Join Aronson LLC and Independent Benefit Services on May 30, 2013 for an informative presentation on the various provisions of healthcare reform that will have a profound impact on how healthcare is delivered and funded in the United States. Our experts will cover the major changes for 2013 and 2014, including new W2 reporting requirements, the Summary of Benefits and Coverage, The Employer Mandate, The Individual Mandate, and The Exchange.
Thinking about terminating your group health plan and paying penalties to save money over offering coverage? Not so fast — we’ll share reasons why you may want to stay in the game (and you’re right…competing for talent is just one of them)!
At the conclusion of this event, attendees will have a clear understanding of:
- The Vision of Health Care Reform – What is changing in 2014
- The Employer Mandate – How to comply and analyze the financial impact
- Reporting Requirements – What you need to do
A Q&A session will be held at the conclusion of this webinar.
- Lisa Scott, Director, Compliance & Communications, Independent Benefit Services
- Mark Flanagan, Director, Employee Benefit Plan Services Group, Aronson LLC
Date: May 30, 2013
Time: 11:00am – 12:00pm
Location: Via Webex
Over the last five years, the Government Services industry has seen continuous interest from financial sponsors. Private equity firms have acquired publicly-traded services providers (e.g., Providence/SRA; Ares/GTEC), divestitures of large systems integrators (e.g., Veritas/The SI; General Atlantic & KKR/TASC), and both middle and small market contractors (e.g., Arlington/White Oak Technologies; LLR/Paragon). In 2012, private equity firms and their platforms accounted for one-third of the acquisition activity within Government Services. Financial sponsors are expected to continue to play a significant role in the Government Services M&A market as contractors (public and private) seek new opportunities to grow in an environment of sequesters, budget cuts, and funding uncertainty.
The Draw of Government Contracting
Financial sponsors like predictable cash flows and large addressable markets. Compared to the commercial sector, federal contractors have relatively high revenue visibility and backlog and enjoy greater confidence in their ability to collect pending customer payments. In addition, the sector is highly fragmented with opportunities for industry consolidation to either enhance an established contractor’s capabilities/customer base via bolt-on acquisitions (e.g., Camber/Novonics), or to roll-up several small companies and form a more competitive contractor with greater scale and ability to meet customer needs (e.g., Arlington/Novetta).
The Need for Financial Sponsors
As the market environment continues to evolve, opportunities become available for those with capital. After being acquired by Ares Management in 2011, Sotera Defense Solutions (formerly GTEC) President and CEO John Hillen said, “Being a part of that investor group gives us access to a lot of capital to do more and bigger deals than we could as a public company.” Within a year of the change in ownership, Sotera outbid its competitors to acquire Software Process Technologies and Potomac Fusion. With flattening growth and shrinking market sub segments, several contractors are leaning towards a more active M&A strategy as a key avenue to grow revenue streams in priority markets.
Deal Mechanics of Financial Sponsors
Borrowing capacity and cash balances have increased for many public contractors since last year, but M&A deals in 2013 have been sparse. Sequestration, budgetary concerns, the debt ceiling, and other topics on the Hill have increased uncertainty in today’s market. As a consequence, the gap between buyer and seller valuation expectations has widened. In this environment, financial sponsors have an important role to play through structuring instruments like earnouts, equity rollovers, and seller notes. These instruments are typically less likely to be included in a strategic buyer’s consideration, or at least to a lesser degree. Forms of consideration that provide paths for additional value through structure may be the only way to bridge the gap between buyer and seller expectations in the current environment.
This article is contained in ACP’s April Market Update.
While federally-focused service providers have been hit hard in recent times, weapons systems integrators have not been immediately impacted. Large weapons systems programs are more difficult to cut than IT and training contracts. This has allowed weapons manufacturers to focus on longer-term margin expansion strategies as service providers downsize and restructure.
Click here to read the entire article from Forbes.
In today’s competitive market, contractors need to take on a new approach to differentiate themselves from the mass. The typical government customer sees the majority of contractors as being the same; most have the same objectives and same goals to win the contract, so why not go with the cheapest? Former Veterans Affairs CIO and current chief strategy officer for Agilex, Roger Baker, has coined the 10-8-10 model. According to Baker, “ten percent of contractors are worth fighting to keep because they deliver results and are focused on making the government customer successful. Ten percent you should fight to fire because they just don’t care about results. But with 80 percent of the contractors, it doesn’t matter who gets the work. The 80 percent hire the same people and put the same workers in charge of the majority of the projects.” Overall, this method is focused on profit and loss, not results.
One of the first ways to help differentiate yourself is by focusing on the customer needs. Contractors have to demonstrate that they understand the customer’s problem before trying to implement a solution. Being results-driven means you have to leave revenue “on the table” if the project does not dramatically improve its customer situtation, or if the solution only provides a short-term remedy rather than a long-term solution.
Summarized from Washington Technology, “You can’t afford to be a vanilla contractor in today’s market”
It’s not surprising that differentiation in turn drives value during sale process. Strategic buyers are no longer executing on “bulk up” acquisition strategies, and have become increasingly selective with their target criteria. Contractors that have historically focused on distinguishing themselves with their customers usually possess attributes that buyers covet – IP, technological differentiation, prime contracts, unique insight into funding priorities, etc. The preponderance of these attributes provides a buyer with a greater certainty that the seller will be able to continue to grow revenue and drive profitability in the future. Therefore, a real commitment to the customer not only yields short term benefits for the contractor, but can add long term value by better positioning the company for an eventual exit.
