Volume 2, Issue 4 October 2004

Welcome to the Federal Growth Report, the newsletter published by Minuteman Ventures LLC, an investment bank that focuses on mergers and acquisitions.

Our newsletter addresses issues of importance to corporate leaders whose companies serve the federal government sector. These people build companies and increase equity value.

Feedback and dialogue are welcome by calling 781 -750-8065 or 703-894-1270. Thanks.

Regards,

Paul Serotkin
President
Minuteman Ventures LLC

 

Archives

August 2004
June 2004
April 2004

 
in this issue
Sizing up the M&A/Capital Markets for Federal Contractors - The PSC asked us to comment on the state of the market. See our views below.
Executive Interview - Veteran banker Ginny Heine of Citizens Bank opines on why she loves lending to the federal services sector!
Post-merger Integration: The Key to Making the Deal a Complete Success - Julie Corbo reviews rules of the 'M&A integration road.'
The Federal Deal - Infobase reviews the recently announced acquisition of Alphatech, Inc. by BAE Systems.
Contract Central - Infobase highlights key recent contracts to small and mid-tier federal contractors.
Deals of the Month - Check out the latest sector deals.
Minuteman Ventures LLC News

Minuteman Ventures LLC advises company owners on the sale of their businesses, and assists corporate and private equity buyers in strategic acquisitions and divestitures. Our team consists of experienced entrepreneurs and business executives who founded or operated companies and corporate divisions.

We specialize in companies that sell services and product solutions to federal government clients. We pride ourselves in being the investment bank for entrepreneurial companies in the federal sector.

 

 

Quick Links
EdgeStone Consulting, Inc.
Maryland Association of CPAs
Alphatech, Inc.


 

 

 


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Sizing up the M&A/Capital Markets for Federal Contractors


The Professional Services Council (PSC), a national organization headquartered in Arlington, Va., asked several investment bankers to give their perspectives on key issues relating to the capital markets and M&A for the federal services market. PSC is a highly influential organization supporting government services contractors.

Following is an excerpted version of those provided by Paul Serotkin, President, Minuteman Ventures LLC. PSC had solicited the request as part of its 2004 Services Sector Review, prepared in conjunction with its annual conference entitled, 'Business as Unusual — Moving Targets & Shifting Risks.'

For more on PSC, see www.pscouncil.org.

PSC: How strong (or weak) do you expect the M&A market for government professional services firms to be in 12-24 months?

MV: While completed federal IT services M&A deals from H1 2004 compared to H1 2003 were flattish, they remained so at fairly high levels. The factors leading to this multi-year consolidation in the federal technology sector should continue. Why?

First, in no order, this remains a mature, highly fragmented market that has undergone a surge in spending in recent years well ahead of historic norms.

Second, the market is vast, with thousands of companies, many started pre-1990 and whose founder/owners are looking for liquidity, mindful that pricing has been strong for several years now.

Third, strategic investors, i.e., other government contractors and other IT suppliers not in the government space, see the a) anticipated retirement surge of federal employees, and b) the push to outsource IT (however muted at times by skewed A-76 competitions), as reasons to 'follow the federal money' … continuing the desire to grow by adding to their federal portfolio (often via M&A).

Fourth, the make v. buy analysis usually favors 'buy' in this industry. No better example of this exists than the acquisition this past February by SAIC of Newport-based Aquidneck Management Associates (AMA), a Minuteman Ventures client. SAIC had little presence at this Navy RDT&E lab while AMA, a small business, had a stronghold there; ergo, SAIC decided to buy in rather than wait the several years it would have taken to crack the market.

Fifth, the post-9/11 world argues for continued strong spending on information systems, intelligence, network-centric management and advanced communications systems … specialties of government tech services providers.

See rest of article below by clicking here.

Paul Serotkin is President of Minuteman Ventures LLC, paulserotkin@ minutemanventures.com, 781-750-8065 or 703 -894-1270.
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Executive Interview

Few bankers have better insight to the financing of government contractor acquisitions than Ginny Heine, Senior Vice President and Regional Manager, National Capital Region for Citizens Bank. She oversees the bank's regional commercial lending efforts, including the Government Contracting unit located in Vienna, Va. A veteran of government contracting lending, she has helped arrange financing for contractor luminaries such as Anteon Corporation and Mantech International Corporation. With M&A continuing apace in the government services sector, Ginny gave her views to Minuteman Ventures on the market.

FGR: Why does Citizens find the government market so attractive?

GH: Several reasons … not the least of which is that government contractors use leverage to improve their ROE more than companies in other industries. Therefore, we are attracted to the government market, because there is a high demand for our product — we lend money and take deposits; it's a nice fit.

Equally as attractive is the risk profile of government contractors. At first blush, they appear more risky in comparison to the metrics of commercial companies. Understanding the unique characteristics of this industry, including their risk/return model, the FAR/ DFAR, the procurement evolution and current environment (CICA, FASA, etc.), the unique accounting issues and application of CAS, the impact of politics and world events, the regulations and oversight, etc. has enlightened us to be attracted to the government contracting industry rather than shy away from it. Candidly, our businesses are not so dissimilar (use of leverage, criticality of integrity, environment of regulation and oversight).

