M&A

Applied Insight moves up the stack with latest deals

Private equity firm The Acacia Group and its Applied Insight portfolio company are moving quickly on their strategy to position AI as a solid player in the government IT market’s middle tier.

Acquisitions have been a key piece in building AI, including the October pickup of analytics and mission IT outfit Organizational Strategies Inc. The addition of OSI pushed AI past $120 million in annual revenue.

That has now been followed by another pair of deals for Applied Technology Group and Stratus Solutions to bring in more advanced cloud, analytics and artificial intelligence capabilities.

What Stratus in particular helps AI in is the ability to “create environments for cloud at scale” for agencies, Acacia Managing Director and AI Chairman Gavin Long said. ATG comes into the fold with its data analytics expertise in areas like machine learning, algorithms and data collection among others.

The combination of both deals helps AI “walk up the technical stack” from the IT infrastructure to cloud and analytics applications for example, Long told me.

“Data is voluminous, there is no shortage of it and so the whole premise behind putting this acquisition thesis together is really being able to align a government customer’s infrastructure all the way to its mission application,” Long added.

John Hynes, who in January became AI’s CEO, pointed to expanded customer relationships and the addition of new intellectual property into the portfolio as other main drivers of these deals.

Upon its formation last year, much of AI’s business was with defense and intelligence agencies, then OSI brought work with the Homeland Security Department.

The combination of ATG and Stratus “enhances our relationships across the (intelligence) and defense customer sets, expanding those out,” Hynes said.

“Both Stratus and ATG have had great success in understanding the mission need, getting in front of customers, explaining how they would approach it and then finding the right vehicle to get the work done,” Hynes told me.

That vehicle can take form through a variety of procurement types, he said. This includes sole-source awards, so-called “Other Transaction Authorities,” limited competitions or even as a directed subcontractor to another prime.

The intellectual property component is also a cornerstone of these deals and is key in helping differentiate middle-tier companies from the field, Long and Hynes said.

“It’s important to have some discriminators to be able to grow and create opportunities and for employees to serve the mission,” Hynes said. “There’s the cloud approach and data analytics backbone that are key to that.”

The capability piece of AI’s approach also includes leveraging commercial cloud and IT infrastructures like Amazon Web Services and Microsoft Azure into the customer base, Long said. That also includes how to facilitate innovation and the creation of applications in an open source environment.

“We’re experiencing a major shift from a technological point of view in this government contracting market,” Long said.

Whereas there have been a series of false starts in the past, the advances of commercial IT infrastructures has let government agencies take more ownership of the development process, Long added.

As part of that, AI is taking what Hynes described as an “accountable innovation thesis” This includes internal research-and-development to create new capabilities that can help shape future contracts and strategies of government customers.

One such opportunity of an undisclosed nature has already “come on the radar” for AI that they could not bid before the ATG and Stratus deals, Hynes added.

Teneo’s capital advisory division was exclusive financial adviser to both Stratus Solutions and ATG on their sales to AI.

About the Author

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

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