With Apollo's investment, SMX looks to change the tech implementation model

Apollo Group is one of those names that needs zero introduction as to who it is in the world of investing: $548 billion of assets under its management across what feels like every industry.

When it came time for SMX and its private equity owner to decide on next steps, OceanSound Partners opted to extend the investment and look for new investors to back the government technology company.

That led OceanSound toward the creation of a continuation fund for supporting SMX's next phase, which is where Apollo comes in through its Sponsor & Secondary Solutions business called Apollo S3.

"Although continuation vehicles are increasingly considered a valuable practice for private equity sponsors, they are not as common as traditional acquisitions or sales of companies," SMX's chief executive Peter LaMontagne said in an interview.

Apollo S3 is the lead investor alongside other newcomers that are involved in this single-asset continuation transaction, which has a touted value of $1.15 billion and keeps OceanSound in place as the controller and manager of SMX.

LaMontagne told me that with SMX having reached a certain level of maturity, OceanSound decided to offer some of the other investors an opportunity to realize the return and some of them did, while other new investors including Apollo entered.

Which means SMX's executive team and OceanSound believe the 29-year-old company and its team of around 1,000 employees have much more runway ahead. In this February episode of our WT 360 podcast, LaMontagne described SMX's approach to digital transformation and the opportunity set he sees for the company.

SMX ended 2023 with $1.2 billion in revenue, a stark contrast to the $68 million posted in 2019.

The company has been busy on the acquisition front and secured some key bookings along the way, including this $133.6 million Navy network support contract awarded in 2022 to extend that work for five more years.

Naturally the question on where SMX wants to go with its newfound backing, especially with a name like Apollo, becomes about what SMX wants to do more of for its clients.

During our newest conversation about the Apollo investment, LaMontagne said SMX has many programs today that are based around consulting work and the traditional labor hour model. But the future as SMX sees it requires more technology-intensive solutions with cloud, automation and artificial intelligence as key components of them.

Scalability of the tech shapes many questions and concerns on the part of the government buyer, which also has the worry about whether enough talent is in place to accomplish the integration.

One tech-centered answer to those questions goes like this, as LaMontagne put it to me in part:

"Rely on the natural scalability, cloud computing capability, and cloud nativity along with automation and AI, to scale faster and more effectively and more securely than you ever can by adding 1,000 people to a job," he said.

A second set of answers pertains more to the talent aspect. As we and so many others have reported on, there is an economy-wide mismatch between the technologies in hot demand by customers and the skill sets people have in them.

In some instances and teams, the talent in need to make everything work simply does not exist there.

"Those men and women who have the technical skill sets, they want to work on multiple hard problems involving AI and automation," LaMontagne said. They don't want to be restricted to billing on just one program. They want to free up their impact on a broader problem set."

Not that the need of having subject matter experts in either the tech itself, the mission set or even both will ever go away. LaMontagne touted that as a "hallmark of our success."

"All we're saying is is that we want to displace and go faster in delivering solutions that were traditionally delivered via labor hour contractors, where the goal was to add people to contracts, rather than adding positive impact to missions."