FGR: How does this market alignment play into your assessment of risk?

GH: As a lending risk, we feel that government contractors are relatively stable. Having closed many working capital credit facilities and M&A financings in the sector, we understand how to mitigate industry specific risks.

We'll flag firms that may be pushing the risk envelope. When a company doesn't exhibit the requisite internal finance and accounting controls, for example, we stay away from the opportunity or factor the risk into terms and pricing.

FGR: What factors should an acquisitive government contractor seek in a commercial lender?

GH: Industry, industry, industry! The bank should be committed to the government sector, as evidenced by line and credit personnel with a depth of experience in lending to government contractors. Ask specifically whether the bank has structured and closed credit facilities for government contractors, both to support operations and M&A. In my view, the bank with these qualifications should be considered as the lender of choice.

As a bank with broad national coverage, our group provides industry-specific support to Citizens' regional offices, leveraging this resource when servicing a government contractor outside the Beltway.

FGR: How does the bank evaluate a proposed loan for an acquiring company?

GH: We always start out with the 'soft' aspects of a deal, getting to know the management, owners and specific dynamics of the company/ transaction. Do we want to work with the management of the buyer and seller? Are they reliable in meeting their numbers? What is the outlook for their business, programs, contract backlog? On top of this subjective evaluation, of course, we evaluate the metrics, factoring in the level of collateral coverage and the total debt to the company's trailing twelve month EBITDA — earnings before interest, depreciation and amortization (ed. note — often used as a proxy for one measure of cash flow).

In today's environment, banks are lending to government contractors at total debt to EBITDA multiples of anywhere from 3.0X to 4.5X.

FGR: How has the lending environment for government contractors changed in the past year?

GH: Lending multiples have been fairly steady over the past 12 months. I think this is the right place for them. Companies have been somewhat whipsawed by credit ebbs and flows over the past several years; the current lending environment seems to capture today's market risk just right.

FGR: For first-to-market government acquirers, how should they assess the importance of the EBITDA multiple?

GH: Using EBITDA for the sellers' trailing twelve months is a good place to start. Sellers will also present their EBITDA on an adjusted basis, taking into account costs that will not continue post-closing. They also will provide projections for future years. Our job, in concert with the borrower, and often independent of them, is to understand the plausibility of such claims, since they affect the lending appetite of the bank in that deal.

FGR: How would you characterize the competitive environment for lenders in the government sector?

GH: It has become very competitive in the last several years.

Even before the increased federal funding, largely as a result of 9/11, Beltway area banks had gravitated to the government sector in response to the weakened general economy and the fact that the DC metro economy is largely made up of government contractors.

Five years ago, federal contractor growth was slower than today, as commercial IT firms attracted some of the best people with the allure of stock options and outsized salaries. So the government market itself was not as appealing to many in the banking world.

FGR: For first time federal contractor acquirers, at what point in the M&A process should they approach their bank about the proposed transaction?

GH: Maybe this is obvious, but the sooner the better. You do not want to be very far down the road with a target seller and not have gotten the view of your bank. Even if the deal does not go through, it is important to have your banker as a partner during this process; you can certainly learn about the process for the next deal.

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Sizing up Markets (continued)

PSC: How would you assess the relative strength of the sector from Wall Street's perspective especially, in light of the recent spate of budget, procurement policy, and related issues and challenges?

MV: Certain softness in terms of completed deals has crept into the federal sector in recent months due to several factors.

  • The uncertainty of the election
  • The drain on other federal budgets to support Iraqi operations
  • The market troubles of CACI and Titan regarding certain contracts supporting Iraqi operations, and generally the presumption that other public firms may have out-of-scope contract problems

  • The slowdown in growth rate in FY 2005 federal IT spending from its double-digit highs
  • The A-76 results showing, most recently, that 89% of competitions going to government, giving pause to the outsourcing march.
  • The anticipated continuing resolutions for non- DoD funding, which could be having a negative effect on companies that mostly serve civilian customers.

The fact that no industry IPOs have gotten out since DigitalNet may indicate a hesitance on Wall Street's part to ante up until some of the above issues have clearer paths to resolution.

PSC: Have the key discriminators that make individual companies particularly strong candidates for capital investment or to be buyers or sellers, changed at all in recent months?

MV: While it may not be a discriminator as such, the emerging presence of mid-tier companies as company buyers in this sector is striking!

Comparing completed M&A sector deals in the first seven months of 2004 v. 2003 (same period), mid-tier firms (defined here as between $50 and $500 million in revenue, public and private) completed 67% of the transactions v. 45% last year.

Clearly, M&A is no longer the principal purview of major federal IT contractors. What might be causing this aggressive use of M&A by mid-tier firms?

High 'cultural' appeal of the Mid-tier. Mid- sized firms still have that feel of entrepreneurship so appealing to selling founders.

Attractive Financing Environment. Lenders are more educated these days on government M&A and have become very comfortable with mid-tier buyers who can readily afford to transact deals using the low cost of debt capital.

Exploiting this Law of Large Numbers. As Tier 1 federal IT contractors firms grow larger, they are less likely to find smaller, truly strategic M&A fits.

