99 deals that drive the market
M&A activity highlights the critical trends shaping the government sector
- By Nick Wakeman
- Jan 28, 2011
The nearly 100 transactions on this year’s mergers and acquisitions roundup illuminate many of the major trends driving today’s government market.
The companies being acquired include intelligence, command and control, health care, energy and environmental firms — all believed to be growth sectors in an otherwise flat market. We also have several divestitures on the list, another indication that the economy is pushing some to shed noncore units to increase focus on what companies do best.
The buyers, too — from foreign-owned companies to private-equity players and longtime deal-makers making strategic moves — reflect the continued faith many have in the government market as a good place to invest.
Our roundup of transactions that closed during 2010 also reveals an M&A market that saw a significant increase in activity as the number of deals rose to 99, compared to 77 in 2009 and 88 in 2008. As it has been for the past seven years, our roundup of M&A transactions was compiled for Washington Technology by investment bank Houlihan Lokey.
Our panel of experts picked the best deals in nine categories, and we’ve talked to executives with three of those companies to discuss how M&A activities are shaping their business strategies.
CGI buys Stanley Inc.
There was little surprise that CGI Group’s $1.1 billion acquisition of Stanley Inc. was picked as the best deal of the year. It was not the high price tag that captured people’s attention, but the impact that acquiring Stanley had on CGI.
When they announced the deal, CGI executives said they were looking for an acquisition that would transform the company, and with Stanley, that is what they did.
CGI, of Montreal, entered the U.S. federal market in 2004 when it acquired American Management Systems’ civilian business. There has been growth over the years, but the missing piece was significant business with defense and intelligence customers. Stanley brought that in spades with 77 percent of its nearly $900 million in revenue coming from defense, intelligence and cybersecurity customers.
The acquisition closed in August, and CGI Federal President George Schindler said the company is well on its way to completing the integration of the business systems and processes.
But the real value of the deal is just beginning to become evident through the new opportunities that the combination of CGI’s IT infrastructure capabilities can bring with Stanley’s business process outsourcing chops. There are cross-selling opportunities as CGI offerings are now available to Stanley customers and vice versa.
But what pleased Schindler and others at CGI about the acquisition is the ability for CGI to bid on projects as a prime contractor that neither CGI nor Stanley could bid on individually.
“We have opportunities available that we wouldn’t have been qualified to bid on or that wouldn’t track the way we do now,” he said.
It isn’t just that CGI is bigger, Schindler said. “The meshing of the two cultures has allowed us to be more nimble, and that’s necessary to be able to address the shifting demands in the market,” he said. “If we got bigger and slower, that wouldn’t let us attach those demands.”
Some of the big demands Schindler sees include data center consolidation, cloud computing, cybersecurity and health IT.
“We have the opportunity to take the lead in ways we couldn’t before,” he said.
Vangent comes out on top
When Buccaneer Computer Systems went on the market, it was a hot property with 50 companies taking a look at the health care analytics provider.
But it wasn’t just the $65 million Vangent was willing to pay that carried the day.
“I know it is a cliché,” said Mac Curtis, Vangent president and CEO, “but it is about culture and values and where they came from and where we came from and the fact that we knew them.”
The acquisition was picked as the best deal by a midsize company.
Vangent already was a major player in the health IT arena, which Curtis said gave the company an advantage over other bidders. “We knew what we could do with them,” he said.
Buccaneer’s analytics skills were very appealing. “They have great capabilities and great qualifications around pure health care analytics,” Curtis said. “They can look at very large sets of data and get at health care quality because they know the right questions to ask the data.”
Buccaneer also has strong IT infrastructure skills around data center consolidation and operations, Curtis said.
“There are [IT infrastructure] opportunities at [the] Health and Human Services [Department], military health and Veterans Affairs [Department] that they give us the qualifications that we just didn’t have before,” Curtis said.
Vangent is already offering Buccaneer’s analytics skills to customers in the United Kingdom, and Curtis expects some U.S. wins by the end of the first quarter.
For Curtis, it isn't just about new contracts; it is about winning new contracts that the company could not win before.
“We had been looking at acquisitions for several years, and when this one came along, it was really about the ability to accelerate our growth strategy,” he said.
KEYW makes its debut
As a company, KEYW Corp. made a big splash in 2010, closing four acquisitions and going public. That's not bad for a company founded just more than two years ago.
But its roots, including its name, go back a couple of decades to a company called Essex Corp., which Northrop Grumman Corp. acquired in 2007.
The Essex leadership team, including CEO Leonard Moodispaw and Chief Strategy Officer Ed Jaehne, left Northrop to launch a new company, and they adopted Essex’s stock market ticker symbol, KEYW, as their company name and ticker symbol.
“The core team left and restarted the company,” Jaehne said. “Northrop is a fine company, but not everyone is a large-company person, particularly entrepreneurs.”
Since its founding, KEYW has closed nine acquisitions to bring the company to about 700 employees, 80 percent of whom have high-level security clearances.
“Our focus is the U.S. intelligence community and our market focus is cyber superiority,” Jaehne said.
KEYW’s definition of cyber superiority includes cyber defense and security with cyber offense and what the company calls impact. “It is being able to have an impact by using the intelligence you gather in cyberspace,” he said.
The company’s acquisitions of the Analysis Group, Insights Information Technology, Sycamore US and Everest Technology Solutions all fit one of the four cyber areas of defense, exploitation, attack and impact, Jaehne said. Because of those acquisitions, KEYW was named deal-maker of the year.
The company’s structure is patterned after the director of national intelligence’s Vision 2015 document, which calls for an integrated approach to intelligence. The collection, processing, analysis and impact of intelligence need to be integrated. KEYW’s strategy is to apply that approach to cyberspace, he said.
“When we look at an acquisition, we look at it to see how it fits into that integrated intelligence enterprise, not as a stovepipe,” Jaehne said.
Another important aspect of KEYW’s acquisition strategy is that the company is looking for senior managers who want to stay. “We are looking for people who want to have an opportunity to grow as part of a new platform with greater resources and reach,” Jaehne said. “We want people who want to take their company to the next level and stay engaged.”