News & Events

Contract Consolidation – Implication on M&A

By Jon Yim

Over the past few years, the Obama administration has worked with various government agencies to consolidate federal contracts into fewer, larger awards in an effort to save money for taxpayers. In a recent announcement by the General Services Administration (“GSA”), it has been actively pushing to reduce approximately 5,000 contracts and 4,500 contractors to roughly 4,000 of each over the past year.  This trend has also triggered consolidation for contract vehicles, such as Responsive Strategic Sourcing for Services (“RS3”) and the GSA’s newly formed Professional Services Schedule, the two of which will replace 13 current vehicles.  Analyzing this trend through an M&A perspective, we see that consolidation affects how and when sellers choose to enter the market, as well as how buyers determine appropriate valuations of targets.

The evolving acquisition landscape, driven by contract consolidation, has reduced visibility for both buyers and sellers. Broad macro effects, including budget uncertainty, have made it difficult to predict if vehicles will be renewed, consolidated, or eliminated altogether.  Replacing the next generation of Technical Acquisition and Business Support Services (“TABSS”) with One Acquisition Solution for Integrated Services (“OASIS”) exemplifies the inherent challenges contractors face related to the fluid contracting landscape.  In addition to the perennial problems of winning recompete work on existing contracts, potential targets now have legitimate concerns over whether their contracts will be continued into the next generation.  The Transformation Twenty One Total Technology Program Next Generation (“T4NG”) vehicle consolidated several previous contracts, and simultaneously saw many incumbent contractors lose out on the downselect from the current T4 vehicle.  The tumultuous and constantly evolving contracting landscape has rendered acquisition valuations more difficult by exposing both buyers and sellers to more uncertainty.  However, a shrinking number of large Full and Open (“F&O”) contract vehicles makes winning a coveted F&O prime position increasingly valuable to contractors.  More companies are looking to acquire targets with F&O prime positions on these major contract vehicles to gain access to desirable assets and new customers in order to bolster revenue in lieu of organic growth.