Companies on MACs are takeover targets

Friday - 6/1/2012, 10:58am EDT

Sopen Shah, defense analyst, Bloomberg Government

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By Sopen Shah
Bloomberg Government

Federal contractors are continually on the hunt for new business. They get it one of several ways. They can scour agency postings, looking for new opportunities. They can prowl conferences and hallways, doing gumshoe business development.

But if a company is big enough, it can simply shortcut its way to new revenue by acquiring another company with good contracts.

A Bloomberg Government report found companies with positions on multiple award contracts are juicy takeover targets.

Sopen Shah, a Bloomberg defense analyst discussed the forthcoming report, "Potential Targets? Companies on Lucrative MACs Attract Attention" with The Federal Drive with Tom Temin and Emily Kopp.

EXECUTIVE SUMMARY:

Contractors may acquire companies on large multiple-award contracts, or MACs, which represent billions of dollars in potential government spending during the next five years. Some companies, such as General Dynamics Corp. and ManTech International Corp., rely on the federal government for more than half their revenue1 and may acquire to sustain growth in an era of declining federal budgets.

Contractors bought companies in 2011 and during the first four months of 2012 in part to gain access to or expand their presence on multiple-award contracts.2 For example, General Dynamics earned the opportunity to go after orders on the $4 billion Enterprise System Development MAC managed by the Centers for Medicare and Medicaid Services after acquiring ViPS Inc. in 2008 and Vangent Inc. in 2011.

This Bloomberg Government Study, Part III in a series on mergers and acquisitions in the federal contracting market, examines the types of companies on multiple-award contracts that may be potential acquisition targets for large prime contractors and other companies. Multiple-award contracts included in the study have a life cycle through fiscal 2015, spending of at least $500 million in fiscal 2011 and an increase in sales from fiscal 2010 to fiscal 2011.

The study also examines data for previous acquisitions involving companies on those MACs. This sample shows purchase multiples ranging from 0.63 times to 2.18 times annual revenue.

(BGov.com is a paid site and requires a subscription for access.)