Tag Archives: M&A

2016 Recap: Focus on Higher Margin Business Segments

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A total of 92 M&A transactions were announced in the defense technology and government services market in 2016, which was slightly below the 107 transactions completed in 2015, but in-line with 2013 and 2014 levels. M&A in 2016 witnessed a “normalization effect” after the flurry of activity that occurred in 2015. Contractors have started to notice the effects the 2013 and 2015 Bipartisan Budget Acts’ sequester relief has had on the overall procurement environment. This relief has allowed the Department of Defense to significantly reduce the amount of anticipated cuts in technology operations and maintenance, translating into strong performance across the defense technology and government services market. As a result, there was active participation across the entire buyer landscape in 2016, driven primarily by (i) private equity sponsors acquiring scalable platform targets and/or “doubling down” with add-on acquisitions that provide complementary capabilities to their existing platform companies, (ii) larger Tier-1 and Mid-Tier’s divesting noncore, low margin assets and focusing more on higher margin business segments aligned with the mission, and (iii) Non-Traditional buyers focusing on targets in high priority end markets in order to strengthen their capabilities, expand market share and add new customers.

The strengthening of the budgetary environment and positive sentiment in the government services public equity markets has enabled private equity firms to remain active in the space. Private equity buyers led 33% of the transactions, including new market participants Chart Capital (acquisition of Fed Data Systems), and Platinum Equity (acquisition of PAE from Lindsay Goldberg). Meanwhile, seasoned investors in the sector, DC Capital and Arlington Capital, both secured new government services platforms earlier in 2016 with the acquisitions of QRC Technologies and EOIR Technologies, respectively. Existing private equity backed platforms drove 21% of the private equity activity, as Arlington Capital continued its buying spree by acquiring ISS and PROTEUS Technologies and merging it with EOIR Technologies to form Polaris Alpha. In addition, Belcan, LLC (acquisition of Intercom Consulting and Federal Systems Corp), Preferred System Solutions (acquisition of Synaptic Solutions, Inc. and Tetra Concepts), Sirius Computer Solutions (acquisition of Force 3, Inc.) and Altamira Technologies Corporation (acquisitions of APG Technologies and Prime Solutions) all strengthened their portfolios with bolt on acquisitions. Lastly, private equity firms continue to utilize the favorable budget environment to exit their existing investments. Examples include the sale of Aquilent (backed by Warwick Capital since 2002) to Booz Allen Hamilton, Camber Corporation (backed by New Mountain Capital since 2008) to Huntington Ingalls Industries, Vistronix (backed by Enlightenment Capital since 2013) to ASRC Federal and PAE (backed by Lindsay Goldberg since 2011) to Platinum Equity.

Mid-Tier and Tier-1 contractors continued to reshape the federal government contracting industry with notable M&A deals in 2016. Leidos’ $5.0 billion acquisition of Lockheed Martin IS&GS earlier in 2016 has catapulted the SAIC mission focused spin-out into the largest mid-tier publicly traded Government Services focused contractor ($10.7 billion in enterprise value as of December 31st, 2016) and allowed them to effectively compete for even larger contracts sought after by Tier-1 defense contractors. In addition, ManTech Corporation acquired the Cyber Network Operations Practice of Oceans Edge in June 2016, to expand upon its vulnerability research, development and analysis capabilities and Edaptive Systems, LLC in December 2016 to strengthen its federal healthcare presence. Booz Allen Hamilton acquired digital and cloud services provider Aquilent for $250 million to strengthen its capabilities and enhance its presence within HHS. Finally, Tier-1 contractors, Boeing and L-3 have made the strategic decision to focus on their autonomous systems and collaborative robotic capabilities with the acquisitions of Liquid Robotics and MacDonald Humfrey, respectively. In addition, L-3 officially changed its name from L-3 Communications to L-3 Technologies in order to capitalize on its strong brand equity, while better reflecting the Company’s evolution into a leading global provider of technology solutions.


