minuteman ventures llc ‘ 'the rush to acquire: analyzing the robust m&a market for...

Minuteman Ventures LLC

‘'The Rush to Acquire: Analyzing the Robust M&A Market for

Federal/Defense Technology Companies'

Conference: Phase 3 Business Matters: Realizing SBIR Value

June 3, 2005

Paul Serotkin


Today…..

• Current M&A Environment• The Federal/Defense Technology Company

Universe• Seller/Buyer Profiles• M&A Valuation/Deal Pricing

– The Technology Differentiator in Federal M&A



• M&A advisory firm focused on Federal and Defense Technology market

• Manage corporate transactions for private firm owners approaching M&A as either 1) a first time strategic growth path, or 2) a liquidity event

• Founder spent most of career heading M&A and Corporate Development functions at federal corporate clients, deeply involved (with SBANE) in effecting passage of SBIR in 1982


What Drives the Robust Federal/Defense Technology M&A Market

• Post 9-11 funding brought dramatic increases in defense/intel funding• Internet adoption, aging federal workforce gave rise to increased

outsourcing to private sector• Leading to…..

– Increased company valuations, IPOs and private equity investment in the government contracting sector

• Economic conditions ripe for consolidation ….. Low debt capital cost, recovery of capital markets

• Industry conditions ripe for consolidation……* highly fragmented market * demand for technology advantages * mid-tier companies with capital looking to grow * strategic bulk seen as key to compete for larger contracts * Bevy of well-positioned firms in intelligence, security, C4ISR, network-centric warfare, law enforcement, public safety yield M&A premium


The Federal/Defense Technology Company Universe

• Under $100m in revenue, often under $50m• Closely held, few shareholders, with perhaps an ESOP holding a minority

position and some option-holders; typically no outside capital• Geographically strong in two, possibly three locations• Having true market presence at two to three agencies• Widely ranging services, systems, products and solutions across a spectrum –

- System engineering/integration, training, modeling/simulation, network services, technology R&D, legacy migration, database maintenance, logistics, software application development, program management/acquisition support, systems/platform systems, IT/communication technology

• Usually at least five years old, many times 15+ years duration• Founder often involved, at least in ownership, if not operations• Could have some SBSA/8a work remaining


Seller Transaction Profile – Federal TechnologyBy Seller Size

150+ transactions since Q4 ’02

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

<$

20

m

$2

0m

- $

50

m

$5

0m

– $

10

0m

$1

00

m –

$2

50

m

$2

50

m -

$5

00

m

$5

00

m +


Buyer Transaction Profile – Federal Technology

(By Acquirer Size)

150+ transactions since Q4 ’02

0%

10%

20%

30%

40%

50%

60%

$50

0m+

$50

m-$

100

m

< $

50m

$10

0m-$

250m

$25

0m-$

500m


Large Corporate Buyers Tier 1Company Status Revenue ($ billions) Recent Mid-tier

Transactions

SAIC Employee-owned 8 Object Sciences,Trios, EMA

Anteon Public 1.25 IMS, ISI

Boeing Public 52 Conquest

BAE Systems Public 22 DigitalNet, Alphatech, STI

Engineered Support Syst Public .81 PCA, SpaceLink

DRS Technologies Public 1.2 Integrated Defense Tech

Perot Systems Public 1.75 ADI, Soza

Tetra Tech Public 1.4 AMTI, EMC

Northrop Grumman Public 28 Integic, XonTech

SRA Public .7 Touchstone, Orion Scientific

CACI Public 1.35 C-CUBED, AMS

General Dynamics Public 19 Digital System Resources

L-3 Public 6.7 D.P.Associates, Aeromet

Raytheon Public 20 Photon Research, Solipsys

Lockheed Martin Public 35 Sytex, Orincon

Mantech International Public .82 Grayhawk, Integrated Data Systems


Mid-Tier Buyers – Tier 2

Company Status Revenue Recent Transactions

SI Intl Public $252m SEI, Bridge Technologies, MATCOM

Wireless Facilities Public $405m TLA, Defense Systems, HTS

EDO Public $475m Adv. Eng & Research.

MTC Tech. Public $245m OnBoard, MTI

Dynamics Research Public $300m Impact Innovations, Andrulis, HJFord

PEC Solutions - to be acquired by Nortel Networks

Public $202m AC Technologies, IITC




ITS Services, now Apogen Tech

Private $200m SEA

NCI Private $136m Scientific & Engineering Solutions

Stanley Associates Private $250m Fuentez Systems

STG Private $170m Decision Systems Tech.

Alion Science and Technology

Private $200m JJMA, METI, Identix (Public Sector)

ICF Consulting Private $160m Synergy, 2 Arthur D. Little

units Apptis, Inc. Private - SETA Corp.

American Systems Corp.

Private $175m True North, Digital Access




FC Business Systems Private Under $100m CHM, AmerInd

Innovation Technology Appl.

Private “ IT Specialists, DKCS

Management Systems Designers, Inc. (MSDI)

Private “ Kathpal Technologies, ClearBrook Solutions

SFA Private “ The Analysis Corp.

Axiom Resources Private “ Keymind

Calibre Systems Private “ Strategic Mgt. Initiatives


M&A Valuation – Size/Specialty Matters

Seller Category (by revenue)

Transaction Value

Under $20m 4-6x EBITDA

$20-50m 7-8x EBITDA

$50-100m 8-10x EBITDA

Specialty Firms (size partially relevant)

10x+ EBITDA


Technology Advantage Differentiates Federal/Defense M&A

Buyer Seller Purchase Price Revenue Price-to-Rev.

Applied Signal Tech

Dynatec $30m $18.1m 166%

Raytheon Solipsys $170m $35m 486%

BAE Alphatech $88.4m $64m 138%

DRS Paravant $110m $52m 213%

Mantech Aegis $69m $60m 115%

Alliant Techsystems

Mission Research

$230m $180m 128%

SYS Technologies

Polexis $6m $8m 75%


Technology Advantage Differentiates Federal/Defense M&A

Buyer Seller Purchase Price

Revenue Price-to-Rev.

Anteon Simulation Tech.

$20m $15m 133%

Foster-Miller Qinetiq $163m $120m 136%

Ave of Reporting Cos. sales (excl. Solipsys)

138%

Raytheon Photon Research N/D N/D

Northrup Grumman Xontech N/D $73m

Lockheed Martin Orincon N/D $49m

General Dynamics Digital Systems N/D $125m


Why the Technology Advantage in M&A Pricing

• Leverages buyers into larger programs

• Differentiates company from IT services

• Battlespace demands intensified – Confluence of science and software

• Higher margin potential –– ‘expert’ labor hours

– license sales

– maintenance


Conclusions

• Federal/Defense Technology M&A Market remains robust

• Buyers come from all size firms; Mid-tier firms stepping up

• Technology can be true pricing discriminator

• M&A pricing gradation based on size, differentiators

• Consolidation figures to continue for some period


Contact Data

Paul SerotkinPresident

Minuteman Ventures LLC781 750 8065

781 254 7267 [email protected]

www.minutemanventures.com

HQ: Burlington, MAOperations: Huntsville – Patuxent River-

Dayton – No. Virginia

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