The post-war reductions of CIA personnel in Iraq could provide greater opportunities for contractors with niche capabilities in intelligence collection, processing, and analysis. The Wall Street Journal reported that the CIA is considering plans to reduce its presence in Iraq to 40% of wartime levels due, in part, to Iraqi officials’ unfavorable feelings toward a major CIA presence in the country.1 U.S. officials have since complained that deteriorating communications with Iraq have resulted in significant losses of situational awareness regarding the activities of al-Qaeda in Iraq. As a result, the CIA and other members of the Intelligence Community (“IC”) will have to shift operations back toward traditional intelligence collection and will need the help of private contractors to augment such a shift.
In light of fiscal pressures and sequestration concerns, the IC contracting community is expected to experience cuts in contracting and spending. However, there are still valuable growth opportunities which complement the Obama administration’s national security strategy to conduct smaller operations by combining intelligence and special operations capabilities. Leon Panetta, Defense Secretary and former Director of the CIA, stated in the January 5, 2012 strategic review briefing that even with a reduction in the overall defense budget, “We will protect our investments in special operations forces, new technologies like ISR and unmanned systems, space and cyberspace capabilities, and our capacity to quickly mobilize.”2
Many niche IC contractors can expect to see minimal to no decreases in product/service demand as the IC continues to expand its presence in various areas of interest around the world, successfully execute missions, and receive greater authorization for OCONUS initiatives and operations—such as the recent expansion of the Yemen drone campaign.3
Areas of expected growth and continued opportunity include unmanned aerial vehicles (UAVs), unmanned ground vehicles (UGVs), and various forward operations support services such as network connectivity, sensors, radars, mobility, cyber security, data analytics, training, and engineering services. Aronson Capital Partners continually talks with potential acquirers who have shown increased interest for small to mid-sized contractors with capabilities in the aforementioned areas. We would be more than happy to discuss strategic alternatives with you.
1 Gorman, Siobhan, and Adam Entous. “CIA Prepares Iraq Pullback” Wall Street Journal. 5 June 2012.
2 Corrin, Amber. “Obama, officials lay out new US defense strategy” Defense Systems. 5 January 2012.
3 Entous, Adam, Siobhan Gorman, and Julian E. Barnes. “U.S. Relaxes Drone Rules” Wall Street Journal. 26 April 2012.
We invite you to read our June 2012 Newsletter, featuring the following topics:
*Selected M&A Transactions
*CIA Strategy Shift in Iraq
*Government Services Industry Performance
*Public Company Comparables
*Recent Industry M&A Transactions
Click the following link for a complete pdf file of the newsletter: ACP Monthly M&A Update – June Edition
Washington Technology, in its annual round up of the Top Mergers & Acquisitions in the government contracting industry, selected Ultra Electronics, plc.’s acquisition of Special Operations Technology (SOTECH) and Zu Industries as the Best Foreign Deal of 2011. Aronson Capital Partners served as the exclusive M&A advisors to both Sotech and Zu on this notable transaction. Washington Technology stated that, “Acquisitions by foreign buyers slowed in 2011, so this deal is significant”. The combination of SOTECH’s comprehensive operational support on programs targeted at transnational organized crime and Zu’s proprietary communications surveillance and analytical products made these businesses highly coveted acquisition targets. ACP’s experience advising companies serving the intelligence and law enforcement markets provides us unique insight into these agencies’ missions. On this transaction we were able to leverage this knowledge along with our extensive relationships with domestic and foreign strategic buyers to create a highly competitive sales process.
Aronson Capital Partners (“ACP”) is pleased to announce the acquisition of our clients, Special Operations Technology Inc. (“SOTECH”), Zu Industries Inc. (“Zu”), and Bushido Communications LLC (“Bushido”), by UK-based Ultra Electronics Holdings plc (“Ultra”). The aggregate purchase price for the companies was $115 million…