Financial buyers like the sector. Private equity funds gravitate to mid-tier firms as their preferred sized platform in the federal sector, giving $100 million companies or smaller the ability to maintain ownership while accelerating the growth of their firms.

PSC: Do you foresee any increase in the pace of IPOs in the federal government sector (IT and non-IT) in the next year to 18 months?

MV: There should be an increase over the next 18 months, in that it has been close to a year without one.

Again, it comes down to the strength of the mid-tier alluded to above.

We see least 14 companies in the federal sector that are considering IPO as an option over the next several years, with at least five of those fairly serious to our knowledge.

Given the vagaries of the public market, the size issues for several of them (still too small really to generate secondary market support) and the continued strength of the exit strategy option, our guess is that only 3 or so will make it out as IPOs. Look for more M&A than IPO.

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Post-merger Integration: The Key to Making the Deal a Complete Success

by Julie Corbo

To be a success a merger or acquisition requires the new company to effectively integrate their business operations and communicate their set of core business values of the combined companies. Many companies declare victory after the deal is closed, but the real challenge is developing a new operating model that captures the synergy of the new entity.

The figures vary but the research is consistent in confirming that 50 to 70% of mergers and acquisitions do not meet the objectives of the shareholders. The reasons most mergers do not meet expectations are to be found in the implementation of the integration phase of the merger.

Some of the main reasons are:

  • There is inadequate planning by the integration team.
  • Managers responsible for integration have day jobs and cannot devote their time to integration.
  • Frequently, managers in the acquiring company do not have the experience of managing integrations.
  • There is loss of key personnel due to the lack of communication.

The probability of deal success goes up considerably when the key elements of post-merger integration are started before closing and the company dedicates the key resources necessary to execute the plan.

How much integration is necessary?

This will be dictated by what type of merger or acquisition you are entering into and the size of the new entity.

If you have two companies that continue to act as separate entities and are focused on different markets, your integration issues will be different than if you have a larger company purchasing a smaller company in the same marketplace.

When you merge two large size companies, you will need to decide which company is best when it comes to different business processes and operations. For example if two companies merge to increase revenue and operating profit, improving the efficiency of the back office operations will be a key goal of the integration team.

Understand the scope of the integration plan

Your integration team should have a full understanding of the environments that need to be merged, outsourced or left alone. Staffing this team cross- functionally and from both companies can help give the planning effort a diversity of viewpoints and expertise, particularly from those divisions most directly affected by the change.

In order to develop goals and implementation plans the team should focus on:

  • Assessing the overall organizational capabilities.
  • Analyzing the impact of the change to the business operations, company policies, customers and internal systems.
  • Anticipating where the resistance to change will be.

The team should develop an integration plan that provides an analysis of core business values between the two merged or acquired organizations. They need to arrive at a clear understanding of the new entity's overall operating principles and cultural differences before setting an integration plan in place.

The purpose of an integration plan is simply to help you organize the work required in the many important integration areas into a comprehensive plan, with responsibilities, expectations, and time lines clearly spelled out. The plan you create will be a living, changing document, but it will also serve as a benchmark for all future integration activity.

Manage the integration process

It is critical to the success of the merger that the integration plan is managed during all phases of the plan. The integration team should remain in place for a period of time to manage the on-going delivery of the implementation plan to avoid costly mistakes.

One example of a costly mistake during a recent integration is in the Human Resource area. Two companies merged and planned to consolidate their benefit plans. During the transition they failed to notify the broker of a cancellation within the 30 day cancellation policy. This resulted in an additional month of premium that had to be paid to the terminated insurance company.

While it may not be necessary to distribute all the details of your integration plan it does pay to be open about your short- and long-term goals. Communicate to your employees on a regular basis where you see the company heading and how it will get there. Making your goals and strategic positioning public will encourage employees to participate in your success.

Be in touch with the human side

The toughest part of any integration process is being honest with all affected personnel. People are the most valuable asset for most organizations. It is essential that the integration plan contain a detailed communications plan designed to provide employees with as much information as possible, as soon as possible. The initial aim of the communications plan is to help prevent the loss of key personnel and the maintenance of productivity before, during and after the transfer of people and processes.

Serious consideration should be given to offering "pay to stay" bonuses, even if only for a short period. If you have to hire temporary help to get you through the rough period, it will be expensive, and the amount of time needed to train temps can be enormous in comparison to the amount of time they will actually work for you. Better to spend this money on those who already know the job and have proven they can do it in the most efficient manner.

While not a guarantee, a well thought out integration plan executed by the right team will greatly enhance the chances of your acquisition being a success.

Julie Corbo is co-founder of EdgeStone Consulting, specializing in acquisition consulting, due diligence support and integration planning to firms in the federal marketplace. For additional information, contact Julie Corbo @ jcorbo@edgestone.net, or review more detailed information at www.edgestone.net.

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The Federal Deal

FGR offers analysis of a recent M&A transaction involving government technology services contractors. The analysis is written by Stuart McCutchan, president and CEO of InfoBase Publishers, Inc. © and editor of the Defense Mergers & Acquisitions, a premier source for information on defense/aerospace M&A. Opinions expressed below are those of InfoBase. All rights reserved. For more on InfoBase Publishers' services, contact Bill Burton (410-820-6821, wkburton@infobasepub.c om) or click infobasepub.com.

