M&A SPECIAL REPORT

KEYW evolves its strategy on way to dealmaker of the year award

Company sharpens its M&A focus in a more strategic direction

2012 was a good year for dealmaking for KEYW Corp., with the company buying four companies: Dilijent Solutions, Rsignia, Sensage and, the grand jewel, Poole & Associates. But what was the strategy behind each acquisition? Why were these good buys for the company?

First and foremost, “each one filled a particular need we had in one area,” said John Krobath, chief financial officer of KEYW Corp.

But this isn’t always how the company did acquisitions.

“When we went out and did acquisitions at first, we were just trying get to enough critical mass in order to be able to compete and be a factor in the market; now, what we’re looking for is the strategic fit to put in to add something to our portfolio that we didn’t have before,” he said.

It is not so much that the company was trying to build something specific through the acquisitions, Krobath said, but rather that it needed the capabilities of the companies that it acquired for things that it was already doing.

For example, KEYW is currently working on a commercial software application, internally, and needed not only Sensage’s cyber awareness technology, but also their commercial expertise.

“We weren’t a commercial software company until we did the acquisition of Sensage,” Krobath said.

With the acquisition, KEYW formed a new sector focused on cyber awareness products and services headed by former Sensage CEO Joe Gottlieb.

Similarly, Rsignia had cyber awareness technologies that KEYW wanted to add.

As for the $126 million acquisition of Poole & Associates, the main reason behind the deal was a contract that they had, Krobath said. Shortly before inking its deal with KEYW, Poole won a five-year, $150 million contract with an intelligence customer.

“They won a large contract in the early part of last year, and it’s with a customer we know well, and it was a good fit for us,” he said. “They have a lot of resources and do a number of things well, but what we wanted to get was that contract and the work that it encompasses.”

The combination of the Dilijent Solutions, Rsignia, Sensage and Poole acquisitions earned KEYW the distinction of the best overall dealmaker of 2012, according to Washington Technology’s panel of M&A experts. The Poole deal also earned the company the distinction of best intelligence deal of the year.

2012 was an interesting year for mergers and acquisitions, in general, because of the changes in the tax code.

If it played a part in any of the four acquisitions that KEYW made, it was minor; “I think everybody wanted to get things done because of the tax code. I think that there was a push on some, rather than others, but it also depends on where you got in with the Sensage deal,” Krobath said.

“I know there was an article written up that the [venture capital] funds that were in there maybe didn’t get as good of a deal as they could have or should have,” he said. It might not have been so much a tax deal for them as much as it was that they had been in too long and wanted to diversify their investments if they had funds closing out, Krobath said.

Out of the four, the most tax-driven was the Poole & Associates acquisition, he said.

As for the future of mergers and acquisitions for KEYW, Krobath said that the company will always be in the market if there is something that makes sense and adds to its portfolio.

What the company is looking for is something that is going to enhance the company, its portfolio and the skill sets that it has. “If [a possible acquisition target] doesn’t do that, at a price that’s reasonable, we’ll pass,” Krobath said.

The company has passed on a number of acquisitions already, and will likely pass on many more, he added.

“What we’re looking for is the right fit, at the right price, and for the right technology, and the right skill set for us to succeed,” Krobath said.

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