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Government Cloud: Article

Eye of the GovCon M&A Storm

Defense and Government Services Deals Are Down So Far in 2013; Will the Tide Turn?

Bob Kipps serves as managing director at investment bank KippsDeSanto & Co., a provider of services to middle-market firms in the government services, aerospace/defense, cyberintelligence and technology industries.

In a new feature for Executive Mosaic, Kipps provides insight into what's driving the GovCon deals market and where participants are aligning for the future.

To start 2013, he addresses impacts of the now-in-effect sequester and other budget pressures and notes five important things to consider for the future.


After gushing throughout 2012, GovCon M&A deal announcements have slowed to a trickle thus far in 2013.  At a recent deal conference in DC last week, lenders and other transaction advisors were commenting about their lack of deal flow.

Sellers clearly tried to accelerate deals that might have otherwise closed in early 2013, before year-end.

After a blistering number of deals at the end of 2012-55 Defense and Government Services deals were announced in the 4th quarter of 2012 alone-there's only been 16 deals closed so far in 2013 through February.

With seemingly an intensification of the budget/sequester, cost and contracting concerns which have dominated the headlines over the past couple years plaguing many industry firms' business visibility and financial performance, this slowdown is not unanticipated.

But has the music stopped for good?  Far from it!

On the buyside, while their diligence is heightened around sequester and budget cut threats, those companies committed to this market for the longer-term continue to have a strong appetite for acquisitions of firms with depth in Health, Collaboration and Cloud Computing, Data Analytics, Cybersecurity, SOF, C4ISR and select areas of Intel that are deemed growth areas or less susceptible to areas facing budget pressure.

In our business, while we have found some buyers choosing to ride out the headline risks on the sidelines, 9 out of 10 buyers say they are "open for [deal] business" and otherwise excited to see our clients coming to market.

On the other side of the deal, while future sellers are likely to pay higher taxes on their deal proceeds, most of the real reasons owners consider a sale-like strong valuations/demand for their business (primarily in the above areas), owner interest in retirement and/or distaste for the current business environment, shareholder differences or ownership rebalancing, and increasingly market/business fear-remain and/or have intensified.

That being said, many potential sellers feeling overly susceptible to budget cuts are rightly staying on the sidelines for now.  The select, firms possessing solid books of business and focus in the areas of strong buyer demand are exploring the market without delay and benefiting, in some cases, from the market's current supply/demand imbalance!

More Stories By Tim Watson

Tim Watson supervises all media production at Executive Mosaic, a digital media company that provides insight, information and analysis on several industries, including government contracting.

He previously produced byline coverage with the economics team at USA Today and evaluated lending proposals for the Overseas Private Investment Corporation.

Tim was born and raised in Washington, DC and holds a bachelor’s degree in Business-Journalism from Washington and Lee University and a certificate in budgeting and finance from Georgetown University's School of Continuing Professional Education.

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