BAE Acquires Alphatech, Inc.

BAE Systems North America, the wholly-owned U.S. subsidiary of BAE Systems plc (LSE: BA.L), entered into a definitive merger agreement to acquire privately held Alphatech, Inc.

Headquartered in Burlington, Mass., Alphatech specializes in image and signal processing, multi- intelligence fusion and intelligent systems for the Department of Defense and other government intelligence agencies. Founded in 1979 by faculty of the Massachusetts Institute of Technology (MIT), more than 80 percent of ALPHATECH's employees hold advanced degrees.

BAE Systems stated that Alphatech's capabilities "will complement BAE Systems North America's significant presence in the system and subsystem levels in the C4ISR market, and enhance BAE Systems' position as a major provider of information-based systems, emphasizing horizontal integration and fusion.

"The integration of ALPHATECH's technologies with BAE Systems North America's enterprise engineering and systems integration expertise will result in expanded capabilities to address the network centric warfare requirements of the national security and intelligence communities, particularly in the areas of Precision Engagement and Tasking, Processing, Exploitation & Dissemination (TPED)."

Mark Ronald, president and CEO of BAE Systems North America, said, "BAE Systems and ALPHATECH both leverage technology and value innovation. The acquisition of ALPHATECH will augment BAE Systems' capabilities in enterprise engineering, software development, and advanced geospatial technologies, supporting our mission to develop intelligence and information dominance systems, and provide our customers with superior solutions."

"ALPHATECH is a unique asset for its capabilities in information technology applied to national security," said Dr. Marshall Banker, president of BAE Systems Information Systems Sector. "We will strive to maintain ALPHATECH's corporate culture of growth through technical excellence while enhancing the opportunities available to the company and its employees."

TERMS

On Sept. 28, 2004 BAE Systems North America agreed to acquire Alphatech for a cash consideration of $88.4 million.

For the year ending December 2003, Alphatech recorded sales of $51 million. Revenues for the six months ending June 2004 were $32 million. Alphatech has 322 employees.

Conclusion of the transaction is expected during the fourth quarter, subject to regulatory reviews and approvals and customary closing conditions.

ANALYSIS

The Alphatech acquisition follows in the footsteps of BAE Systems North America's buy last month of Reston, Va.-based Practical Imagineering, Inc. (a company focusing on signal processing systems and software development) and the January buy of Honolulu-based STI Government Systems (whose particular expertise is hyperspectral imaging and sensor fusion). All three companies are the kind of technology treasure troves that other foreign buyers can only dream of acquiring.

BAE Systems North America knows Alphatech by more than reputation. Each of the companies was a "Strategic Partner" to Boeing on its unsuccessful Unmanned Combat Armed Rotorcraft (UCAR) bid with DARPA (Alphatech was providing the Boeing team's distributed autonomous cooperative control system, while BAE Systems Mission Solutions, San Diego was providing the mission planning, automatic re-planner, and router).

And there the companies were again as suppliers to Boeing (again) on one of the Pentagon's other high priority programs, providing the Battle Management Command and Control (BMC2) subsystem for the Air Force Multi-sensor Command and Control Aircraft (MC2A) program. (On this one Alphatech was providing tracking and fusion solutions and decision support tools along with target acquisition and recognition capability, while BAE Systems Mission Solutions, San Diego (again) was providing combat operations management and planning, imagery mapping, and support management of network based communications.)

Boeing (again) didn't survive the downselect on MC2A BMC2 — but Alphatech did, by virtue of being teamed not just with Boeing, but also with Northrop Grumman, the program's winner.

Judging from Alphatech's website there are lots of other reasons to buy this company — but securing a place on BMC2, by itself, was almost certainly enough to push the proposition into "let's make this happen" territory for BAE Systems.

Looking at the big picture, we note that in a departure from past practice BAE Systems has put together a string of acquisitions unblemished by divestiture activity. The company has made no secret of its ambitions for its North America business — but we note that the company's strategy has been marked, to date, by four very distinct phases. A bit of history:

Early Expansion (1987–1999) During this period BAE Systems predecessor organization GEC-Marconi builds the foundation for what is now BAE Systems North America, with three substantial acquisitions: Lear-Siegler Astronics and Developmental Sciences Corp. (acquired in 1987), Hazeltine (1996) and Tracor (1998). Fetching $1.4 billion, Tracor is the biggest acquisition of a U.S. company by a foreign based firm until that time.

BAE's Expansion (2000). After acquiring GEC Marconi in late 1999, British Aerospace moves rapidly to capitalize on GEC's special relationship with the U.S. Dept. of Defense. During 2000 it acquires both Lockheed Martin Control Systems ($510 million) and Lockheed Martin Aerospace Electronics Systems ($1.67 billion). The latter deal remains the biggest acquisition ever of a U.S. defense company by a foreign-owned company — and the most remarkable from a technological perspective as well.

The two deals cement the company's special status with the Pentagon.

