Is BRAC Coming Back?
In a FY2015 budget preview last month, Defense Secretary Chuck Hagel re-introduced the notion of asking Congress for another Base Realignment and Closure (“BRAC”). The request for a new BRAC starting in 2017 stems from the need to reduce expenditures, about which Hagel noted, “we cannot fully achieve our goals for overhead reductions without cutting unnecessary and costly infrastructure.” While each of the five previous BRAC rounds (i.e., 1989, 1991, 1993, 1995, 2005), resulted in a mixed bag of winners and losers, Congress has been adamantly opposed to another BRAC in recent years – perhaps partially due to the cost overruns associated with implementation of the 2005 BRAC (estimated cost: $21 billion; actual cost: $35 billion(1)) – and there’s reason to suspect the proposed 2017 BRAC will also be met with strong opposition.
Despite the uphill battle a new round of BRAC is likely to face, there are many communities within the government contracting world that may expect to benefit significantly from BRAC. Further benefits to contractors with a significant footprint in those BRAC beneficiary markets can include a geographic / market premium from an M&A perspective.
For example, the 2005 BRAC called for nearly 5,000 new positions at Redstone Arsenal in Huntsville, AL, a number that continued to grow thereafter. Given the high-end nature of the engineering support offered, as well as the numerous commands present, Redstone is poised to benefit again from the realignment and closure of less entrenched installations. The Huntsville market also has significant capacity to accommodate additional resources. The potential relocation of other military commands would create opportunities for existing Huntsville area contractors to really benefit from the increased spending at Redstone. During the implementation of the 2005 BRAC, M&A activity experienced a noticeable increase: in the five years leading up to it (2000 – 2004), Huntsville aerospace / defense and government technology acquisitions averaged two per year; during the following five years (2005 – 2009), that number jumped to more than four per year (21 in total). Representative transactions include MacAulay-Brown’s acquisition of Gray Research and Stanley’s acquisition of Morgan Research, both representing new players to the Huntsville market.
While only time will tell who’s the next Huntsville, one possibility is Ft. Gordon in Augusta, GA. While there was concern surrounding the 2005 BRAC’s impact on Ft. Gordon, it escaped largely unscathed. When this is considered alongside recent decisions to consolidate Army Cyber Command operations at Ft. Gordon, in addition to establishing a Cyber Center of Excellence, it bodes well for future realignment initiatives. The military’s continued emphasis on cyber capabilities and the close relationship currently held between Army Cyber and Ft. Gordon’s Signal Center of Excellence suggest the Army’s strong presence in Augusta will remain intact.
Looking ahead, we will be focused on Hagel’s request, as well as the subsequent impacts to be felt throughout the community if BRAC is coming back.