Is Now The Right Time For Bold Thinking About M&A?
By Robert Rubin Senior Managing Director
With an ongoing worldwide pandemic and economies in free fall – our world is full of uncertainty. Many businesses are faced with the challenge of survival daily. Does this sound like a good time to be thinking about long term issues of growth or ways to enhance the value of your business? If you are a government contractor, particularly with revenues in the range of $10 - $50 million the tumult throughout the world could present an unparalleled opportunity to do just that! As we saw during the financial meltdown in 2008, the impact of macroeconomic factors on government contractors is not as profound as that experienced by other sectors of our economy. That’s not to say there were not challenges that need to be addressed. But I believe they tend to be more operational rather than financial in nature. Some examples include no in-person meetings with clients, transferring work previously being performed at the client site to different locations, and the impact on efficiency and creativity due to the inability to meet in person and exchange ideas. For classified work, these can be particularly challenging adjustments to make. On the other hand, from most of the government contractors we have been talking with recently, their people are still working at generally the same level of effort and bills are being paid in a timely manner. In fact, for those who are directly supporting the SBA’s PPP and other efforts, they have seen an exponential expansion of their business. While procurements for goods and services to support the effort to fight the pandemic are expedited, the biggest concern we have heard is the procurement process and new contract awards for items that are not essential to the current problems are experiencing a slowdown. Eventually business may likely return to the “new normal” and a huge deficit of trillions of dollars will likely have to be dealt with. It seems logical to think federal and state governments may look to increase revenues through a combination of higher taxes and fees and implement significant reductions in spending. Picking the winners and losers and how that may play out is something that government contractors will likely have to contend with over the next few years. I believe this is the biggest challenge which is causing a lot of consternation to owners of small and medium sized businesses. For some time, M&A activity in the government contracting arena, particularly at the upper end, has reflected strong buyer demand resulting in a sellers’ market. At the lower end of the market, small and medium sized companies with a large amount of restricted work, with some exceptions, may have experienced a slow but steady contraction in valuations as market multiples continue to decline. Faced with many of the structural challenges that make growing beyond the small business size standards and/or being able to compete for larger, more technical awards, and the uncertainty presented in the future may have already caused many owners who were previously “on the fence” to begin seriously considering an exit.
For those who are up to the challenge, the opportunity to obtain new contracts, clients, skills, or products while enhancing critical mass and the ability to pursue larger procurements at a reasonable price may never be better than right now. In addition, being a well-capitalized and motivated buyer, at the lower end of the market, will likely be a strong differentiator. Though conventional financing for an M&A transaction is still available, in conversations with bankers they indicate that underwriting standards and pricing will likely be tighter going forward. Finally, there are more alternative financing sources than ever before that are interested in getting into or expanding their portfolios into the government contracting arena. Creative financial structures are usually one of the ways these transactions get done in a manner that meets the goals of all parties.
So, is now the time for bold thinking?
We believe the answer is an unqualified “YES”. Please feel free to contact me to discuss this article in further detail or discuss your specific situation as part of a free evaluation of your options.
The opinions herein are of the individual and not necessarily of Boustead Securities, LLC or Trident Advisors. There is no guarantee that any specific outcome will be achieved.
About Robert N. Rubin
Robert Rubin joined Boustead as Senior Managing Director in 2020 and has over 35 years of experience in Mergers and Acquisitions, the last 25 of which have been specifically focused on the technical services marketplace including Aerospace, Defense and Government contracting in the Washington DC Metropolitan area.
In addition to his background in M&A, he has extensive experience in corporate finance and development with public and privately held companies. He has been involved in more than 40 transactions worldwide, and served as President of the National Capital Chapter and on the International Board of Directors for ACG. Robert is a FINRA registered representative and holds series 7, 24, 63, 79 and 99 licenses.
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About Boustead Securities, LLC
Boustead Securities, LLC (“Boustead”) is an investment banking firm that executes and advises on IPOs, mergers and acquisitions, capital raises and restructuring assignments in a wide array of industries, geographies and transactions, for a broad client base. Boustead’s core value proposition is the ability to create opportunity through innovative solutions and tenacious execution. With experienced professionals in the United States, Boustead’s team moves quickly and provides a broad spectrum of sophisticated financial advice and services. Boustead is a majority owned subsidiary of Boustead & Company Limited, a diversified non-bank financial institution. For more information, please visit www.boustead1828.com.
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