Panel: Cybersecurity tops agencies' wish list

Despite a consensus that government technology budgets will remain flat through at least 2010, analysts say federal contracting opportunities will remain strong for cybersecurity, health care and logistics.

Companies that excel in those areas are also the main targets of mergers and acquisitions, said Jean Stack, senior vice president of Houlihan Lokey, an investment banking company. She was a panelist at the recent 2008 Vision Conference sponsored by the Information Technology Association of America and the Government Electronics and IT Association.

Stack said her clients are looking to buy companies that excel in one or more of those capabilities.

"By order of magnitude, cybersecurity is going to be huge," said Ed Caso, a managing director at Wachovia Capital Markets LLC. "For everybody, [cybersecurity] is sort of almost like the Internet was five years ago. It's kind of embedded in every solution."

Michael Lewis, senior vice president of equity research at BB&T Capital Markets Inc., agreed. "Cybersecurity is the big area of investment for government over probably the next 10 years," he said, citing military and civilian agencies' need for new security solutions on the "thousands of secure networks out there."

He said investments in health care solutions would probably be a close second. "You can't compromise any health care medical records and things like that," he said.

Even given the long-term government budget pressures, health care solutions will remain a top priority for the Defense Department and civilian agencies, said Bill Loomis, a managing director at Stifel Nicolaus and Co. and a Washington Technology columnist.

"You're also going to see a focus on war simulation" at DOD, due to the rising costs of live military training exercises and maneuvers, Loomis said. "I think that's an area that is going to be hot, and then logistics. Logistics systems are a lot of stovepipes not talking to each other. There is a tremendous amount of savings that can be gained from that through efficiency."

Stack said acquisition support is another area where government contractors should seek opportunities. "That's simply because the government lacks the acquisition workforce to do acquisitions with their own resources," she added.

Contractors also will find opportunities in DOD's Base Realignment and Closure program, Stack said. "Anywhere where BRAC is moving people to, companies in those areas are going to be the beneficiaries," she said.