Why Acentia's time had come, and why others are to follow

Since the private equity group Snow Phipps acquired a small business called Interactive Technology Solutions in 2009, the company has been on a path leading to Acentia’s pending $300 million acquisition by Maximus.

IT Solutions became Snow Phipps' platform in the government market. They acquired NetStar-1 and Peach Technology during that first year, building its base for providing management and IT services.

Then they hired Todd Stottlemyer to be CEO in 2010 along with Tom Weston as chief financial officer, and that’s when things began to accelerate.

Stottlemyer and Weston have a long track record together. They were executives at BTG and Apogen, both companies that were positioned for sales to larger companies. At Apogen, Stottlemyer was CEO and Weston, CFO. Stottlemyer also was an executive at BDM International, which was sold to TRW.

Based on that track, the sale of Acentia seems inevitable; it didn’t happen over night.

First, they had to build something they could sell, so they launched an aggressive campaign to rebrand and position the company, renaming it Acentia in 2011 and kicking off a series of acquisitions over the next several years:

• 2020 Company LLC in 2012, which brought health IT capabilities
• InSysCo in 2013, bringing software development
• Business Computer Applications in 2014, which brought a large contract with the Centers for Disease Control and Prevention
• Optimos in 2014, which brought access to the DHS Eagle II contract

The run of acquisitions and internal growth brought Acentia to $210 million in annual revenue in 2014.

Snow Phipps, who declined to comment for this piece, had owned the company about five years as 2014 came to a close. That’s about the average life expectancy for a private equity investment. Helping them along also are changes in the market that make now the right time for a sale.

After the debacle of 2013 and a recovery through at least half of 2014, many companies are now making the strategic moves to prepare for growth and profitability. We’ve seen increased activity since September with more deals being announced. Buyers and sellers that had been on the sidelines have now stepped into the game.

It was in this atmosphere that Snow Phipps brought Acentia to the market. But it wasn’t all about timing.

Jean Stack of the investment bank Houlihan Lokey worked with Acentia through the sales process. Several things about Acentia worked in their favor in today’s market:

• A focus on important civilian markets
• All of their work is full and open
• Strong leadership
• Strong IT capabilities

“Look at what the government customers are buying – they need to modernize their IT so they can be more effective and efficient,” she said.

Thomas Romeo, who runs Maximus Federal Services, said much of the same to me the day the deal was announced, but from a slightly different angle: Acentia’s IT capabilities will make Maximus’ business process services more efficient and more profitable.

As I mentioned, Acentia is private equity owned, and we’ve seen several private equity sellers in recent months. Some, such as KKR, General Atlantic and the sale of TASC to Engility, were about making a deal to get out of an investment that wasn’t likely to reap the expected returns.

But with Acentia and SAIC’s acquisition of Scitor, who is also private equity-backed, the sellers did just fine.

The stronger market is helping private equity firms make their exits, said Bob Kipps of the investment bank KippsDeSanto.

But the thing to keep in mind is that even though Stottlemyer and Weston have a record of buying and selling companies, it’s not like they are flipping houses. Acentia was a five-year project of acquisitions and building a valuable enterprise that should continue to grow.

“Acentia provides a significant platform in federal agencies and missions where budgets are growing,” said Larry Davis with the investment bank Aronson Capital Partners.

It was a good fit for Maximus and a good price for Snow Phipps, said Kevin McCormack of the investment bank Raymond James.

There are some definite lessons from this flurry of dealmaking we’ve been seeing:

• The long, cold spell of companies hunkering down is over, so we should expect more deals and more maneuvering as companies look to position themselves for growth. This can take the shape of acquisitions, divestitures and new strategic alliances, particularly with commercial technology companies.
• If you are thinking of exiting and selling your company, the process needs to start years in advance with a focus on value and growth potential.
• IT expertise and a mission focus will be powerful combination that can drive growth and value.

I'm going to keep these lessons in mind as the next few months unfold. I think nearly any deal we will see will fit at least one of these lessons.