Would Booz Allen consider another acquisition?

Booz Allen Hamilton looks set on course with its long-term “Vision 2020” strategy to combine technology services with its heritage management consulting work and acquisitions as a small piece of that.

The McLean, Va.-based firm touts its acquisition strategy as one of a selective nature that focuses on smaller companies in targeted markets versus the larger deals that have reshaped the government services market. Booz Allen’s buys of SPARC’s software services business and cloud firm Aquilent within the past two years fit that definition.

However, Booz Allen executives hinted in the company’s fourth quarter earnings call with investors Monday morning that they would consider more of what Chief Financial Officer Lloyd Howell termed the “right acquisition opportunities.”

Howell did not specify in the call which markets would present that opportunities but told analysts on the call Booz Allen would be willing to increase its leverage ratio if the firm identified a good acquisition candidate.

The company ended its 2017 fiscal year March 31 at a rough 2.7 ratio of debt to earnings before interest, taxes, depreciation and amortization. Howell said Booz Allen would consider raising it to a maximum 3.5 “if needed.”

“We’re comfortable being at or slightly above our current leverage ratio given the current macroeconomic environment, strength of our balance sheet and operating performance,” Howell told analysts on the call. “We’re watching the markets and Fed as closely as anyone, as things change we’ll adjust accordingly.”

Booz Allen reported $217.4 million in cash as of the fiscal year’s end, up almost 15.9 percent from the prior 12-month period.

The firm is also continuing to see changes in federal agencies’ purchasing methods as many service contract awards are awarded more on a “best-value basis” versus the lowest price-technically acceptable criteria that had been prominent, Howell said in the call.

“We are seeing pricing not as significant an issue as in the most recent past,” Howell said. “We are seeing an abatement in the pricing dynamic we had encountered over the last three-to-four years.”

(Click here for Washington Technology's second Insider Report on LPTA contracts)

For Booz Allen’s part, CEO Horacio Rozanski described to investors the current LPTA-versus-best value dynamic as “bifurcating” in the market.

“There’s an opportunity to define a differentiated market presence around work that is centered to the mission that has a high differentiated component around the technical work,” Rozanski said. “Over time, we expect more of that portfolio to trend toward best value. Other service elements will trend more towards LPTA.”

The fact that agencies often buy services in bundles leads to a mix of both price-focused and value-based work being awarded concurrently, he said.

Booz Allen’s investment in the “Vision 2020” technology-focused strategy and acquisitions sought to align the firm with that trend toward more best-value contracts, Rozanski added.

Shares in Booz Allen opened up just shy of 5 percent Monday morning as investors welcomed the firm’s full-year guidance and results from both the fourth quarter and the most recent fiscal year.

Booz Allen’s guidance for its 2018 fiscal year, which started April 1, forecasts revenue of $6.03 billion-$6.2 billion versus Wall Street’s expectation of $6.02 billion. That range indicates growth of between 4 percent and 7 percent from fiscal 2017 sales of $5.8 billion, which topped the consensus $5.7 billion analyst outlook.

Revenue for the fiscal 2017 ended March 31 climbed 7.4 percent from the prior year. Fourth quarter sales of $1.58 billion exceeded the Street’s expectation of $1.57 billion and earnings of $0.45 per share beat analyst forecasts of $0.43.

Earnings for the full 2017 fiscal year came in at $1.75 per share compared to Wall Street’s $1.73 outlook. The firm expects fiscal 2018 earnings of $1.79-$1.89 per share compared to the $1.88 analyst forecast.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at Follow him on Twitter: @rosswilkers. Also connect with him on LinkedIn.

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