Changes mean new calculus for mergers

Raymond Roberts, chief executive officer of Citizant Inc.

Stan Barouh

The Small Business Administration's new size recertification rule could radically change the landscape for small businesses interested in being acquired and their potential buyers. Any small business will need to recertify its small-business status after being acquired, and if it is no longer small, its contracts will no longer count against the congressionally mandated targets for small-business contracts.

Although the new rule's effects won't be apparent for some time, many observers fear that it could lead to agencies terminating contracts. The value of those contracts would therefore be diminished when potential acquirers assess the acquisition target.

"The risk you run is that you create a devaluing of the small businesses you're trying to help," said Stan Soloway, president of the Professional Services Council. "In effect, you're penalizing companies that have done well, that have gotten to the point where they have value."

Companies that are looking to make acquisitions, however, stand to benefit from the new rule, said Raymond Roberts, chief executive officer of Citizant Inc. The Chantilly, Va.-based company, formerly known as Cairo Corp., is a small firm and is looking to grow in part through acquisitions.

"It's sad that some of the value of our contract portfolio has had the wind knocked out of its sails, but we're not for sale," he said. "For us as an acquirer, it's phenomenal."

Citizant, which specializes in enterprise architecture and Web services technologies and serves only the government market, was planning an acquisition strategy anyway, he said. The rule change won't change the direction but could rather speed it along.

Soloway said PSC would like to see some protection for small businesses so agencies can't terminate contracts just because their status changes.

"No one is suggesting that after an acquisition you should be able to compete for new work" as a small business, he said. "That's not allowed now. This is strictly about how the government gets credited for work you've already legitimately won."

About the Author

Technology journalist Michael Hardy is a former FCW editor.

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