Ross Wilkers


Peraton, DynCorp see some relief from recompete pressure

Government services companies of all shapes and sizes all have a common headwind of having to defend their contract work from competitors eager to wrestle it away in a recompete.

In a typical year, contractors fight to keep anywhere between 15 and 20 percent of their revenue that is up for rebid. Sometimes that number can be as high as 25 percent. Sometime the bids are spread out over multiple contracts, but at other times several expiring contracts are concentrated into one recompete.

Hence clearing one of those concentrated recompetes brings a major sigh of relief, as Peraton found out in June when it fended off rival bidder KBR to keep a five-year, $1.8 billion NASA mission services contract that was the company's largest recompete. Peraton has held that work dating back to 2008 through various iterations both of the company itself and that program.

The award was among several other factors that prompted credit ratings agency Moody’s Investors Service in late June to lift its outlook rating on Peraton to “Stable” from “Negative” -- an indication that analysts see the company as better positioned to pay down its debt estimated at about 7 times earnings.

Including revenue acquired through the recent purchase of Solers, analysts at Moody’s estimate Peraton’s sales at just over $1 billion. Moody’s believes the debt ratio could fall to 6 times earnings next year and 5x is not out of the question either depending on revenue growth and free cash flow.

Private equity firm Veritas Capital acquired Herndon, Virginia-based Peraton two years ago as a carve-out from former parent Harris Corp. As Moody’s pointed out in its June 30 research note, the first two years saw Peraton having to stand up and invest in its own infrastructure that includes back-office and IT systems to manage the company, as well as a new executive team.

That period also saw some contracts run off, but that NASA contract known as “SENSE” is an expansion of the prior contract and should give Peraton added revenue. SENSE’s predecessor represented slightly less than one-fifth of Peraton’s revenue.

Also in June, Peraton took away a contract formerly held by KBR worth up to $185 million over five years to help U.S. Border Patrol maintain ground surveillance equipment along the southern border with Mexico.

Peraton’s former parent Harris helped as well through the May award of a three-year, $54 million subcontract to support the National Oceanic and Atmospheric Administration’s main fleet of weather monitoring satellites.

On the other hand, losing a recompete is not necessarily the end of the world but certainly puts stress on a company’s outlook, as DynCorp International has found out. DynCorp was shut out of awards on the Army’s potential $82 billion “LOGCAP V” logistics contract in April and is protesting in hopes of getting a second shot at retaining its incumbency from the LOGCAP IV iteration.

LOGCAP V is under protests from several disappointed bidders including DynCorp with Government Accountability Office decisions on all of them likely to come out Aug. 9.

LOGCAP work represents nearly one-fifth of DynCorp’s annual revenue. But since the Army made those awards, DynCorp has won a string of major aviation maintenance and logistics contracts that “should add about a similar amount of incremental revenue,” according to a June 10 Moody’s report.

Those include a Customs and Border Protection contract awarded in May for a potential 10-year, $1.4 billion ceiling that was a takeaway from incumbent PAE.

It should be noted that PAE and another disappointed bidder in Vertex Aerospace have both protested that award and a decision is anticipated Oct. 2. But DynCorp in the spring won both regions of the Army’s main program for worldwide aviation field maintenance and one is for keeps.

The West piece of the Aviation Field Maintenance II program is worth up to $1.1 billion over eight years, while East has a $2.4 billion ceiling for eight years. West is under protest by both PAE and AECOM with respective decisions on those anticipated for Sept. 12 and 16 respectively, according to GAO’s docket.

Favorable rulings that let DynCorp proceed on those contracts grow the company’s backlog and hence revenue visibility, which in turn would help bring down debt, although recent years have seen success on that front.

DynCorp has also declared its interest in acquisitions; a strategy that should become clearer pending various rulings on the contracts mentioned above.

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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