In this time of austerity and economic uncertainty, joint ventures have become an effective tool that federal contractors are using to leverage more resources, greater capacity, increased technical expertise and access to established markets and distribution channels. This panel will discuss:
- The various types of joint ventures;
- The structural attributes of joint ventures;
- Utilizing joint ventures to grow your business;
- The important set-aside and affiliation rules;
- The financing options; and
- The essential reporting requirements for joint venture
Moderated by: Alan Chvotkin, Executive Vice President & Counsel, Professional Services Council
- Wallace Christner, Venable LLP
- Lexy Kessler, Aronson LLC
- Mike Smigocki, Federal Strategies Group, LLC
- Ed Stucky, Republic Capital Access, LLC
Date: April 24, 2013
Time: 7:00am – 10:00am
Location: Tower Club, Tysons Corner
Click here to register now!
The latest round of cost cutting initiatives highlights the government contracting community’s attempt to adapt to the new budgetary environment. Stagnant or declining revenue growth and margin pressure are the new norm, so contractors are analyzing their overhead and SG&A infrastructure to accommodate a lower revenue base and profitability level. Aronson Capital Partners’ monthly Defense Technology & Government Services Market Update reviews the recent restructuring of publicly traded contractors and features additional articles covering:
- S Corporations: Choosing the Right Transaction Structure
- March M&A Activity
- Recent Industry M&A Transactions
Click here for a copy of ACP’s March Market Update.
Aronson Capital Partners is a leading middle-market investment bank focused exclusively on the government services and technology industry. We invite you to read our February 2013 Newsletter, featuring the following topics:
Continuing Resolution and Sequestration Update
DoD Slows Contractor Payments
Q4 2012 Government IT Services Earnings Calls
Government Services Industry Performance
Public Company Comparables
Recent Industry M&A Transactions
Representative ACP Transactions
Click here for a copy of ACP’s February Market Update.
Aronson Capital Partners is a leading middle-market investment bank focused exclusively on the government services and technology industry. We invite you to read our January 2013 Newsletter, featuring the following topics:
- Q42012 Government IT Services Earnings Calls Analysis
- Selected M&A Transactions
- Priority Acquisition Market Analysis: NSA
- Federal Sector Index Performance and Valuations
- Public Company Comparables
- Recent Industry M&A Transactions
Click here for a copy of ACP’s January Market Update.
Please feel free to contact one of our principals with any questions.
In recent years, the National Security Agency (“NSA”) market has been an acquisition hot spot, as large contractors attempt to re- position their contract portfolio into the faster growing segments of federal spending. The pace of acquisitions accelerated in early 2010 following the creation of the U.S. Cyber Command (USCYBERCOM), especially once it was confirmed that the sub-unified command would be co-located with both the NSA and recently relocated Defense Information Systems Agency (“DISA”) at Ft. Meade. Well-positioned NSA contractors not only offer an acquirer access to the largest U.S intelligence agency, but an entrée into USCYBERCOM, which is commanded by General Keith Alexander, the Director of the NSA.
On January 27, 2013, the Washington Post published an article stating that in late 2012, the Pentagon approved a major expansion of USCYBERCOM, from 900 personnel to approximately 4,900. In the midst of sequestration risk, a continuing resolution, and debt ceiling headlines, such a significant increase in personnel only highlights the significance of the cyber threat to our nation.
According to the Washington Post, the increased personnel at USCYBERCOM will fall into one of three categories:
- National Mission Forces – to protect computer systems that undergird electrical grids, power plants, and other critical infrastructure
- Combat Mission Forces – to help commanders abroad plan and execute attacks (offensive operations)
- Cyber Protection Forces – to fortify the Defense Departments networks
Because USCYBERCOM is so intertwined with the NSA, we expect this increase to further validate a buyer’s investment thesis on the Fort Meade market. When government personnel increase, contractor dollars typically follow. In the past four years, there have been 26 acquisitions of companies whose primary customer was the NSA. This number peaked in 2011 when there were nine transactions closed, as shown in the below graphic. In 2013 & 2014, we expect that targets focused on the NSA market will
continue to stay at the forefront of strategic buyers’ acquisition criteria.
Aronson Capital Partners is a leading middle-market investment bank focused exclusively on the government services and technology industry. We invite you to read our December 2012 Newsletter!
Click here for a copy of ACP’s December Market Update.
- Big Data
- Cloud Computing
- Corporate Restructuring
- Cyber Investment Management Board
- data analytics
- Deficit Reduction
- Emerging Technologies
- federal cybersecurity
- Government Contractor
- Homeland Security Cyber and Physical Infrastructure Protection Act
- Intelligence Community
- IT security
- joint ventures
- Management Consulting
- pre-liquidity planning
- Systems Engineering
- Transaction Structure
- Critical Healthcare Reform Issues for Employees
- Financial Sponsors – Continued Interest in Government Services
- Forbes: “As Budget Cuts Bite, Defense Contractors’ Fortunes Diverge”
- Results-driven Focus will help to Differentiate the Common Contractor
- Joint Ventures in the Federal Marketplace: Principles, Strategies and Pitfalls