2011 Government Services M&A: Year in Review

Looking back at 2011, the year resulted in a healthy level of government services activity.  During the year, 89 deals were announced.  Although the total deal activity fell 10% from the 99 deals announced in 2010, 2011 activity was well above 2009 levels of 77 deals.

Similar to 2010, hot areas in the M&A market continued to be cybersecurity, intelligence, ISR, and healthcare IT in 2011, but firms with mobility and cloud-oriented capabilities were also in high demand.  We saw buyers trying to align themselves with these strategic federal funding areas, amidst overall uncertainty in federal budgets.  Others buyers used acquisitions to gain access to certain high-priority customers, contract vehicles, and capabilities.

Strategic buyers announced the majority of the 2011 deals, representing 85% of the total.  The strategic buyers were mainly government services players, while defense and diversified strategic buyers dabbled in the market.  CACI, General Dynamics, KEYW, and Ultra Electronics were the most active buyers in 2011 with three transactions each, followed by nine other buyers with 2 transactions – CH2M Hill, ECS, Harris, IBM, ManTech, Raytheon, Salient Federal Solutions, Sotera Defense Solutions, and URS.

The activity shows that larger buyers with healthy balance sheets and plenty of cash, aren’t afraid to use it.  Two other trends worth noting were the influence of private equity who participated in ~35% of deals as the buyer or via an existing portfolio company, and increased willingness of larger players to acquire much smaller companies that are strategic in nature, but don’t immediately move the needle from a revenue basis.

Moving into 2012, there is significant momentum given the number of buyers that remain hungry for deals, but have very focused and disciplined M&A strategies as well.

Top 5 Largest 2011 Government Services Deals: (1)

Date (2)
Buyer Target
4/1/2011 Providence Equity Partners LLC SRA International, Inc.
8/16/2011 General Dynamics Corp. Vangent, Inc.
11/7/2011 HMS Holdings Corp. HealthDataInsights, Inc.
10/19/2011 The Parsons Corporation Cobham Analytic Solutions (formerly SPARTA)
3/3/2011 Ares Management LLC Global Defense Technology & Systems, Inc. (now known as  Sotera Defense Solutions, Inc.)

(1) Based on enterprise value and publicly available information

(2) Announcement date

Written by Marc Marlin and Laura Hockensmith.