Analysis2005 sees busy, rich M/A activity in government security services sector
The acquisition of Anteon by General Dynamics (NYSE: GD) for $2.1 million in cash was only one deal, but it stands for a broader phenomenon: In 2005 the wave of consolidation in the federal and defense services sector continued. Seventy-seven sector transactions were completed, compared to seventy-nine in 2004. Paul Serotkin, president of Minuteman Ventures, an investment bank specializing in the federal government and defense technology market, notes what we have noted a few weeks ago [HSDW 12/15/05]: Top tier companies continue to move into IT. Large military platform and electronics contractors bought businesses in the higher-growth intelligence, technology, and outsourcing sectors to offset what he describes as the “pruning” of big-ticket weapons programs. In addition to the General Dynamics/Anteon deal, we note that in 2005:
Lockheed Martin (NYSE: LMT) acquired Rockville, Maryland-based Aspen Systems, Louisville, Colorado-based Coherent Technologies, Ampthill, Brefordshire, England-based INSYS Group, and the Bethesda, Maryland-based Sytex Group
New York-based L-3 Communications (NYSE: LLL) acquired San Diego, California-based Titan Corporation
Parisppany, New Jersey-based DRS Technologies (NYSE: DRS) acquired McLean, Virginia-based Engineering Support Services
The large companies acquiring smaller, niche players made news, but it was smaller transactions which accounted for most of the M/A activity in the sector: Fifty-three out of the seventy-seven transactions were for firms with purchase values under $50 million. Thus, federal services contractors such as 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), and others, acquired smaller companies for the purpose of sustaining public market valuations and place themselves in a better position to bid on larger procurements. When we wrote about GD’s acquisition of Anteon we noted that Anteon’s valuation was on the generous, and Minuteman Ventures, too, notes that buyers paid strong value for firms in intelligence services, homeland security, and mission-critical defense programs.
There were also small and mid-tier firms active in acquisitions, among them private companies with revenue under $200 million: Vienna, Virginia-based Indus
