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Intelligent Strategy: ESITE as a Catalyst for Organic and Acquisitive Growth

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Consolidation remains a key IT priority for the Department of Defense (“DoD”) and the nation’s Intelligence Community (“IC”).  On March 18th, the Defense Intelligence Agency (“DIA”) released an RFP for its Enhanced Solutions for the Information Technology Enterprise (“ESITE”) contract vehicle, a 5-year, $6.0 billion, multiple-award IDIQ, designed to integrate IT services across national intelligence agencies.  ESITE is the next generation of the DIA’s Solutions for the Information Technology Enterprise (“SITE”) vehicle, set to expire in 2015.  SITE is a $6.6 billion, multiple-award IDIQ designed to support mission-critical programs in the global intelligence and Command & Control (“C2”) arena, whose 11 awardees included six large contractors, as well as five small businesses.  While in many ways similar to SITE, ESITE will allow agencies within the broader IC, such as the Central Intelligence Agency (“CIA”) and the National Security Agency (“NSA”), to procure services under the vehicle, in contrast to SITE, whose primary customers were limited to the DoD’s intelligence agencies.  Additionally, ESITE will support the Intelligence Community Information Technology Enterprise (“IC-ITE”) initiative, designed to enhance information sharing across the IC via a common operating enterprise.  With overlap across multiple intelligence agencies, ESITE would be a first step toward merging the consolidation initiatives of the DoD and IC, and could present numerous strategic opportunities for federal contractors.

ESITE will require a multitude of services, including systems architecture, software development, cybersecurity, and satellite communications, which would present opportunities for a broad range of contractors.  It will also allow contractors with highly specialized data integration and cloud computing capabilities to more competitively differentiate their solutions with DoD and IC customers.  While offering awardees multiple avenues for organic growth, ESITE would also position awardees for favorable M&A trends, due to the highly strategic nature of the vehicle.  Extrapolating from trends seen with SITE, buyers remain focused on gaining access to priority DoD and IC contract vehicles such as SITE and ESITE.  Notable examples include Computer Sciences Corporation’s (“CSC”) acquisition of CenTauri Solutions LLC and ManTech’s $90 million acquisition of Worldwide Information Network Systems, Inc. (“WINS”). (1)  Both CenTauri and WINS were highly attractive targets to the buyer universe in part due to their prime positions on SITE, as the limited amount of awardees created strong demand for those on the vehicle.  While not all IDIQs behave the same in M&A transactions, assuming ESITE is structured like SITE with a limited number of awardees, a position on ESITE could very well generate similar levels of interest from buyers.  All considered, as acquirers continue to align their growth strategies towards priority markets such as national intelligence, ESITE could become a catalyst for further M&A activity in this coveted arena.

(1) KippsDeSanto acted as the exclusive financial advisor to both Centauri Solutions LLC and WINS.