Retrenchment, or, What's in a Name? (2000– 2003). British Aerospace becomes BAE SYSTEMS, and the company moves to shed hardware-oriented businesses while bulking up on C4ISR assets. The company makes four acquisitions costing a reported $182 million — but these deals are dwarfed by the eight divestitures which collectively price out at a reported $712 million.

The company grows nonetheless, with organic growth outpacing the net drain from the M&A program.

Buying Again (2004). During 2004 BAE Systems North America has been all about buying: five acquisitions and no divestitures. Including the Alphatech deal, it has spent roughly three-quarters of a billion dollars so far this year, making it (hold onto your hats) the most active buyer in the U.S. defense marketplace (just ahead of second-place ITT Industries with its $725 million buy of Kodak Remote Systems).

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Contract Central

FGR presents briefs on selected technology services contracts awarded by the U.S. government to federal contractors during the last two months. The briefs are compiled by InfoBase Publishers, Inc.©, a leading provider of competitive intelligence for the worldwide defense/aerospace industry. All rights reserved. For more on InfoBase Publishers' services, contact Bill Burton (410-820-6821), wkburton@infobasepub.com or click infobasepub.com.

DCC-W Awards Seven Contracts for Army Desktop Support Services

On September 30, 2004, the U.S. Defense Contracting Command — Washington (DCC-W) (Washington, DC) awarded seven parallel, five-year, IDIQ contracts, worth $763 million collectively for Army desktop support.

The recipients for Lot 2, Applications Development, were:

— AlphaInsight Corp. (Falls Church, VA), which was awarded a $7.4 million contract (W74V8H-04-R -0040).

— MicroPact Engineering, Inc. (Herndon, VA), which won a $91 million contract (W74V8H-04-D -0072).

— Pragmatics Inc. (McLean, VA), which won a $117.6 million contract (W74V8H-04-D-0073).

The recipients for Lot 3, Audit & Governance Services, were:

— AlphaInsight Corp. (Falls Church, VA), which a $78 million contract (W74V8H-04-D-0074).

— Addx Corp. (Alexandria, VA), which won a $20.4 million contract (W74V8H-04-D-0075).

The recipient for Lot 4 was:

— Resource Consultants Inc. (RCI) (Vienna, VA), which won a $202 million contract.

The recipients for Lot 5 (Strategic Analysis) were:

— Focused Management, Inc. (Springfield, VA), which won a $19.4 million contract (W74V8H-04-D -0077).

— Daston Corp. (McLean, VA), which won a $10.6 million contract (W74V8H-04-D-0076).

Each contract contains a one-year base and four one- year options that, if exercised, could increase its total cumulative value to the amounts cited above and extend the period of performance through September 2009 (estimate).

The contracts were competitively procured through solicitation DASW01-03-R-0040, which was issued on May 9, 2003, and called for full & open competition Awards for certain functional areas were reserved for small businesses or 8(a) firms only (NAICS 541519). Proposals were due on July 7, 2003.

Titan Corp. (San Diego, CA) won a $217 million contract (W74V8H-04-D-0037) for Lot 1, Desktop Support Services, in February 2004. The other awards have been held up due to protests filed by Cyios Corp. and others.

Navy SPAWAR HQ Selects Seven Small Businesses for ELITE Services Program

The U.S. Space and Naval Warfare Systems Command, Headquarters (SPAWAR HQ) (San Diego, CA) awarded seven parallel, four-year, cost-plus-fixed-fee, firm- fixed-price, IDIQ contracts, worth $160 million collectively, for Engineering, Logistics, Installation, Test and Evaluation (ELITE) services.

The recipients were:

— Epsilon Systems Solutions, Inc. (San Diego, CA) (N00039-04-D-0006).

— INDUS Technology, Inc. (San Diego, CA) (N00039-04-D-0007).

— Ocean Systems Engineering Corp. (OSEC) (Oceanside, CA) (N00039-04-D-0008).

— Space & C4I Associates, Inc. (San Diego, CA) (N00039-04-D-0009).

— SYS Technologies, Inc. (San Diego, CA) (N00039-04-D-0010).

— Tele-Consultants, Inc. (TCI) (Alpharetta, GA) (N00039-04-D-0011).

— Tri Star Engineering, Inc. (Bedford, IN) (N00039-04-D-0015).

Under the multiple-award program, these companies now will compete for two million hours in task orders that provide systems engineering, test and evaluation (T&E), installation support, and integrated logistics support (ILS). Work will be performed in San Diego, CA.

The contract was competitively procured through solicitation N00039-03-R-0033, which was issued on January 30, 2004, and called for competition limited to small businesses only (NAICS 541330). One contract award was reserved for 8(a) firms. Proposals were due on March 4, 2004. A total of 11 offers were received.

Navy SPAWAR HQ Taps San Diego DEFCOMM to Advance JIST-NET Prototype

The U.S. Space and Naval Warfare Systems Command, Headquarters (SPAWAR HQ) (San Diego, CA) awarded San Diego DEFCOMM (El Cajon, CA) a $3.5 million contract (N00039-04-C-2138) for an improved prototype of the Joint Integrated System Technology for Advanced Digital Networking Systems (JIST-NET).

