KippsDeSanto Transactions Recognized by Washington Technology

Ten Consecutive Years of “Top Deals”

TYSONS CORNER, VA. (April 24, 2018) — KippsDeSanto & Co., the largest investment bank exclusively focused on the aerospace / defense and government services sectors, announced that five of the mergers and acquisitions (M&A) transactions the firm supported in 2017 were recognized in Washington Technology’s annual ranking of “the best deals of 2017” in the government market.

According to KippsDeSanto, the firm represented clients in three of the eight “Top Deals” of 2017 and, overall, five of the 16 “Best Deals of 2017” as determined by Washington Technology. This brings the total to 19 KippsDeSanto transactions recognized by Washington Technology since 2012, and marks the 10th year in a row that deals advised on by the firm have been recognized in the annual rankings.

“There were over 100 transactions in the government market in 2017,” said Co-founder and Managing Director Bob Kipps. “We are extremely proud that so many of our clients were acknowledged as participants in the leading transactions in the industry. It is a true testament to the quality of company that hires KippsDeSanto to advise them on their M&A transaction.”

The recognized KippsDeSanto deals represent a complete set of M&A transaction alternatives, including selling on behalf of private equity clients (DFW Capital Partners and Lake Capital) and privately-held clients (InfoReliance); supporting a merger of private companies (Dominion merging with TeraThink); and selling to a private equity group (H.I.G. Capital) and private equity-backed platform companies (Salient CRGT and ECS Federal).

“These efforts show our entire team’s dedication, creativity and investment in our clients,” Kipps said. “We have built our organization and honed our approach to be a key partner for the best companies in the industry.

“We anticipate 2018 to be another strong year for M&A in the government market and for our firm, as we have already closed or announced seven transactions in the first quarter of 2018,” Kipps added.


About KippsDeSanto & Co.: Founded in 2007, KippsDeSanto & Co. is an investment bank of 25 professionals focused on delivering exceptional results for leading, growth-oriented aerospace / defense and technology companies. We leverage our creativity and industry experience to provide M&A, private financing and strategic consulting. Capitalizing on real-time industry trends and in-depth technical and strategic analysis, our solutions-driven approach is highly structured and uniquely tailored to each client. KippsDeSanto is recognized for its market insight and broad industry relationships. We help market leaders realize their full strategic value. KippsDeSanto, member FINRA/SIPC, is not affiliated with other companies mentioned herein. For more information, visit www.kippsdesanto.com.

 

KippsDeSanto’s DealView — Top 10 M&A Deals of the Quarter

 KippsDeSanto & Co., a leading aerospace / defense and government technology solutions investment bank, would like to share its thoughts on the “Top 10 M&A Deals of the Quarter” for the period ended March 31, 2018.  The following table is our take on the most notable announced M&A transactions — not only based on size, but also on strategic importance and / or impact.

Click here to download the table above

Of the above transactions, the following were especially noteworthy:

The aerospace / defense deal of the quarter is TransDigm Group’s acquisition of Extant Aerospace.  The proposed acquisition is worth $525 million, or more than 6x fiscal year 2018E pro-forma revenue.  Aircraft aftermarket sales are expected to drive 80% of Extant’s 2018E revenue, with a majority of revenue derived from the military end-market.  The company licenses or acquires aftermarket products form aerospace and defense original equipment manufacturers, and then provides maintenance and support for these products throughout the rest of its useful life.  Extant support various military aircraft platforms such as the F-16, AH064, F-18, F-15, and C-130.  Its commercial platforms include the King Air series, MD 900 / 902, B747, B757, and B777 as well as various business jets.  TransDigm expects the acquisition to provide significant opportunities for growth and believes that Extant’s unique business model will be a natural fit within its aftermarket-focused value generation strategy.  TransDigm plans to finance the acquisition through a combination of cash on hand and its existing revolving credit facility.

The government technology solutions deal of the quarter is General Dynamics’ (“GD”) announced acquisition of CSRA.  The proposed transaction is worth approximately $9.9 billion, or 11.7x LTM EBITDA.  Recently, GD increased its original February 12th offer of $40.75 per share to $41.25 after CACI made a counter bid on March 18th for $44 per share in cash and stock.  GD ultimately prevailed in the bidding war because its offer was all cash, unlike that of CACI’s, which consisted of cash and stock.  CACI’s stock traded down approximately 7% the week after their counter-offer was made public, making its offer less compelling given the stock component.  The deal highlights sector buyers’ continued focus on increasing scale and next-generation IT (“NGIT”) capabilities via M&A.  Following the acquisition, GD’s federal IT business will generate nearly $10 billion per year in revenue.  This will make GD the second largest government contractor, slightly behind $10.6 billion Leidos, which became the largest government IT and services contractor through its merger with the former Lockheed Martin IT business in 2016.  General Dynamics and CSRA have received clearance from anti-trust officials, and the deal is expected to close in the first half of this year.

(1)       KippsDeSanto & Company is not affiliated with any other company mentioned herein

Field of (Private Equity) Dreams

By Kevin P. DeSanto, Managing Director, and Mel E. Levey, Associate, KippsDeSanto & Co.

