With Cautionary Spending, Contractors Turn to Execution for Sustainability
After fighting off the sequestration woes in late 2013, government contracting firms continue to provide mixed signals. Midyear Q2 earnings released over the past month revealed not a changing Aerospace and Defense landscape, but rather a need for more efficient business models executed by government contractors. While award activity for many has risen off the sequestration floor, the spending outlook by the Pentagon has continued to be cautious and consequently cash flow for most firms isn’t coming in as strong as a year ago (Q2 2013). Companies like Boeing, Raytheon and Booz Allen have experienced modest success maintaining backlog, but others like ManTech have been constrained by new business award delays and the Afghanistan draw down. As a result, this month’s release of top Aerospace and
With 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:
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.
Join Aronson Capital Partners, Piliero Mazza, and Signature Estate & Investment Advisors on March 25th for a breakfast workshop offered exclusively to government contractors. Industry experts will share trends in M&A and discuss creative planning strategies for liquidity events in this post-sequestration, post-shutdown, LPTA environment. This is a great opportunity to think about the intersection of your business and personal financial goals as you plan for the future.
Topics will include:
Philip J. McMann, Partner
Dean S. Nordlinger, Partner
John P. Keenan, Partner
ATTEND THE EVENT!
Date: Tuesday, March 25, 2014
Time: 8:00am – 10:00am
Location: The Tower Club – 8000 Towers Crescent Drive, Suite 1700, Vienna VA 22182
When we last checked in on our government services indices back in October 2013 following Q3 earnings calls, our contractors were fresh off 16 days of sequestration, the budget debate had been postponed for another few months, and the overarching theme across all calls could be summed up in one word: uncertainty. Though this uncertainty surrounding long-term budget cuts has not completely subsided, the January 2014 bipartisan appropriations bill certainly had many executives breathing a (slight) sigh of relief during Q4 2013 earnings calls, released in late January and early February:
“Sequestration is eliminated for fiscal years 2014 and 2015 and replaced with reduced spending levels. The law also removed the across-the-board spending reduction methodology previously in place under sequestration and restored the ability for government agencies to move funds and discreetly allocate resources to higher priority areas, a critical revision that we have been seeking since the Budget Control Act was established back in 2011.”
– Lockheed Martin Corporation
“We are pleased that a fiscal year ’14 budget agreement has been signed… providing some near-term sequestration relief. This averts another disruptive government shutdown and provides our customers at least a near-term planning horizon.”
– The Boeing Company
“The end of sequestration does mean our customers can now allocate funds to the critical programs we support. We know that Cyber and C4ISR are going to see increases in 2014 and 2015.”
– KEYW Corporation
Companies not reporting as of date of publication: EGL, ICFI, LDOS, MANT, NCIT, VSEC, XLS
While cautiously optimistic about the federal budget going into 2014 and beyond, several contractors echoed one harsh
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