Analysts: Government M&A market 'frenzied'

The increasing pace of acquisitions in the government information technology market is approaching a feeding frenzy, according to investment bankers.

Rick Knop, co-manager member of Windsor Group, Reston, Va., said his investment bank has seven deals in the closing stages among companies in the government IT space. Five or six of those deals should close by the end of November.

During 2001, Bill Loomis, managing director of the technology research at Legg Mason Wood Walker Inc., said he tracked 15 mergers and acquisitions. So far in 2002, there have been 30.

Loomis and Knop spoke Oct. 31 as part of a mergers and acquisitions seminar in McLean, Va., sponsored by the accounting firm Ernst and Young and the law firm Shaw Pittman.

In addition to the feeding frenzy, Knop said he saw four other trends driving the merger and acquisition market.

One is the "clash of the titans." With the acquisition of TRW Inc., Cleveland, by Los Angeles-based Northrop Grumman Corp., Knop said there will be another mega merger among the top defense and aerospace companies. These companies include Lockheed Martin Corp., Bethesda, Md.; Raytheon Co., Lexington, Mass.; and General Dynamics Corp., Falls Church, Va.

The past year also has seen several government IT companies hold initial public offerings of stock.

"These newly minted IPOs will have to make acquisitions to justify secondary offerings of stock before the window of opportunity closes on Wall Street," Knop said. He called this trend, the "green mile."

A third trend is what Knop called the "alien invasion."

"There are a lot of new buyers coming into the market place, including private equity groups, commercial IT companies, foreign-owned companies and engineering firms, he said.

Knop also said there is a new frontier emerging for mergers and acquisitions.

The conditions are ripe for consolidation among technical services companies, he said. These are firms that do non-IT services such as operations and maintenance of military bases, which includes everything from maintaining roads to operating power plants.

"It is a fragmented market, and these companies need to bulk up," Knop said.

About the Author

Nick Wakeman is the editor-in-chief of Washington Technology. Follow him on Twitter: @nick_wakeman.

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