Make no mistake, M&As are hotter than ever

The amount of capital available on attractive terms to fuel acquisitions is substantial at this time. Debt is plentiful at attractive interest rates and multiples of EBITDA. Public equity is also available with three initial public offerings in this sector in 2006 and expected IPOs and secondary offerings in 2007. Private equity also is available for new platform companies and add-on acquisitions. Finally, we estimate that the top 30 publicly traded companies that buy defense and government services companies have nearly $20 billion in cash on their balance sheets and more than $90 billion of buying power.There is an abundance of diverse buyers, too. Large contractors continue to acquire companies to fill specific niches and diversify into IT and non-IT services.Private equity groups are more active than ever in seeking platform acquisitions and management teams to build a significant portfoliocompany.A recent phenomenon is an accelerated number of cross-border deals involving primarily United Kingdom-based companies buying U.S. defense and intelligence companies partially because of favorable exchange rates. Two recent transactions were QinetiQ Group plc's announced acquisition of Analex Corp. and Global Strategies Inc.'s acquisition of SFA Inc.Continued pressure from Wall Street is causing middle-market publicly traded companies ? $250 million to $1 billion ? to increasingly supplement organic growth and diversify their customer base to reduce risk through acquisitions.Another M&A driver is the lack of quality companies for sale that fit the acquisition criteria of many buyers. Because of M&A activity during the past two years, there are fewer companies with revenues from $100 million to $1 billion. There is also a lack of companies for sale that have a higher percentage of intelligence agency and homeland security revenue or the ability to serve as platforms in markets that will benefit from the base realignment and closure process, such as Huntsville and San Antonio.Finally, a number of owners of companies with long-term small-business contracts are attracting interest from buyers seeking to close such deals before the new recertification regulations kick in June 30.