2019 M&A Trends and Integration Considerations For Government Contractors

January 2019

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Since 2017, the Government Contracting market has seen a spike in M&A activity, with various factors driving mergers, acquisitions and divestitures.

Between corporate cash reserves, changes in tax law, the administration’s encouragement to reduce the total number of federal contracts by consolidating contracts into a fewer number of large contract vehicles, and the attractiveness of increased defense budgets, the market saw a record number of large deals in Q4 2017 and Q1 2018. It was not just the large, traditional organizations that were acquisitive; a diverse group were buying up niche capabilities and contract vehicles.

2018 overall saw a strong appetite for deals both on the sell and buy side. Strategic buyers are looking for products, services, sales channels, talent, customers and geographical presence that expand capabilities and make them more competitive. Buying strategies change depending upon sector or tier, but buying trends, especially in the mid-tier range of companies with revenue of $500 million to $5 billion, are for full and open revenue, vertical markets (AI, cyber, cloud, C4ISR) and customers (DOD, Intel, Space, DHS, HHS), access to the supply chain, direct customers, capabilities, IP, clearances and/or talent.