Under the contract, the company will advance a prototype based on its current JIST-NET Version 1, Spiral 3 software. JIST-NET is used for military satellite communications (MILSATCOM) multi-spectrum communications planning, management, and control.

The contract covers:

— update the JIST-NET Version 1 Spiral 3 system design documents to address the updated requirements in the prototype.

— survey current and planned SATCOM planning tools to gather data to enable the JIST-NET prototype to better interface and augment the capabilities of the system-specific planning tools.

— design, build, and test the JIST-NET prototype.

— provide related services for resolving software trouble reports, managing software data and software configurations, and providing support for software security engineering and system security certification and accreditation support.

— apply actual satellite usage data to update the systems requirements analysis for JIST-NET.

The contract was not competitively procured. It was awarded on a sole-source basis (solicitation N00039 -04-R-0016 applies). San Diego DEFCOMM, a small business, is the sole producer of the JIST-NET prototype.

Navy SPAWAR HQ Taps System Integration and Management for Support Services

The U.S. Space and Naval Warfare Systems Command, Headquarters (SPAWAR HQ) (San Diego, CA) awarded $50,000 as part of a $65.3 million indefinite-delivery/ indefinite-quantity contract (N00039-04-D-2021) with fixed-price-award fee and cost-plus-award fee line items to System Integration and Management (Arlington, VA) for business, operations and administrative support services at the Space and Naval Warfare Systems Command Information Technology Center, New Orleans, La.

This contract includes a base year and four one-year options, which if exercised, would bring the cumulative value of this contract to $65.3 million.

Work will be performed in New Orleans, La., and is expected to be completed by August 2005. If all options are exercised work will continue through August 2009. Contract funds will not expire at the end of the current fiscal year.

This contract was competitively procured as an 8(a) set-aside under the auspices of the Small Business Administration via the SPAWAR E-commerce and FedBizOps websites, with 15 offers received.

Navy SPAWAR Selects Sage Systems to Support C4ISR- and IO-related Technologies

The U.S. Naval SPAWAR Systems Center San Diego (SSC-SD) (San Diego, CA) awarded Sage Systems Technologies, LLC (Manassas, VA) a five-year, $26.7 million, cost-plus-fixed-fee, IDIQ contract (N66001-04- D-0081) for technical services, system engineering, data processing and analysis of command, control, communications, computers, intelligence, surveillance, reconnaissance (C4ISR) and Information Operations (IO) related technologies.

Work will performed in San Diego, CA and at other sites to be determined under individual task orders.

The contract was not competitively procured. It was awarded on a sole-source basis under requirements specified in the Small Business Administration 8(a) program, recognizing an Alaskan Native Corporation (ANC).

Navy SPAWAR SSC-SD Selects PSE to Support Human Systems Simulation, Engineering, and RDT&E

The U.S. Naval SPAWAR Systems Center San Diego (SSC-SD) (San Diego, CA) awarded Pacific Science & Engineering Group, Inc. (PSE) (San Diego, CA) a five- year, $19 million, cost-plus-fixed-fee, IDIQ contract (N66001-04-D-0005) to support human systems simulation, engineering, and research, development, test and evaluation (RDT&E).

Under the contract, which has an estimated level of effort (LOE) of 36,920 labor-hours per year, the company will provide the full range of human factors (HF) and ergonomics analysis, research, T&E methodologies applied to new, future and previously developed and deployed command and control (C2) and battle management technologies and systems.

The contract was competitively procured through solicitation N66001-04-R-0005, which was issued on April 14, 2004, and called for competition limited to small businesses only (NAICS 541710; 500 employees). Proposals were due on May 17, 2004. Only one offer was received.

The procurement is considered a follow-on effort. The incumbent was PSE, which performed the work previously under a five-year, $25.7 million contract (N66001-99-D-0050) awarded in August 1999.

NAWCWD Inks Systems Application Technologies to Support Weapons Survivability Lab

The U.S. Naval Air Warfare Center — Weapons Div. (NAWCWD) (Point Mugu, CA) awarded Systems Application Technologies, Inc. (Oxnard, CA) a three- year, $8.7 million, cost-plus-fixed-fee, IDIQ contract (N68936-04-D-0032) to provide test and evaluation (T&E) support for NAWCWD's Weapons Survivability Laboratory (WSL).

Under the contract, which has an maximum level of effort (LOE) of 220,500 labor-hours, the company will support the Survivability Div. of NAWCWD's Systems Engineering Dept. by performing work that includes T&E related to the survivability of U.S. aircraft and missiles against foreign threats; T&E of lethality of U.S. weapons against foreign aircraft and missiles; safe separation testing of free fall and other weapons; and aerodynamic testing of weapons and recovery systems.

The contract was competitively procured through solicitation N68936-04-R-0017, which was issued in April 2004 and called for competition limited to small businesses only (NAICS 541330; $23 million). A total of four offers were received.

The procurement is considered a follow-on effort. The incumbent was Materials, Communication, and Computers, Inc. (Alexandria, VA), which performed the work previously under a $5.5 million contract (N68936 -99-D-0133) awarded in September 1999.

