Who made 2015's biggest deals?
As we looked at the 80 mergers and acquisitions that closed during 2015, one deal quickly emerged as the favorite among our panel of experts.
It wasn’t the biggest deal of the year as measured by dollars, though it was quite large. But the unusual deal that was crafted by Computer Sciences Corp. and SRA International was a game changer.
When we started looking for a single best dealmaker, our experts picked ECS Federal as the best from among several companies that closed multiple transactions last year.
Our panel, which included M&A experts from investment banks, private equity and law firms active in the government, also picked nine other deals that were noteworthy for their impact on the companies involved and for what they indicated about the leading trends in the market.
Below, I describe each deal, and why it was important.
BEST SINGLE DEAL
The deal between CSC and SRA was unusual because you had two companies moving on parallel tracks. Both were trying to turn around businesses that had faltered.
As the end game in a multi-year effort to turn around its commercial and public sector businesses, CSC leadership decided a spin-out of the public sector business was the best move. It would allow each to focus resources and attention on two very different sectors.
Meanwhile, SRA had come through its own turnaround efforts under its private equity ownership Providence Equity Partners.
The deal allowed to CSC to streamline even further by creating a new publicly traded company, and Providence gained an exit strategy as well as a significant stake in the new company, CSRA.
CSRA, at least until the Leidos-Lockheed Martin deal closes, is the largest pure-play IT company in the market with $5 billion in revenue, and scale is increasingly important in today’s market as companies look for economies of scale.
ECS Federal closed two deals in 2015 – the acquisition of System Planning Corp. and Information Systems Worldwide Corp.
With backing by minority investor Lindsay Goldberg – a large private equity firm that owns PAE – ECS closed the two deals and signaled that it has a new platform in the market. See our story about the ECS-Lindsay Goldberg relationship.
Under the leadership of CEO George Wilson, who was part of the executive that built Stanley Associates from a small business to a billion dollar baby, the expectations are high for ECS.
Our experts see ECS as the re-emergence of the buy and build strategy and the ability of emerging growth companies to transform themselves through acquisitions. With both Systems Planning Corp. and Systems Worldwide Corp., ECS picked up high end engineering, analysis and planning support.
The combination of these two mid-size companies is a rarity in the federal market – a true merger of equals. The two companies were of comparable size and neither company was the obvious swallower of the other. In fact, the leadership teams merged, with Salient’s CEO becoming the CEO of the new company and CRGT’s CEO becoming president.
And finding the right roles for the egos is often one of the biggest stumbling blocks to these kinds of deals. They also had to deal with two different private equity owners.
The combination brought together an impressive stable of contracts including GSA Alliant, DISA’s Encore, NIH CIO-SP3, Eagle II, and Treasury TIPSS-4.
As one of our experts noted, the deal also points to the importance of scale and the need to have a strong business development operation.
When Science Applications International Corp. was created when the old SAIC spun out those new business units and gave itself the new name of Leidos, nearly all of the intelligence business stayed with Leidos.
The acquisition of Scitor got the new SAIC back into the intelligence business in a big way. It “instantly returned intel chops to SAIC,” one of our experts said.
The transaction also was one of the largest of the year, valued at $790 million.
In addition to intelligence customers such as the National Reconnaissance Office, SAIC also picked up more capabilities in systems engineering and integration, cyber and security services, program management and IT.
The $4.75 billion deal was the biggest of the year and received some consideration as the single best deal because of that size.
But beyond size, it also is transformative for Harris and is a doubling down on the government space by the company, which earlier sold its commercial broadcast business.
The deal pushed Harris’ revenue from $5 billion to $3.25 billion and the headcount grew to 23,000. And company executives touted the additional scale as a major driver of the transaction.
Another driver is the belief that the defense market has hit the bottom and is entering a period of growth and the Harris-Exelis combination has multiple strengths across the C4ISR market.
Maximus has built its reputation as a premier provider of business process management offerings in the state and local and international markets. While it did some federal work, the acquisition of Acentia should accelerate that business with the access it gains to multiple contracts.
Acentia also gives Maximus an IT platform to build off of and leverage with its business process management offerings. The in-house IT expertise helps Maximus gain efficiencies in its traditional business areas.
PAE-Professional services division of USIS and A-T Solutions
Since its separation from Lockheed Martin, PAE has proven to be a consistent acquirer in the market and its strategy has been clear, build its base while continuing to diversity.
The acquisitions of the professional services division from USIS and the acquisition of A-T Solutions were transformative for PAE in that the company quickly built a national security business. The deals allowed the company to follow many of its customers into new mission areas, particular point solutions where PAE can bring its sizable sustainment business to bear addressing specific missions.
For example, USAID turned to PAE to Ebola work because the company had support sustainment efforts in Liberia for 20 years and had the infrastructure in place to quickly respond to the threat.
The company also is owned by the private equity firm Lindsay Goldberg and well positioned to continue to make acquisitions.
Carlyle - Novetta
This deal marks a return to the market for the Carlyle Group, the pioneer in the market for private equity firms. It has been relatively quiet in the federal space since it acquired Booz Allen Hamilton and then sold a portion of another property, ARINC, to Booz Allen.
Novetta also represents the new breed of IT companies in the federal space – service offerings that are infused with intellectual property. And higher margins and faster growth potential than the rest of the market.
Accenture – Agilex
Accenture grabbed up Agilex in a play to gather more digital capabilities particularly around next generation portals and the use of cloud, mobility and analytics to improve government services. These are some of the fastest growing segments of the market and are not exclusive to any one sector. In other words, Accenture can take Agilex’s capabilities across multiple sets of customers.
Global Defense & National Security Systems Inc.- STG
What makes this deal stands out is its structure. Global Defense is a SPAC – special purpose acquisition company. It was created as a public company with no company, just a resources to make an acquisition.
It was formed in 2013 and had a July 2015 deadline to make a deal. In June, it closed the deal for STG.
For STG, the deal is like being acquired by private equity but instead it is suddenly a publicly traded company. Its management team of Simon Lee, founder, and Paul Fernandes, president and chief operating officer, remain in place.
The next step will be using the platform to make more acquisitions.
With this deal, Raytheon struck a unique path in building a cyber business. While the company made a $1.9 billion deal for Websense, it didn’t structure the end result the way we typically see it. Instead, it took the cyber work it already had and wrapped it into Websense.
The new entity, now called Forcepoint, is structured as joint venture between Raytheon and Websense and is not a commercial business trying to operate as a unit of a large defense contractor.
Websense’s former owner, Vista Capital, also took a $335 million minority interest in the company.
The company hopes that with this structure, Forcepoint will continue to have the nimbleness and margins of a commercial company, but Raytheon will continue to have easy access to cutting edge commercial cyber technologies.
There are also are several other deals worth noting. You might call them honorable mentions, but we also call them the BEST OF THE REST:
- RLJ Equity Partners acquisition of Phase One Consulting
- ManTech acquisition of Welkin Associates from CSC
- Calibre’s acquisition of the health and defense IT consulting business of IMC
- Preferred Systems Solutions acquisition of GSM Consulting
- Veritas Capital acquisition of Alion Science & Technology
- General Dynamics divestiture of Fidelis
- Arrow Electronics acquisition of ImmixGroup
- LGS Innovations acquisition of Axios
Posted by Nick Wakeman on Mar 24, 2016 at 9:28 AM