But seller, beware — common mistakes crop up during deal negotiation or when the company is in the planning stage to sell the company.

Based on my many years transacting M&A deals (and borrowing liberally on insights from veteran dealmaker, Mike Solley, now President of NCI Information Systems, Reston, Va., www. nciinc.com), herewith are four pitfalls to watch for — and avoid!

Owners believe their company is better than all the others and expect a better-than-market value.

Corporate and private equity buyers are largely disciplined in assessing the market value and risk associated with the value of a given target company. For them to step outside the market-accepted range, the selling company must have truly differentiated solutions and service.

We routinely speak to potential client CEOs who wish to sell their firms at 1.5 times trailing annual revenue, when the public federal companies - with their ability to gain real market share and capture large, multi-year awards — are not fetching that valuation in the public market. The refrain is now often heard from companies performing classified, intelligence/ cybersecurity work for three-letter federal agencies. True, they often fetch a higher value than federal companies without such signature, but buyers are unlikely to disrupt their buying philosophy and even their capital structure for these firms.

Sellers are not exactly sure what they want to do.

Selling shareholders and executive management (if different people) should give much thought to their role post-transaction.

While being flexible, these individuals should start with the intention that they wish to be either a dynamic part of the buyer organization, support a transition to the new owners or leave summarily upon deal closing.

Those who have not thought through their next life experience have done themselves a disservice when in the midst of deal negotiation.

The Parties lose attention before the closing.

Even if the deal seems strong and the closing is at hand, never assume the deal is done until finally closed. When the checks clear and the paperwork is executed, then the transaction is complete — not before.

Sellers get advice too late and then get it in a hurry.

CEOs who want to sell their business should be proactive — and prepared. Understand the high risk areas in your company that buyers will see. Study the relevant M&A market. Line up the internal and external 'M&A team' before heading to market or seriously entertaining an offer over the transom. Eliminate contingencies upfront that could crater the deal.

The 'Rush-to-Deal' mentality without adequate and informed inputs often leads to latter stage problems.

Minuteman Ventures' President Paul Serotkin talked recently with Lucy Reilly Fitch about BAE's M&A process, structure and plans. Ms. Fitch is BAE Systems NA's Senior Vice President, Acquisitions and Strategy, where she manages mergers, acquisitions, divestitures and strategic planning.

FGR: BAE Systems NA has become increasingly active — and successful — as an acquirer. Is this part of a structured plan?

LRF: Yes. Acquisitions are a key element of our corporate strategy. And recently, we have become much more aggressive. Last year our North American Executive team, both corporate and within our four sectors — committed to grow in 2004 by 15% through acquisitions, in addition to our annual goal of 10% organic growth, a goal we have met. That caused us to focus harder on M&A and, in the process, re-align our 'M&A infrastructure.'

FGR: How so?

LRF: BAE NA has historically been decentralized in our M&A pursuits. Now, the Sector presidents are as committed to external growth as before, if not even more so, but the acquisition program is increasingly led more by North America corporate headquarters in a centrally structured manner.

North America Corporate and its functional leads tend to prosecute the deals, but work hand-in-glove with the Sector teams in executing the due diligence process and identifying potential targets of interest. We leverage our Sector teams in a more subject matter expert role, seeking sophisticated guidance from them on the viability of particular targets, as well as having them lead the integration process.

FGR: How is BAE Systems NA's Corporate M&A function organized?

LRF: We have the equivalent of about 12 FTEs throughout the enterprise working on M&A, with another dozen or so supporting the M&A process on a case-by-case basis.

FGR: What types of companies does BAE Systems seek to acquire?

LRF: Companies that complement our technologies and program expertise in supporting the national security and aerospace markets. Specifically, we're looking for those companies which provide differentiators in electronic and information-based systems or knowledge-based systems.

To the extent they support the warfighter directly or meet National Security goals, inside and outside of DoD (including such non-defense agencies as DHS, NASA, and other departments to include Justice, Transportation, and so on), they come up on our radar.

Technology-rich firms rank high, regardless of size. Witness our acquisition this year of STI Government Systems and Practical Imagineering.