For those of us that enjoy movies and baseball, “if you build it, he will come” is a phrase that has deep meaning as a core theme from the 1989 movie Field of Dreams.  That same theme applies to private equity involvement in the Government Contracting (“GovCon”) community M&A landscape.

For decades, the GovCon market (the “it” from our famous movie quote) has attracted strong interest from private equity investors (the “he”) because of the tremendous visibility provided by government budgets and strong, cash-flow generating business models.  Add in an increasingly risky geopolitical environment, fast-changing technology needs, growing overall economy, strong financing environment, and healthy public equity markets, and you have a formula for a very attractive investment environment in the GovCon industry for private equity firms.

The GovCon industry has seen a consistent uptick in public company valuations and M&A transaction activity in the past few years.  The public company median EV/EBITDA multiple has increased from 4.9x EBITDA on December 31, 2012 to 11.3x EBITDA on December 31, 2017.  While 2012 was a peak year for GovCon M&A volume with 108 announced transactions, M&A transaction volume in 2013 totaled just 65 transactions and rose to 102 transactions in 2017.

“Private equity firms will continue to play a significant role in the GovCon M&A ecosystem even while vintage portfolio companies are put up for sale as a result of the overall healthy industry and economic dynamics at play.”

Private equity ownership of GovCon companies has been an important part of the M&A ecosystem throughout these tumultuous last 6 years.  Out of 522 GovCon M&A transactions in the past 6 years, 191 of these transactions (36.6%) have involved a private equity group on at least one side of the M&A transaction[1].  Private equity involvement in 2017 GovCon M&A reached a peak of 42 transactions, slightly above the activity of 2012 (39 transactions) and a 40% increase over the 2012-2016 average of 30 transactions per year.  Of particular note, 12 of the 19 GovCon M&A transactions greater than $100 million[2] that occurred in 2017 involved a private equity group.

One hundred and fourteen distinct private equity groups were involved in the 191 transactions referenced above.  In 2017 alone, 40 distinct private equity groups were involved in at least one GovCon M&A transaction. Some of the names are familiar to those who follow the GovCon industry closely, such as long-time industry investors Arlington Capital, CM Equity, DC Capital, and Veritas Capital (each of whom was involved in 2-4 GovCon transactions in 2017).  Still others are newer to the scene or have recently increased their exposure to the GovCon marketplace, such as AE Industrial, Apollo Global (involved in 5 GovCon transactions in 2017), Enlightenment Capital and H.I.G. Capital.  While a number of the GovCon private equity investors are located in the DC area, the majority are headquartered in locations such as Boston, New York, Philadelphia, South Florida, Chicago, San Francisco, and Los Angeles.

Private equity firms have acquired, as either a new platform investment or as part of a portfolio company, an average of 27 companies annually from 2012-2017.  The number of new private equity platform investments increased to 17 announced transactions in 2017, an 89% increase over the annual average of 9 such transactions from 2012-2016.  Private equity portfolio company acquisitions have been relatively steady over the years, averaging 17 announced transactions annually from 2012-2017.  The GovCon transaction announcements of the past 6 years suggest that private equity portfolio companies typically acquire approximately 3 additional companies to add to the platform company prior to the platform company sale transaction.  These investors also show a penchant for finding deals across all sub-sectors of the market (with 2017 alone including investments in government-focused healthcare, cybersecurity, cloud, and defense / intelligence) and different transaction types (acquiring private companies, other private equity-owned companies, public companies, and divestitures).

There have been 38 M&A transactions in the past 3 years (2015-2017) where private equity firms have sold a GovCon portfolio company.  This is a dramatic 138% increase in selling activity by private equity groups from the previous 3-year period (2012-2014) in which 16 such transactions were completed.  Twenty-one such transactions occurred in 2017 alone, including Lake Capital selling WBB to H.I.G. Capital in October 2017 and DFW selling Triple-I to Salient CRGT in February 2017.

KippsDeSanto believes the strong level of private equity involvement in the GovCon M&A ecosystem will continue, particularly given the recent trend of increasing activity.  Private equity’s role will likely be significant on both the buy-side and the sell-side as vintage portfolio companies are put up for sale as a result of the overall healthy industry and economic dynamics at play.

Partnering with private equity firms should be a primary consideration for GovCon business owners and management teams that are looking for liquidity or growth financing options.  There are many ways to structure these partnerships – from minority ownership through 100% buy-outs – depending on the objectives of the parties involved.  Preparation is often a critical success factor, as these investors require a level of business scale, sophistication, and maturity that is not easy to attain.

That long line of cars (or trains, or planes) approaching Washington is proof that private equity firms are here to continue to invest in the GovCon market and fulfill a vital role in the M&A ecosystem.


[1] Private equity transactions are defined as those involving a private equity group on the buyside as the platform investor, on the buyside as the owner of a platform company and/or on the sellside as the owner of a platform company.

[2] “Greater than $100 million” defined as transaction enterprise value.

[3] KippsDeSanto & Co. served as exclusive financial advisor to WBB and Triple-I.