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2005 Review: M&A Market for Federal and Defense Services Steams Onward,
According to Minuteman Ventures
CHANTILLY, Va.----Jan. 11, 2006--The great consolidation wave in the federal
and defense services sector continued throughout 2005.
Seventy-seven (77) sector transactions were completed, compared to 79 in
2004.
"Federal contractors provide vitally important functions for defense and
civilian agencies," said Paul Serotkin, President, Minuteman Ventures LLC,
an investment bank focused on federal sector mergers and acquisitions (M&A).
The year ended dramatically with the announcement Dec. 14 by General
Dynamics (NYSE:GD - News) that it would acquire Anteon International for
$2.1 billion in cash.
Top Tier Continues Move Into IT
Tier 1 (large) military platform and electronics contractors bought
businesses in the higher-growth intelligence, technology and outsourcing
sectors to offset the pruning of big-ticket weapons programs.
Lockheed Martin (NYSE:LMT) in 2005 acquired Aspen Systems, Coherent
Technologies, INSYS Group and The Sytex Group. Further, L-3 Communications (NYSE:LLL)
acquired Titan Corporation and DRS Technologies (NYSE:DRS) acquired
Engineering Support Services.
Added Chuck Chappell, Director of Washington Operations for Minuteman
Ventures, "Conditions remain favorable for contractors in well funded areas
such as programs that meet the need for advanced technology integrated
across platforms and agencies."
Smaller Transactions Dominate Volume of Deals
Defense/federal services M&A remained a small and mid-tier market.
Fifty-three (53) out of 77 transactions were for firms with purchase values
under $50 million.
Tier 2, "pure-play" federal services contractors - ManTech International (NASD:MANT),
SRA International (NYSE:SRX) , CACI International (NYSE:CAI) , MTC
Technologies (NASD:MTCT), NCI Information Systems (NASD:NCIT) and SI
International (NASD:SINT) among them - acquired to sustain public market
valuations and to bid on larger procurements.
Notably, buyers paid strong value for firms in intelligence services,
homeland security, and mission-critical defense programs.
Small and mid-tier firms were also active acquirers, including these private
companies with revenue under $200 million: Indus Corporation, Inc., Vienna,
VA; McDonald Bradley, Inc., Herndon, VA; ICF Consulting, Inc., Fairfax, VA;
and ITS Corporation, Oxnard, CA.
Smaller public companies also were active, including Analex, SYS
Technologies, and Applied Signal Technology.
Private equity (PE) firms - financial buyers - remained active investors.
Thirteen (13) federal services acquisitions were completed by PE groups.
Emerging this year were special purpose acquisition corporations (SPACs),
public entities that raise money to acquire companies in a specific
industry. New York-based SPAC Federal Services Acquisition Corporation (FSAC)
raised $126 million in an IPO to buy federal services companies.
Large U.K. firms remained active buyers of U.S.-based defense services
firms, the most active being BAE Systems, QinetiQ and SERCO.
2006 Outlook - Changing Landscape Alters Consolidation
"Acquisitions continue to deplete the ranks of mid-tier firms and public
companies - two types of firms that actively acquire - faster than they are
being replenished," said Serotkin.
At the same time, the large number of smaller companies, the push by
platform firms into services, the growing activity of financial buyers, the
government's use of outsourcing and generally positive economic conditions
all favor continued sector consolidation.
"Consolidation in 2006 looks to be driven by deals among smaller firms and
by larger contractors picking up smaller, niche players," said Chappell.
Contact:
Minuteman Ventures LLC
Paul Serotkin, 781-750-8065
President
paulserotkin@minutemanventures.com
or
Washington Operations, Minuteman Ventures LLC
Chuck Chappell, 703-842-9536
Director
charleschappell@minutemanventures.com
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