Federal IT has regained its public market momentum. Three successful initial public offerings in the past three weeks could re-ignite investor attention and interest in the federal IT sector.
With few exceptions, stock prices and enterprise values of pure-play federal IT companies have declined over the past year, while the cost of interest-bearing debt has risen. Many privately held industry contractors are seeking insight into the trends' impact on merger and acquisition pricing.
Life continues to get tougher for middle-market federal suppliers. Executives and company owners in the federal technical and professional services business have sensed a significant change in the demographic profile of this market since the mid-1990s.
The rationale supporting acquisitions as a necessary component of business building in the government services market is often debated by executives, investors and owners. Evidence accumulated over the past 10 years confirms that the rewards of a targeted acquisition program outweigh the risks.
Washington Technology's Top 100 has become a benchmark for federal IT prime contractors. Companies that compete in the federal IT market can measure their standing and progress against their peers.
The pace of federal IT and defense mergers and acquisitions in the first quarter of 2006, based on deal announcements, was in line with those of 2005. However, a comparison of the first quarter of 2006 with that of 2005 reflects significant changes in the mix of transactions.
The federal government will continue to allocate a significant portion of agency budgets to technology, especially information and communications technology products and services.
Investors' interest in federal IT, defense and homeland security companies has been affirmed again through recent public offerings by special purpose acquisition corporations, or SPACs.
Four years after the Sept. 11, 2001, terrorist attacks, the concept of a sizable, coherent and identifiable market for homeland security products and services is approaching reality.
The Small Business Admini- stration recently announced that small businesses received $69 billion in prime contract awards in fiscal 2004, about 23.1 percent of total prime contract dollars. This new record is nearly 6 percent above the previous high.
Investors in defense and federal IT companies have become more cautious about the growth potential for companies, mainly because of slowing growth rates in U.S. defense budgets and the constraining impact of federal government deficits.
The unprecedented, rapid pace of mergers and acquisitions continues in the aerospace and defense and government services sectors. While most of these transactions involve only U.S. companies, there has been a significant increase in cross-border deals.