About 75% of our business is in C4ISR; most of these companies support that broad mission. They also enable us to challenge the 'Big 5' DoD primes in major system developments.

FGR: How do you see the current M&A environment in the defense sector?

LRF: Very active, and which we believe will intensify in 2005. Our data shows that, based on deal volume for the first six months of 2004, DoD merger activity will hit levels this year not seen since pre-9/11.

M&A will become an increasingly evident strategy for companies that wish to aggressively grow within the U.S. government market. A primary driver of that is the fact that DoD's budget is projected to grow at 4.5% CAGR, while BAE Systems NA and many other DoD contractors are seeking growth of 10-20% per year. That kind of rapid growth for large companies cannot be achieved without acquisitions.

The market remains ripe for consolidation, particularly in the Tier 3 group. (Ed. Note — She defines Tier 3 as companies with under $1 billion in revenue.) Cash reserves for several of the large platform companies are in excess of $3 billion, combined with declining debt levels, will increase pressure on them to deploy cash in ways beyond dividends.

Though we expect public and M&A valuations in defense to soften at some point, the combination of excess cash, slowed DoD budget growth and low cost- of-capital environment, will continue to drive robust M&A activity.

FGR: Has foreign ownership in any way constricted BAE Systems NA's growth in the US?

LRF: To the contrary, we are readily accepted as part of the fabric of the DoD industry. Our Special Security Agreement, in place with DoD since 1985, has become the benchmark on how to address foreign ownership of companies doing business with the Pentagon. (Ed. note — indeed, about 50% of the BAE Systems PLC stock, traded on the London Stock Exchange, is held by U.S. institutions.) The ultimate evidence of our acceptance is the large amount of classified work BAE Systems NA performs for DoD as well as our customer survey results.

FGR: Describe BAE Systems NA's operating philosophy on how it introduces acquired companies into the fold?

LRF: We tend to assimilate, rather than integrate. This is especially pertinent in that we are absorbing technology-rich firms. Our fervent goal is not to quash their innovation, which is why we acquired them in the first place.

However, on (deal) closing day, we do change the acquired firm's name and bring them into the BAE Systems family.

FGR: Other than technology, are there cultural aspects of target firms that appeal to BAE Systems NA?

LRF: Our culture is very end-user centric. We focus heavily on our relationships and understanding the end-user, which for the most part, are the men and women in the Armed Forces. We seek companies that share the same mindset. Above all, we view ourselves as patriots and protectors of our National Security writ large, and look for the same from the acquired firm's employees. One of our business units coined the phrase, "We protect those who protect us." That concept — the concept of focusing on the end user and being a trusted partner to provide innovation and best-value solutions — is something we take very seriously, and look for our newly acquired entities to embrace as well.

BAE Systems NA Acquisitions, 2004

Acquired Firm	Deal Date	Announced Purchase price	Acquired firm revenue
Alphatech	9/04	$88.4m	$51m (FY 2003)
DigitalNet Holdings	9/04	$600m	$292m (FY 2003)
Boeing (Commercial Electronics)	8/04	N/D	$170m (FY 2003)
Practical Imagineering	8/04	$8.3m	N/D
STI Government Systems	5/04	$27m	N/D

SI International, Inc. (NASDAQ: SINT) signed a definitive merger agreement to acquire Bridge Technology Corp., a small veteran-owned business.

SI International said that "the acquisition supports SI International's strategic growth goals to broaden its customer base into the intelligence agencies, and strengthen and broaden its portfolio of mission-critical solutions. The acquisition of Bridge Technology will provide SI International with a platform to offer its existing practice areas directly to the intelligence agencies within the Federal government."

Bridge Technology, a privately-held company headquartered in Columbia, MD, provides solutions to the Defense intelligence agencies in areas such as program management; acquisition, technology, and logistics management; systems engineering; network design and management consulting services; business process re-engineering; and, financial management system implementation and consulting.

Established in 2000, Bridge Technology has approximately 140 employees with approximately 90 percent holding security clearances. Bridge Technology's primary clients are major Defense intelligence agencies.

SI International chairman and CEO Ray Oleson stated: "We believe that the acquisition of Bridge Technology will establish a solid foundation for SI International to take advantage of the growth in the intelligence sector. The acquisition will greatly improve our presence within Defense intelligence agencies and bring new core competencies that enhance SI International's practice areas."

