be eliminated altogether or consolidated into a larger vehicle. This makes valuations a challenge, which helps explain why we see a fair number of earn-outs based on renewals of specific contracts. However, companies with coveted prime positions on full and open contract awards with a good backlog can find themselves highly desired targets.


Continue Reading Will M&A in Government Services Continue to Outperform?