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M&A Activity: 2014 Summary & 2015 Outlook

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2014 M&A Recap:

With 81 M&A deals announced in the Government Services market, transaction activity in 2014 increased by 25% compared to 2013 and was in-line with 2012 levels. Improved revenue visibility and better Dealsunderstanding of the new environment was a key factor to this volume increase. For public strategic buyers, higher company valuation, increased dry powder, and an attractive credit market contributed to the pickup in transaction volume. Similarly, well capitalized private and private equity-backed contractors deployed  cash on their balance sheet and accessed the credit market to participate in the M&A market. Private equity sponsors remained active as they looked to invest a sizable amount of un-deployed private equity and traditional bank capital. Access to lower middle market leverage multiples combined with low interest rates contributed to the increase in M&A transactions.

In addition to M&A transactions, a continuing trend in Government Services market was the major divestitures and spin-offs of business segments. Rationale behind most of these transactions was to focus on core markets and capabilities, portfolio reshaping and to unlock value. Notable transactions of 2014 included QinetiQ’s sale of its North American business and Exelis’ spin-off of its Mission Systems

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Rapid Growth in Healthcare IT Continues

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Federal Healthcare IT Update

Healthcare IT remains as one of the largest and fastest growing segments of government spending, with both civilian and military agencies issuing contract vehicles and task orders in an effort to structure and stabilize IT systems. Due to an expanding utilization of the cloud and accelerated digitization of records, federal agencies are struggling to meet requirements set by the federal government such as the Managing Government Records Directive.

Healthcare MotivationsHealthcareIT

The rapid growth of healthcare IT in the federal budget is being driven by requirements for the improvement of patient care;
reduction of fraud, waste and abuse; and overall cost efficiencies through more efficient processes. The digitization of patient records allows doctors and medical professionals to utilize information in order to improve patient treatment. Along with individual treatment, record management creates massive amounts of data that medical professionals can use to analyze healthcare trends.

According to OMB’s “Improper Payments Overview,” federal agencies reported an improper payment rate of 3.5% in 2013. This resulted in approximately $106 billion of incremental costs. Medicare is one of the worst offenders in this group with

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Government contractors: Feeling like you’re fighting for decreasing dollars? It’s time to #RethinkEverything to compete

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thinking-manWith tightening budgets, increased oversight, and higher costs of doing business, government contractors need to rethink all aspects of their business. Aronson’s new white paper, “<RETHINK> Everything: The New Imperative for Federal Government Contractors,” offers insights for government contractors who want to thrive in this new era:

  • Acquisition trends and strategies for cost containment
  • Revenue diversification and adapting to today’s budget priorities
  • M&A trends and liquidity strategies
  • Heightened contract compliance enforcement
  • Game-changing cybersecurity regulations
  • Improving efficiency in back office processes and systems
  • Tax strategies for adapting to state sourcing/collection efforts
  • Talent management and retention trends

Download this insightful white paper to learn how the larger market trends are already affecting government contracting and what aspiring contractors can do to succeed.

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Aronson Capital Partners’ Market Update: M&A Activity: 2013 Summary & 2014 Outlook

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2013 M&A Recap

M&A deal volume in the Government Services market dropped by 22% this year as compared to 2012 due to sequestration and budget uncertainty which has resulted in a lack of visibility in a target company’s business for both buyers and sellers. However, signs of a revival in M&A activity have begun to develop in the last couple months of 2013 as the deal count significantly increased compared to the rest of the year. Enhanced revenue visibility and a better understanding of the new environment played key roles in this increase.

In 2012, the market experienced a similar spike in deal volume in the last months of the year. This was primarily driven by the expiration of tax breaks effective January 1, 2013. Unlike 2012, the increase in CY Q4 2013 is expected to continue

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M&A Deal Volume is Picking Up!

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November showed signs of a strengthening M&A environment as announced deals in the government services sector totaled eight for the month, which is 60% higher than October and in line with November of last year.  The market has continued to see deal volume pick up in the first part of December.  Over the last 30 days, ACP has closed two transactions:

ACP Recent Deals:

  • The sale of Kimmich Software Systems to Vistronix
  • The divestiture of certain Assets from a Tier 1 Defense Contractor to a Confidential Buyer

As shown in the chart on the right, government services deal volume in Q4 is expected to account for more than a third of the government services deals in 2013.  Part

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