NSWCCD NAVSSES Inks NDI Engineering to Support HM&E and Electronic Systems

The U.S. Naval Surface Warfare Center, Carderock Div., Naval Ship Systems Engineering Station (NSWCCD NAVSSES) (Philadelphia, PA) awarded NDI Engineering Co. (Thorofare, NJ) a five-year, $27.8 million, cost-plus-fixed-fee, IDIQ contract (N65540-04- D-0028) for services, materials, and equipment necessary to design, test/evaluate, and provide total lifecycle engineering and logistic support for Navy submarine and surface craft hull, mechanical, electrical (HM&E) and electronic systems.

NDI Engineering will provide field support by performing inspections, fault isolation, preventive, and corrective maintenance, and provide consultation, repairs and installation support for equipment/ systems. The company will provide support for the development, revision and maintenance of ILS documentation for submarine and surface craft HM&E and electronic systems, to ensure that accurate and adequate logistic information is delivered in a timely manner and at lowest lifecycle cost. The work will be performed in Thorofare, NJ (80%), and Philadelphia, PA (20%).

The contract was competitively procured through solicitation N65540-03-R-0015, which was advertised on February 25, 2003, and called for competition limited to small businesses only (NAICS 541330). Only one offer was received.

U.S. Army Picks Kira/DynCorp Joint Venture for Ft. Carson Base O&M Contract

The U.S. Army Contracting Agency (ACA) (Ft. Carson, CO) awarded Fort Carson Support Services (Anchorage, AK) a 10-year, $176 million, cost-plus- fixed-fee contract (W911RZ-04-C-0012) for base operation and maintenance (O&M) services.

Under the contract, the company, a joint venture of KIRA, Inc. (Miami, FL) and CSC's DynCorp Technical Services LLC (DTS) (Ft. Worth, TX), will plan, program, administer, manage, document, and execute the work necessary to provide Dept of Public Works (DPW) functions and services which involve a broad range of non-personal base O&M services. Work will be performed at Fort Carson, CO.

The contract contains a one-year base (worth $16.6 million), four one-year options, and five award-terms that, if earned, could increase its total cumulative value to $176 million and extend the period of performance through September 30, 2014. At this time, a $2 million increment is being awarded. Contract funds will not expire at the end of the current fiscal year.

The contract was competitively procured through solicitation W911RZ-04-R-0002, which was issued on April 13, 2004, and called for competition limited to HubZone-certified small businesses only (NAICS 561210; $30 million). Proposals were due on June 7, 2004. A total of six offers were received.

USAF AFSPC Chooses Call Henry for Launch Operations Support on Western Range

The U.S. Air Force Space Command, 30th Contracting Squadron (AFSPC 30 CONS) (Vandenberg AFB, CA) awarded Call Henry, Inc. (Titusville, FL) a seven-year, $70 million, IDIQ contract (FA4610-04-C-0004) for the Western Range Launch Operations Support Contract (LOSC).

Under the contract, also known as the Space and Launch Infrastructure Support Program (SLISP), the company will perform centralized management, operation, maintenance, repair, upgrade, and launch support for critical range and launch facilities and infrastructure supporting range transmitting and receiving sites, launch pads, spacecraft clean rooms, processing facilities, and aerospace ground equipment. The major elements includes cranes, hoists, mechanical systems, pressure vessels, towers, and elevators; operation of Vandenberg power plants and power generators; and on-site support for launch activities such as operating and monitoring the South Vandenberg Power Plant during launch activities. The work will be performed at Vandenberg AFB, CA.

The contract was competitively procured through solicitation F04684-02-R-0024, which was issued August 2003 and called for competition limited to small businesses only (NAICS 56121; $20 million). Proposals were due on October 21, 2003. Contract negotiations were completed June 2004.

USAF SSG Picks Eight Teams for $9 Billion NETCENTS Program

The U.S. Air Force Standard Systems Group (SSG) (Maxwell AFB, AL) awarded eight parallel, five-year, IDIQ contracts, worth $9 billion collectively, for the U.S. Air Force Network Centric Solutions (NETCENTS) program.

The small business recipients were:

— Telos Corp. (Ashburn, VA) (FA8771-04-D -0009).

— Multimax, Inc. (Largo, MD) (FA8771-04-D -0003).

— Centech Group, Inc. (Silver Spring, MD) (FA8771-04-D-0002), teamed with GTSI Corp. (Chantilly, VA) among others.

— NCI Information Systems, Inc. (Reston, VA) (FA8771-04-D-0004), leading a 33-firm team that includes CDW-Government Inc. (CDW-G) (Vernon Hills, IL); CH2M Hill Companies, Ltd. (Greenwood Village, CO); Cogito; DigitalNet Government Solutions, LLC (Herndon, VA); MCI Government Markets (McLean, VA); Raytheon; SAIC Systems & Network Solutions Group (McLean, VA); SBC Communications (San Antonio, TX); Spectrum Solutions, Inc.; T-Systems; Unisys U.S. Federal Government Group (McLean, VA); and others.

The large business recipients were:

— Booz Allen Hamilton, Inc. (McLean, VA) (FA8771-04-D-0006).

