Private equity finds plenty to like in the government market

As the government market has improved, more private equity groups have stepped in with greater confidence that their M&A investments will pay off.

A pair of current themes across the government contracting landscape includes a fast-changing technology landscape for agencies and expectations of a new growth period for the sector, especially in the defense and security domain.

Couple those with a volatile global geopolitical picture and healthy capital markets and that gives private equity firms confidence with their investments in the contracting sector, according to Tysons-based investment bank KippsDeSanto. They advise on mergers and acquisitions in aerospace, defense and government IT.

Last year saw a renewed push by private equity firms into government contracting as 42 out of the 102 announced deals last year had their involvement, KippsDeSanto found in its analysis.

That was above the activity of 2012 at 39 transactions and 40 percent over the average of 30 deals for 2012-2016. Sequestration budget cuts took place in 2013 and fears over those affected deal flow shortly before and for years afterward.

But fast forward to 2017 again 12 out of 19 transactions greater than $100 million in enterprise value then had a private equity group involved, KippsDeSanto found.

Underlying these trends is the business model contractors that investors find to be reliable and stable over the long-term -- through the multitude of contract awards from agencies -- despite the current ongoing budget uncertainty.

“You have visibility into programs and trends and historical and future data that you do not have in other industries,” KippsDeSanto co-founder and managing director Kevin DeSanto told me. “There is a massive pipeline of opportunities that companies can build around and chase with multiple at bats and opportunities to grow these businesses.”

Along with that continual flow of contracting opportunities is the financial resources contractors must put in to operate the business. DeSanto cited the fact that government services contractors mostly require fewer capital expenditures to operate and have meaningful cash flow.

Also worth watching is the concept of a private equity firm acquiring a contractor that can then be used as a platform to make additional deals. An example of that is H.I.G. Capital: the Miami-based group that first bought NCI Inc. in August of last year and made a second deal for Whitney, Bradley & Brown three months later.

In fact, NCI CEO Paul Dillahay previewed that approach by H.I.G. in an interview with me in October after his company’s deal closed. With additional capital from H.I.G., he said the firm views NCI as the “platform from which they want to go and make more” deals.

“When these businesses achieve a certain critical mass and achieve some level of scale, you dilute the risk and then enhance the types of opportunities you can go after and become more attractive to potential strategic buyers,” DeSanto told me.

Perhaps ECS Federal is a more recent example of that kind of success story based on the late January announcement that it would be acquired by IT staffing company On Assignment for $775 million.

On Assignment sees ECS Federal becoming a $1 billion-revenue platform by 2021 through organic growth and more acquisitions, which ECS is no stranger to. ECS more recently acquired InfoReliance early last year and made two deals in 2015.

ECS expected to record $586 million in sales for 2017. It also has footprints in key IT areas like cybersecurity and modernization with a diverse set of customers across defense, civilian and classified customers.

And perhaps past history is an inspiration for private equity firms in the space. “There have been a lot of success stories over time with private equity firms making a living in this space or even just certain situations where groups have had one-offs in the space,” DeSanto said.

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.