Bridge Technology CEO Lou Gould stated: "Our clients will benefit from SI International's expertise in mission-critical information technology services, and from the resources of a larger company. Our employees will have increased opportunities for growth and professional development. Bridge Technology is an excellent fit with SI International's corporate culture of building and maintaining long-term customer relationships, while providing state-of-the-practice solutions."

TERMS

On Dec. 1, 2004 SI International announced it had signed a definitive merger agreement to acquire Bridge Technology Corp. SI International will acquire the capital stock of Bridge Technology for $30 million in cash. SI International will pay the purchase price with its cash-on-hand and borrowings from its credit facility.

Bridge Technology has approximately 140 employees with approximately 90 percent holding security clearances.

The companies plan to close the transaction within the next 30 days, conditional upon the acquisition being approved by SI International's board and the satisfactory completion of its due diligence investigation.

For the trailing twelve months ended September 30, 2004, Bridge Technology had revenues of approximately $22.2 million and operating income of approximately $3.5 million.

ANALYSIS

The Bridge acquisition reinforces the seemingly unending appetite of federal buyers for companies with an intelligence portfolio.

Though less than 10% of SI's size, a company such as Bridge can have an outsized impact on both customer penetration/identity and in market panache. Indeed, public investors have liked SI's march forward for some time; the Bridge deal should only cement that view. Mired at $7 a share in the spring of 2003, the company now trades at nearly $30 a share.

Bridge's high level of cleared employees and its customer set induced SI to pay up — 1.4x trailing revenue and 8.6x trailing EBITDA. Still, given SI's EV/EBIDTA of 11.0x at deal announement, the transaction makes sense, fitting within the buyer's return rate parameters.

On November 12, 2004, the U.S. Army Contracting Activity, Information Technology, E-Commerce and Commercial Contracting Center - West (ACA ITEC4-W) (Ft. Huachuca, NM) awarded four parallel, five-year, $25 million, firm-fixed-price, IDIQ contracts for operation and maintenance (O&M) of communication systems under the cognizance of the Directorate of Information Management (DOIM).

The recipients were:

— Altech Services, Inc. (Oklahoma City, OK (W91RUS-05-D-0001).

— Cordev, Inc. (Falls Church, VA) (W91RUS-05- D-0002).

— GSTek, Inc. (Chesapeake, VA) (W91RUS-05- D-0003).

— Space Mark International, Inc. (SMI) (Colorado Springs, CO) (W91RUS-05-D-0004).

Under the multiple-award program, these companies now will compete for task orders to provide administrative telephone services (ATS) and information technology (IT) services.

The contract was competitively procured through solicitation W91RUS-04-R-0024, which was issued on June 4, 2004, and called for up to seven awards under competition limited to small businesses only (NAICS 517110).

Army SMDC Chooses CAS to Support Advanced Measurements Optical Range (AMOR)

The U.S. Army Space and Missile Defense Command (SMDC) (Huntsville, AL) awarded CAS, Inc. (Huntsville, AL) a five-year, $7.3 million, cost-plus-fixed-fee contract (W9113M-05-C-0006) for Advanced Measurements Optical Range (AMOR) support.

Under the contract, the company will provide operation, maintenance, calibration, repair services, perform technical assessments in the areas of technology evaluation, data analysis, system analysis, design, fabricate and test active and passive electro- optical measurement hardware, and gather data for databases using ladars and other equipment relating to the operation of the AMOR on Redstone Arsenal, AL.

Navy SPAWAR SSC-SD Inks Koam Engineering Services for Test Bed O&M

The U.S. Naval SPAWAR Systems Center San Diego (SSC-SD) (San Diego, CA) awarded Koam Engineering Systems, Inc. (KES) (San Diego, CA) a five-year, $28.9 million, cost reimbursement, IDIQ contract (N66001 -05-D-0009) to provide Combined Test Bed (CTB) operation and maintenance (O&M) support services in support of SSC-SDs Tactical Systems Integration and Interoperability Div. (Code 245).