— General Dynamics Network Systems (Needham Heights, MA) (FA8771-04-D-0007), whose subcontractors include Accenture USA Government Practice (Reston, VA); Boeing Integrated Defense Systems (IDS) (St. Louis, MO); CACI, Inc. — Federal (Arlington, VA); The Centech Group (Silver Spring, MD); GTSI; Harris Government Communications Systems Div. (GCSD) (Palm Bay, FL); Raytheon Government & Defense Businesses (Lexington, MA); Sprint Government Systems Div. (GSD) (Herndon, VA); Unisys U.S. Federal Government Group (McLean, VA).

— Lockheed Martin IS&S — Combat Support Systems (Manassas, VA) (FA8771-04-D-0008), teamed with Lucent Technologies, Inc. (Murray Hill, NJ); IBM Global Government Industry (Bethesda, MD); Fluor Federal Services (Arlington, VA); SBC Communications (San Antonio, TX); Qwest Communications International, Inc. (Denver, CO); Sprint Government Systems Div. (GSD) (Herndon, VA); Avaya, Inc. (Basking Ridge, NJ); NextiraOne Federal LLC (Fairfax, VA); World Wide Technology, Inc., and Abacus Technology Corp. (Chevy Chase, MD).

— Northrop Grumman IT, Defense Enterprise Solutions (DES) (McLean, VA) (FA8771-04-D-0005), teamed with 24 small businesses and 10 large businesses that include: CSC Federal Sector, Defense Group, Aerospace unit (Falls Church, VA); SAIC Systems & Network Solutions Group (McLean, VA); BearingPoint, Inc. — Federal Services Group (McLean, VA).; RS Information Systems, Inc. (RSIS) (McLean, VA).; Verizon Federal Network Systems (FNS) (Washington, DC).; Siemens AG (Munich, Germany).; T-Systems (Frankfurt, Germany).; AT&T Government Solutions (Washington, DC).; Dell Computer Corp. (Round Rock, TX).; SI International, Inc. (Reston, VA).

Under the multiple-award program, these companies now will compete for task orders to provide networking equipment/product supply for the Air Force, DoD, and other federal agencies. Task orders will provide systems engineering, installation, integration, operations, and maintenance for a family of DoD- adopted commercially standardized networking solutions that are interoperable with Air Force, Joint, and DoD technical architectures. The Air Force CIO is expected to make NETCENTS a "mandatory use" contract across the service.

The NETCENTS program covers Network-Centric Information Technology, Networking, Telephony and Security (NCITNTS) and voice, video and data communications, which includes COTS products, system solutions, and systems hardware and software to satisfy the requirements for interoperability, compatibility, and resource sharing of both GFE and CFE, supporting the USAF's network-centric architecture, known as the Command and Control (C2) Constellation. It is to be integrated with the Navy's FORCEnet and the Army's Warfighter Information Network-Tactical (WIN-T) under the umbrella of the DoD's Global Information Grid (GIG).

The procurement is considered a follow-on to Air Force's Unified Local Area Network Architecture II (ULANA II) program which expired in February 2003. The incumbents were EDS and TRW, now part of Northrop Grumman Mission Systems (Reston, VA).

NOTE: From ULANA II's February 2003 expiration and today's NETCENTS award, the Air Force used the Navy's Voice, Video and Data (ViVID) contracting vehicle to meet much of its IT requirements. ViVID's pirme contractors are Avaya and General Dynamics Network Systems.

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Deals of the Month

Closing/ Anncmt. Date Buyer Seller Purchase Price Seller Revenue
October 6, 2004 Raytheon Co. Photon Research Associates, Inc. N/D N/D
October 5, 2004 Technology Service Corp. Phase IV Systems, Inc. $5.8m 80 employees
September 28, 2004 BAE Systems NA Alphatech, Inc. $88.4m $64m
September 15, 2004 Geo360 Corp. Space Imaging LLC
(federal civil solutions)
N/D 55 empl
September 21, 2004 American Systems Corp. Digital Access Corporation N/D N/D
September 13, 2004 BAE Systems DigitalNet Holdings, Inc. $600m $379 (04 est.)
September 9, 2004 PEC Solutions AC Technologies $46.7m $48.5m
September 8, 2004 QinetiQ Ltd. Westar Aerospace & Defense Group $130m $140m

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Minuteman Ventures LLC News

Ron Thompson joins Minuteman Ventures LLC as an Adviser. President of KAL Technologies, a consultancy, Ron is retired from the US Air Force with engineering and acquisition as well as operational experience and is an active supporter of the Air Force Association at the local, regional, and national level. With KAL Technologies, Ron supports clients in the aerospace and defense business sectors. Ron lives near Dayton, OH and principally works with companies in the Dayton/Wright-Patterson AFB area …

Minuteman President Paul Serotkin addressed the annual Government Contractors Conference of the Maryland Association of Certified Public Accountants (see www.macpa.org ). He broadly addressed timely federal M&A issues. To download the PowerPoint presentation, click here.

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About Us

Minuteman Ventures LLC advises company owners on the sale of their businesses, and assists corporate and private equity buyers in strategic acquisitions and divestitures. Our team consists of experienced entrepreneurs and business executives who founded or operated companies and corporate divisions.

We specialize in companies that sell services and product solutions to federal government clients. We pride ourselves in being the investment bank for entrepreneurial companies in the federal sector.

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