Recap: Fairfax Chamber of Commerce – Symposium for Government Contractors
We had the opportunity to attend the Fairfax Chamber of Commerce – Symposium for Government Contractors in Tyson’s Corner earlier this week. The morning included a number of panels with topics focused on M&A, the impact of private equity, and managing increased oversight – all themes relevant to the growing and emerging government contractor in the space. Some observations and themes worth noting:
Marketplace remains highly competitive. More players are fighting for fewer contracting dollars. Larger businesses are becoming very aggressive in pricing in order to protect the top line. This approach is expected to increasingly pressure the mid-size contractor.
Public Market Trends
Publicly company valuation sit at or near multi-year lows, driven by low to no organic growth and the aforementioned pricing pressures. Near term “buy” ratings by the Wall St. Analysts remain unlikely; however, government IT services should remain an attractive segment for the long term investor as the sector has been for the past 20 years.
Big data, data analytics and mobile apps are key, especially given the volume of “data” across the federal government. Mobiles apps are likely to become more pervasive as a way for citizens to interact with the government, especially for everyday activities – “where is my check, where is my fishing license etc.” Mobile apps as an interface are also is in line with broader themes of efficient access to information at lower cost points. Positive momentum for the next decade is that IT will be the enabler to cut government spending, right size government, and achieve mission objectives.
General consensus that consolidation shall continue, with buyers focused on the cyber, health, Intel and ISR. However, this is a small population of the market. Valuations should remain very strong in these areas given the supply and demand imbalance. As for the continued spread between public company valuations and those paid in the M&A markets, this is also anticipated to continue. Public investors often thinking quarter to quarter, whereas M&A investors are thinking and paying for a 3-5 year growth story.