New IPOs hold great promise for services sector

The initial public offerings of Booz Allen Hamilton Inc. and KEYW Corp. offer compelling case studies on why companies choose to go public and what company attributes contribute to IPO success.

The recent announcement of two industry initial public offerings—Booz Allen Hamilton Inc. and KEYW Corp.— is exciting news for the government services market. If successful, the IPOs will infuse capital and expand investor interest in the sector. The IPOs will also re-stock the publicly traded government services sector depleted by recent company sales, including the likes of Stanley Inc. and DynCorp. Booz Allen and KEYW represent two very different, but compelling case studies on why companies choose to go public and what company attributes contribute to IPO success. Examining these offerings in the context of the other industry IPOs since 2000 provides useful perspective.

Booz Allen is the classic example of the qualities you’d look for in an IPO candidate: a proven management team, historical track record for growth and solid financial performance, and strong brand recognition. The company was acquired in 2008 by Carlyle and management in a leverage buyout of the federal business. The $300 million offering target will fund repayment of debt incurred in the 2008 transaction. The Booz Allen IPO, like most, will not provide immediate liquidity to shareholders, but will provide a source of capital and liquidity going forward.

KEYW is a much different example in almost every way. The company is very young and relatively small ($116 million in pro forma revenue for calendar 2009), yet it operates in an attractive area of the market: cybersecurity services for the intelligence community. The company has grown rapidly through seven acquisitions, including most recently The Analysis Group and Insight Information Technology.

KEYW’s target capital raise of $100 million will be used to repay existing debt and for general working capital purposes, including potential additional acquisitions. In addition, the offering gives the company the ability to provide employees with public equity compensation components, an important tool for recruiting and retention of key employees. The appeal of this company to the public equity markets includes its proven management team (formerly at Essex Corp.), growth profile, its track record for finding and executing acquisitions, and its market positioning in the rapidly growing cyber and intelligence space.

Over the past 10 years there have been 15 government services IPOs , raising an aggregate of more than $2.5 billion in company proceeds and over $1 billion in capital for selling shareholders. Six IPOs occurred in 2002 during the post-Sept. 11 launch of the war on terrorism and national security ramp-up, with five offerings in 2006 at the peak of defense spending expectations and public market pricing.

Private equity was a significant shareholder in nine of the 15 industry IPOs of the past 10 years. Most of those private equity-backed companies had grown through a series of acquisitions before the IPO. Notably, all of the private equity-backed companies except ICF International Inc. and QinetiQ Group plc subsequently were sold, providing liquidity to all shareholders at a premium to the publicly traded stock price.

While an IPO can be an excellent choice for some, it’s not a viable alternative for the majority of companies. An IPO is generally not considered to be a liquidity event. Proceeds generally fund debt repayment and/or acquisitions. Where the primary objective is to fund acquisitions, demonstrable historical success by the company or its management team is very important. Providing a sound foundation for a vibrant post-IPO market is also critical, including significant institutional ownership, sufficient size (market capitalization), and ample analyst coverage. Once public, management will need to focus on quarterly financial performance and aspire to consistent annual earnings growth of 10 percent to 15 percent or more.

The current IPO interest in Booz Allen and KEYW is likely a function of the attributes of these companies that lend themselves to IPO success rather than a function of broader IPO market exuberance. Notwithstanding lower market multiples today relative to the 2002 to 2006 period, these two IPOs can provide enhanced access to capital, liquidity and motivational tools for management and employees, perhaps offset by the challenges of short-term earnings focus and public investor scrutiny. One thing is for sure, with the success of the Booz Allen and KEYW IPOs, others likely will follow.

NEXT STORY: We'll always have Paris

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.