Government Contracting M&A Could Make “Slow and Cautious” Return

Government Contracting M&A Could Make “Slow and Cautious” Return

With the global economy continuing to suffer from the impact of the COVID-19 pandemic, the news has been bereft of M&A activity. However, federal government vendors saw some government contracting deals getting done inside the Beltway in the Washington, DC area.

National Software and Analytics Merger

Recently, McLean, Virginia-based data analytics and cybersecurity firm Novetta Solutions LLC acquired WaveStrike LLC. WaveStrike is a national software and analytics-focused software engineering company based in Annapolis Junction, Maryland.

The terms of the deal were not disclosed, according to a report in The Washington Business Journal.

“Combining our complementary capabilities and talented teams mean stronger support for our customers,” Novetta President and CEO Tiffanny Gates said in a statement. “The synergy between our programs positions us for larger-scale opportunities and reinforces us as a top destination for technical talent.”

Novetta provides data analytics and media analytics for its clients in the defense, intelligence, and federal law enforcement industries. WaveStrike also provides data analytics and software engineering to national security customers.

“Joining Novetta was a natural step for WaveStrike,” WaveStrike President and CEO Anne Wagner said in a statement. “We can continue our commitment to delivering innovative solutions to customers and be a part of a company that believes in supporting, developing, and training the industry’s top talent.”

Novetta closed out last year with a 68% YOY increase in contract awards as well as a geographically expanded employee base. The company also touted its recognition of its customer focus by achieving CMMI-DEV ML3 and receiving the AWS Public Sector Technology Partner Award for Artificial Intelligence & Machine Learning.

More Rumors of Government Contracting Deals in DC

Last week, Reuters reported that activist hedge fund Jana Partners announced that it owned 5.9%, or 9.4 million shares, in stock of Chantilly, Virginia-based Perspecta Inc. also, Jana Partners said it had planned to discuss “industry consolidation, capitalization, and operations” that may result in a potential merger or sale of the company.

With moves like these under way, observers say that the M&A market could be again returning to stronger activity. However, investment bankers warn that while government contracting remains strong, no on should expect a flurry of deals to begin any time soon.

RW Baird &Co.’s government services investment banking practice advised WaveStrike on its acquisition. Their managing director, John Song, explained that a dichotomy of both caution and financial resilience in the contracting market exists that shows a “sleeping giant” in M&A.

Song told The Washington Business Journal, “I think that there is a slow and cautious return to M&A right now,” he said “People are approaching it a little bit more cautiously than they were pre-COVID. But at the same time, usually when you have a downturn what inhibits people’s ability to transact is quite often that they don’t have the financial performance, that has not been the case in the government contracting world.”

Instead, Song said contractors have worked through the crisis and discovered ways to keep business, which as resulted in a relative strong financial performance amid continued government spending — showing signs for the potential for a strong market.

M&A Statistics in the Past Six Months

Here are the number of merger and acquisition deals in the United States from November 2019 to April 2020, by industry:

Commercial Services442
Technology Services406
Consumer Services175
Distribution Services149
Producer Manufacturing126
Industrial Services109
Health Services108
Electronic Technology90
Process Industries87
Health Technology86
Retail Trade75
Consumer Non-Durables72
Consumer Durables44
Non-Energy Minerals36