Mid-tier merger: DSA lands "good find" in PPC

For the most part, government services’ merger-and-acquisition landscape has involved large-tier companies gobbling up smaller targets for new market channels and contract vehicles.

Other deals have been more mergers of equals that see smaller- and middle-tier companies come together to create larger scale with privately-held Salient CRGT’s formation in 2015 as an example. Investor speculation over similar combinations among publicly-traded mid-tier companies has followed since.

Data Systems Analysts’ combination with Project Performance Company in early July is technically an acquisition by DSA but executives on both sides of the deal view it in the same light as a move toward mutual goals. DSA’s footprint is predominantly in the defense and intelligence segments, while PPC mostly carries a federal civilian and state government footprint.

And one shared path at the center of this match is legacy IT systems modernization amid various pushes on Capitol Hill and the White House such as the MGT Act in the Senate for increased focus and spending, according to company executives on both sides of the deal. In particular, the newer and larger DSA sees opportunity in helping agencies change their resource allocations for IT and mission activities.

“The problem for so many years is (agencies) can’t upgrade their systems… because they’re so bogged down in operations and maintenance costs of those systems,” PPC CEO Paul Strasser told Washington Technology. Strasser has joined DSA’s executive leadership team through the transaction.

“You can’t easily turn to modernize the systems and then reach the benefits of total cost of ownership,” Strasser said. “When you do a legacy systems modernization, the business case is around low-code platforms (that) offer lower maintenance costs.”

The newer and larger DSA can better touch all aspects of legacy IT modernization across more market channels, its CEO Fran Pierce told Washington Technology. Nearly all of DSA’s work pre-transaction was in the Defense Department with “a little” in the intelligence community, she said.

 PPC brings to the combined entity a mostly civilian-oriented portfolio with agencies such as the Homeland Security and Justice Department, along with the Nuclear Regulatory Commission.

Pierce confirmed to Washington Technology DSA “had been looking for a company for a long time” to combine with. PPC is the third acquisition in DSA’s history since its founding in 1963.

“We’ve gone down the path a few times in the last 3-4 years,” she said. “I think we came up with a good find. And there was no customer overlap at all.”

The combined company’s pro forma revenue comes out to nearly $185 million for this year to place it in the middle tier. DSA brings to the table roughly $160 million and PPC the remaining $25 million.

Both PPC and DSA were also on track to show nearly 30-percent growth for 2017 by themselves prior to the transaction, Strasser and Pierce said.

The newer and larger company will have roughly 400 employees: 300 from DSA and 100 from PPC.

Some middle-tier contractors have reported struggles in recent times with finding growth in a market where they are too small to compete for some contracts against larger companies but also too big for eligibility in small business set-aside programs.

“We can move a lot faster than the big guys, be really responsive and move on a dime,” Pierce said. “When we compete with the large companies we tend to win.”

“You’re big enough to have resources to tackle the difficult and important jobs, but you’re not so big that you don’t care,” Strasser said.

The heightened focus on IT at many agencies is another aspect in DSA’s favor as part of its new chapter, according to Strasser.

“Even at places like EPA (Environmental Protection Agency) which have been talked about with 31-percent cuts and such, the IT part of it is going to do pretty well because they have cybersecurity needs and other needs that make good sense to lowering the overall cost of business for the government,” Strasser said.

In fact, PPC is one of seven companies that have won a spot on a five-year, $115 million IT services contract awarded July 25.

Also of note, the Philadelphia region-based and 54-year-old DSA will extend its status as a full employee-owned company. DSA has operated under an employee stock ownership plan since 1980.

Employees gain longevity at ESOP companies and that translates into their daily work at the agency, according to Pierce.

 “Everybody has a stake in the success of the company , which translates to success for the customer,” Pierce said. “Most of our people are embedded with our customers so they care about the people.

“When the people like where they’re working and care about the mission, it leads to success.”