Private equity, non-traditional buyers drive key M&A trends
Among last year's 119 closed mergers and acquisitions, many of those deals were backed by private equity firms. We highlighted two in our initial round up story yesterday.
In this space, we’ll look at some of the other deals and explore further on what private equity means to the government market.
There are at least 34 private equity buyers and several made multiple deals in 2019. In some cases, you have companies like Sev1Tech and Octo Consulting being acquired earlier in 2019 and then making an acquisition of their own before the year ended.
With a few notable exceptions, the PE activity is largely focused on the middle tier or small businesses moving into the middle tier.
A familiar pattern emerges when looking at seasoned private equity firms such as Arlington Capital Partners, D.C. Capital, Veritas Partners and CM Equity. They first buy a company, then use it as a platform to build a larger business through acquisitions. That company is then sold to a larger, strategic buyer.
Sometimes we see a company move from one private equity buyer to another, then ultimately sold to a strategic player.
We also are seeing some private equity newcomers in the market like DFW Capital in its acquisition of Sev1Tech, and BD Partners in its deal for Presidio.
One notable exception to the middle-tier trend is Guidehouse, which spun out of PricewaterhouseCoopers in 2018 and was acquired by Veritas Capital. In 2019, Guidehouse made a $1.1 billion acquisition of Navigant to expand beyond the federal market.
A second trend we’ve watched for a few years and is much on display in the 2019 roundup is the activity by so-called "non-traditional" consolidators. This group includes large engineering firms and manufacturing-focused companies that are diversifying their federal businesses. They buy IT services firms as a way of broadening their base of business but also as a way of infusing technology into their core businesses.
These buyers include Parsons Corp., Jacobs, Cubic Corp., Huntington Ingalls Industries, Tetra Tech and VT Group.
2019 was not the first year these companies made IT-related acquisitions. In fact, they have been building new platforms to pursue opportunities in space, cyber, unmanned and other emerging markets.
Huntington Ingalls, for example, did an internal seven-way integration in 2017 to pull together its internal services businesses into a cohesive unit. When that completed, it began making acquisitions to add cyber and other technology services. In 2019, HII acquired Fulcrum IT Services .
As a result, the shipbuilding giant is much more than a shipbuilder today.
That’s the lesson from many of these acquisitions -- M&A is a tool of transformation and we expect more to come.
Posted by Nick Wakeman on Apr 01, 2020 at 9:41 AM