As shown in the table, the 2016 buyer mix continued similar trends when compared to 2015, with public strategic buyers representing the largest buyer group (35.0% of all M&A activity). However, this year it was mainly driven by non-traditional buyers making transformative acquisitions to strengthen capabilities in areas of funding priority, gain customer access, and expand their contract portfolios. These buyers in 2016 included KBR (Wyle and Honeywell Technology Solutions, Inc.) Huntington Ingalls Industries (Camber Corporation), Magellan Health, Inc. (Armed Forces Services Corp.) DLH Holdings Corp (Danya International, Inc.) Jacobs Engineering Group, Inc. (The Van Dyke Technology Group) and Ball Aerospace and Technologies (Wavefront Technologies). The non-traditional buyer activity over the past twelve months bodes well for the industry as it signals renewed confidence in the overall growth prospects of the federal market.

 

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Before & After the Deal – What Middle Market CFOs & Controllers Need to Know Part 2: After the Deal

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M&A transactions are major undertakings that can require a thorough due diligence process. But that’s only part of the story — once the deal closes there are a number of other considerations that CFOs and Controllers must wrestle with. In Part 1 of this two-part webinar series we explored pre-acquisition due diligence. Now, in Part 2 our high-level overview of the M&A process continues with a look at post-acquisition considerations including business combination accounting and disputes. Please join us on December 13, 2016, at 11:00 a.m.

Learning Objectives:

  • Identify key focus areas for due diligence in M&A deals
  • Improve your knowledge of the accounting standards applicable to M&A transactions, including certain alternatives for private companies
  • Explore how the purchase price in an M&A transaction is allocated to the assets acquired and liabilities assumed, including the valuation of intangible assets

Who Should Attend?
CFOs and Controllers

Speakers include Aronson LLC Partner Bill Foote, and Aronson LLC Manager Jimmy Zhou.

Register to attend and recieve CPE Credit. Webcast participants can earn up to 1 CPE credit in the Management Advisory Services field of study.

CPE-related Information
Delivery: Group-Internet Based
Program Level: Basic

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Save the Date for Aronson’s Strategic Growth Summit – 07/15/15

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Are You Ready for the NEW Govconomy?

FINALgcsg-summit-bannerMark your calendar for July 15, 2015, when Aronson LLC will welcome some of the government contracting industry’s leading executives, who will offer a practical look at how you can strategize, optimize and realize your goals in this “New Govconomy.”

Hosted at the Westwood Country Club in Vienna, Virginia, the Summit will kick off with an industry update from Stan Soloway, President of the Professional Services Council, followed by an afternoon panel discussion, culminating in a relaxed cocktail hour where you can network with some of the biggest names in the industry. This event is open exclusively to government contractors, so it’s a great opportunity to meet other industry business leaders, develop connections and spark opportunities.

We’ll also be raffling off a fantastic grand prize during the cocktail hour, with 100% of the proceeds donated to the Veterans Institute for Procurement (VIP).

To register early and reserve your spot at the Summit, click here.

VIP is the country’s first-ever program to train veteran service-disabled and veteran owned small businesses to succeed in the federal contracting market. Funded entirely by Montgomery County Chamber Community Foundation, partners, and VIP sponsors, the program is offered at no cost to participants. We hope you’ll help us support this great cause!

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Preparing your Company for Sale: Key Value Enhancing Strategies

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GovConnects Continuing Education Series

For many entrepreneurs, the ownership stake in the business represents their most significant personal asset. Business owners spend significant time and effort managing and growing their businesses. Often times, however, when it comes to selling the company, emotional attachments and lack of focus can hinder the process, and sometimes kill a deal.

Join GovConnects on May 12, 2015 at Loyola University, where a panel of experienced professionals will discuss strategies for preparing you and your business for sale, how to enhance the value of your business, key negotiation strategies and more. Phil McMann of Aronson Capital Partners will participate on the panel.

To learn more and RSVP, click here.

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Market Update – Consolidation of Mid-Size Contractors

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Budget Stabilization and Market Consolidation

The last five years of uncertain federal budgets have prevented most contractors from making significant investments, incentivizing them to return capital to shareholders. However, as budgets have stabilized (on a relative basis), the larger contractors are now able to make investment decisions with greater clarity. While there is overall better revenue visibility across the sector, the Defense budget is flat and the overall sector is perceived to be a slow growth industry. Therefore, we expect the recent mid-tier consolidation trends exhibited over the past 12 months to continue, with private equity backed targets being the primary acquisition candidates in this consolidation cycle.

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