Ready, build, sell

Marc Marlin is managing director at the technology solutions and aerospace/defense investment bank KippsDeSanto & Co.

As we pass mid-year, we've seen a noticeable pickup in merger and acquisition activity across the government contracting space. This activity has been comprised of deals of all different sizes and personalities, ranging from further splits of large public firms to corporate divestitures to strategic tuck-ins, to name a few.

More relevant is the range of deal participants. The deal game is no longer the a big company buys a small player, but rather a "ready, build, sell / merge" strategy. For example, private equity firms are taking advantage of sector strength and public and debt markets to monetize older vintage investments such as Acentia, Scitor, and AT Solutions year-to-date.

Companies such as Camber, which brought in new senior leadership, and CRGT which sold itself to a new private equity group have reset the clock and are looking to continue the build strategy.

For the large public companies, we're closely following the CSC split, which comes on the heels of prior splits such as SAIC and Leidos, and L3 and Engility. On the merger side, Harris and Exelis completed their combination in May. Last month, STG, one of the larger privately held government contractors announced its intent to going public via a cash and stock transaction with Global Defense & National GDEF.

Why all the activity and why now? One plausible theory is that we're in a period with a sense of stability. While the hay-days of the post-2001 spending environment are well in the rear view mirror, budgets appear to have bottomed-out, company performance has bounced back in 2014 and early 2015 following a tough 2013 business environment, interest rates are anticipated to start their ascent, and the election is still far enough in the distance to suggest any near term impact. As a result, there is a perceived boundary of market conditions and competitive dynamics allowing companies of all sizes to think and act strategically.

We anticipate the activity to continue in the near- to medium-term, establishing the competitive and player landscape for the next few years.