Does Being Public Still Make Sense for Government Services Firms?
The WashingtonBusinessJournal recently quoted SAIC CFO Mark Sopp stating “valuation has gone against us since we’ve gone public (SAIC is down approximately 26% post-offering)… [and] we have not raised capital through the equity markets and we don’t plan to do so…So it’s hard to point at net positives of going public, other than the infrastructure improvement and discipline and cadence we created…”
There have been 16 IPOs by government services companies since 2000, raising combined proceeds of approximately $4 billion. Six of these initial offerings occurred in 2002 commensurate with the commencement of the war on terror and national security focus, and five occurred in 2006 alongside heightened defense spending expectations.
Of the 16, only seven remain public (the others have been acquired), and of those seven only ICF and ManTech have posted positive stock returns since IPO. The average stock price for the remaining five companies (Booz Allen, SAIC, NCI, KEYW, QinetiQ) has declined more than 20% since IPO with NCI down nearly 50%. Companies have been deprived of one of the ideal benefits of a public offering – access to capital through additional offerings or currency for acquisitions to fuel growth. ICF was the last contractor to issue a follow-on offering, and that was in 2009. Additionally, none of the aforementioned firms besides KEYW have made an acquisition utilizing stock to finance a material portion of the purchase price.
The absence of these inherent go-public benefits begs the obvious question: is there any benefit for a government service provider to be a public company? Moreover, will we see more companies such as SRA International choose to go private in the near to medium term in what is anticipated to be a challenging market environment.