Octo Consulting gets backing from Arlington Capital

Octo Consulting has received an investment from private equity firm Arlington Capital Partners to help chart the next phase of growth for the Reston, Virginia-based government technology contractor.

Terms of the transaction were undisclosed but Octo CEO and founder Mehul Sanghani told me Thursday he views this partnership as giving the company “the ability to add rocket fuel with the reputation and abilities of Arlington.”

Arlington comes into the fold as Octo has firmly “settled around a thesis of being what we consider the market’s premier provider of next-generation IT and solutions,” Sanghani added.

Founded in 2006, Octo focuses on modular and incremental IT jobs for agencies to implement emerging technologies like artificial intelligence, machine learning, cloud computing and blockchain. As of late last year, the company was just under $100 million in revenue with around 450 employees.

Octo might also serve as an example for how other contractors have been able to make the jump from the world of small business set-asides to the middle tier, partly by openly embracing the change. That jump helped them get noticed as some strategic buyers inquired about Octo, Sanghani said.

“Over the last two years, Octo has really transformed itself and has shown tremendous organic growth,” Arlington Managing Partner Michael Lustbader told me in the same conversation. “We try to take good strong healthy businesses… and look for ways to turbocharge that growth.

“We see a lot of the elements within Octo (and) within Mehul and his strategic management team, to be able to take the company to the next level,” he said.

Arlington has been busy of late in reshaping its government market portfolio. The firm acquired the former federal division of Black Box last summer and renamed it Tyto Athene, which made its first acquisition in March.

Some of Arlington’s most recent high-profile exits include the May 2018 sale of Polaris Alpha to Parsons Corp. and February sale of Endeavor Robotics to FLIR Systems.

Investment bank Baird’s aerospace, defense and government services group was Octo’s exclusive financial adviser on the transaction with Arlington.

John Song, a managing director at Baird, told me via email Arlington’s backing of Octo helps show “continued strong private equity interest in the government services sector.”

“Octo has a great growth story regarding a company highly focused in tech-enabled capabilities, staying ahead of the technology curve to help agencies modernize and transform their infrastructure,” Song added.

Arlington certainly brings to Octo additional capital to make acquisitions for new contract vehicles, new customers and new technology capabilities. But Sanghani also outlined in our phone conversation to put those added resources toward what Octo brings to bear now.

The company plans to ramp up investments in areas like blockchain and others where Octo is working to develop branded intellectual property solutions, Sanghani said.

“We’re really going to look and try to double down on those differentiators to really take advantage of not only the mindshare we have right now but mindshare in new, open areas of next-gen IT,” Sanghani added.

Continued investments in human capital assets and more resources in Octo’s business development function also are part of the partnership with Arlington, he said.

In conjunction with the Arlington investment, Octo has promoted Jay Shah to chief operating officer from his former role of executive vice president for the health business. Shah succeeds Robert McCord, who was COO since 2015.

Octo also has hired former Buchanan & Edwards Chief Financial Officer Pamela Rothka to the CFO role. She has also held financial leadership roles at Lockheed Martin, Hewlett-Packard and Whitney, Bradley & Brown.