Defense tech, digital modernization drive GovCon M&A in 2024
Gettyimages.com/ Tim Grist Photography
By
Nick Wakeman
Private equity firms led the charge with 85 out of 159 closed transactions as companies reposition themselves for emerging market opportunities.
Mergers and acquisitions are one of the best barometers for tracking trends in the government contracting market.
What companies are buying – and increasingly what they are selling – tells us what company executives and investors are interested in.
Acquisitions are a leading indicator of the technologies companies expect to be in demand. The deals also reflect the fine tuning and adjustments firms apply to position themselves for opportunities.
Defense Technologies Lead the Way
Several storylines emerge when we look at the 159 closed transactions from 2024 acquisitions.
The acquisitions by strategic buyers such as CACI International show how important defense technologies are. This trend emerged several years ago, but will accelerate with the Trump administration’s focus on defense tech.
We saw CACI buy Azure Summit Technology, Applied Insight and Quadrint in 2024.
Azure was CACI's biggest purchase at $1.2 billion. The move added capabilities around software-defined devices and platforms for defense and intelligence customers.
Private Equity Dominates the Market
We also see the defense tech trend driving many of the private equity deals on the past year.
Private equity firms are the dominant buyers in the market as they participated in 89 of the 158 acquisitions, which does not count sales of PE-owned companies to another acquirer.
Washington Harbour Partners is backing SixGen, which closed three deals in 2024. Its deals for Secure-EE, Kyrus Tech and Boldend brought together capabilities around full-spectrum cyber, electronic warfare, secure radio frequency communications and multi-domain digital operations.
Arlington Capital Partners continues to invest in Tyto Athene, which was created 2018. Tyto Athene's purchases of Mindpoint and Microtel in 2024 focused on cybersecurity in the defense and national security, as well as software development focused on space operations.
Digital Modernization Drives Strategic Acquisitions
A second in-demand capability is digital modernization, which is one reason behind CGI Federal's acquisition of Aeyon.
CGI Federal added more automation solutions and new customers such as the Federal Aviation Administration, Defense Department and NASA.
The Aeyon transaction is also another example of private equity's role in the market, but this time as the seller. Aeyon was created by Enlightenment Capital in 2021 and bolted on several acquisitions before the sale to CGI Federal.
Deloitte’s acquisition of Gryphon Scientific was driven by the consulting firm’s desire to add artificial intelligence capabilities to modernize how agencies respond to infectious disease outbreaks.
Divestitures Reshape the Landscape
Another trend that is accelerating in the market is the divestitures we’ve seen. We tracked 14 deals that involved a company selling off a division or business unit.
None were bigger than Jacobs’s decision to spin-out its Critical Mission Solutions segment, along with its cyber and intelligence business. Those two Jacobs businesses merged with Amentum to create a new publicly-traded company, now informally and somewhat formally called "New Amentum."
Divestitures in the market are driven by the sellers’ needs to streamline and sharpen their business focus. Jacobs wants to focus resources on its critical infrastructure, sustainability, and advanced technology portfolios.
ManTech divested its technical advisory programs to Systems Planning & Analysis.
SPA broadened its footprint across national security, space and technology programs. ManTech received a cash infusion to aid its focus on areas like cybersecurity, artificial intelligence and cloud computing.
Looking Ahead: M&A Outlook for 2025
One big question going forward is whether the new Trump administration will spur more M&A moves or if we will see a decline.
Bankers and other practitioners we have talked to note the volume of transactions has slowed, but also expect a rush toward the end of the year as things settle.
The administration is focused on efficiency and modernization across the government. If you had to pick one theme for the coming year, that would it. Companies will try to shed businesses not seen as fitting into that thesis and acquire ones they believe do fit it.
Will we see another 159 deals in 2025? Maybe. I wouldn’t bet anything on it.