3
2013 Year in Review
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013
Public Private Financial
2013 Defense and Government Services M&A Trends
Shifting Buyer Composition and Consolidation Among Mid-Tiers
One of the most impactful trends on defense and government services M&A is
the shifting buyer composition. Since 2010, activity among public buyers has
declined while private equity and privately held strategics have become more
active – accounting now for over 70% of total deal activity in the sector, more
than twice the level of just three years ago. This trend suggests that, for the most
part, private and financial buyers remained active while large public companies
were on the sidelines. The lack of active strategic buyers, who are typically
known for driving transaction multiples with the ability to factor in synergies,
created an attractive environment for private equity. Furthermore, a number of
mid-tier companies pursued acquisition plans to gain scale, such as Vistronix,
which completed three acquisitions in 2013 and Eagle Ray, which made its first
acquisition by acquiring Kore Federal. Public companies are not expected to be
out of the market for long. As the cash on their balance sheets swell and federal
budgets become more clear, M&A activity should pick up rather quickly.
Strategic Divestitures and Splits
In lieu of buy-side M&A, several large public companies decided to shed non-
core businesses to reshape and reposition in response to shrinking government
spending. Most notable was SAIC’s split into two publicly traded companies. The
split allows both entities to avoid government Organizational Conflicts of Interest
(OCI) caused by Leidos’ products or development business and SAIC’s SETA
business. Also notable was Exelis’ decision to spin off its military and
government services business into an independent public company this summer.
These moves create potential buyers looking to pursue targeted acquisitions that
are free of OCI concerns and presents a clear strategic focus to the market.
Source: InfoBase; Capital IQ as of 12/31/13
Defense and Gov. Services Buyer Composition
Divestitures and Splits
Mission Systems
Announced
Split
Completed
Split
Completed
Divestiture
Applied Technologies