Under the contract, which has an estimated level of effort (LOE) of 84,480 labor-hours per year, the company will support laboratory equipment, including Joint Tactical Information Distribution Systems (JTIDS), Multifunctional Information Distribution System (MIDS), AEGIS systems and equipment and supporting equipment or software provided for use with U.S. military tactical data link communications. Work will be performed in San Diego, CA.

The contract was competitively procured through solicitation N66001-04-R-0037, which was issued on June 1, 2004, and called for competition limited to 8(a) firms only (NAICS 541330; $23 million).

USAF AFSPC Chooses Four for CAASETA Program

The U.S. Air Force Space Command, 21st Contracting Squadron (AFSPC 21 CONS) (Peterson AFB, CO) awarded four parallel, five-year, IDIQ contracts, worth $610 million collectively, to provide Contract Advisory & Assistance Services and Systems Engineering & Technical Assistance (CAASETA).

The recipients were:

— SI International (Colorado Springs, CO) (FA2517-04-D-9000).

— Booz Allen Hamilton, Inc. (McLean, VA) (FA2517-04-D-9001).

— Scitor Corp. (Colorado Springs, CO) ((FA2517-04-D-9003).

— bd Systems, Inc. (Torrance, CA) (FA2517-04- D-9002), teamed with Aero Thermo Technology; Allegis Group; Anteon ISG - Air Force Programs (Fairfax, VA); Applied Research Associates, Inc. (ARA) (Albuquerque, NM); CACI, Inc. - Federal (Arlington, VA); General Dynamics; L-3 Communications; CollaborX; RI; Morgan Research Corp. (Huntsville, AL); Office Technology Systems, Inc.; Overlook Systems Technologies, Inc. (Vienna, VA); Robbins-Gioia, LLC (Alexandria, VA); SAIC Federal Business (McLean, VA); Shape Technologies LLC; and Multimax, Inc. (Largo, MD).

Under the multiple-award program, these companies now will compete for task orders to provide management, planning, and engineering and technical assistance support needed by AFSPC and supported organizations to successfully conceptualize, plan for, advocate, define, develop, field, test, and sustain Ballistic Missile Defense (BMD) systems (hardware, software, facilities, people, procedures); and integrate and synergize new command and control (C2) capabilities with capabilities being planned, developed, and delivered by other organizations. In addition, task orders will assist AFSPC in evolving BMD procurements from platform-centric to capabilities-based acquisitions in accordance with DoD new and evolving direction.

The contract called for full & open competition. Two awards were reserved for small businesses only (NAICS 541710).

USAF AFSPC Chooses LinQuest Corp. for Milstar Engineering and Communications Services (MECSS)

The U.S. Air Force Space Command, 50th Contracting Squadron (AFSPC 50 CONS) (Schriever AFB, CO) awarded LinQuest Corp. (Los Angeles, CA) a five-year, $10 million, IDIQ contract (FA2550-05-D-8000) for Milstar Engineering and Communications Services (MECSS).

Under the contract, the company will support the 4th Space Operations Squadron (4 SOPS) at Schriever AFB and the Space and Missile Center, Detachment 11 (SMC Det 11) MILSATCOM Systems Sustainment Office (MSSO) Mission Planning Element (MPE) at Peterson AFB by providing technical communications services to both strategic and tactical users of the Milstar satellite constellation in support of the government's secure, global communications mission (Army, Navy, Air Force). LinQuest also will support the 4 SOPs Cryptographic Re-key mission. The company will support training 24-hour crews in basic communications troubleshooting techniques and explain complicated communications processes necessary for system usage. The company will perform analysis, trouble-shooting, and problem resolution on Milstar software tools supporting resource management and communications planning. The work will be performed at Schriever AFB, CO.

The contract was competitively procured through solicitation FA2550-04-R-3000, which was issued on June 29, 2004, and called for competition limited to small businesses only (NAICS 541330).

The procurement is considered a follow-on effort. The incumbent was LinCom Corp., which performed the work previously under a five-year, $12.2 million contract (F04701-98-C-0046) awarded in January 1999. LinCom was acquired by Titan Corp. in 2000. In July 2001, LinCom was renamed Titan Communications & Software Solutions Div. (CSSD). Then, in November 2003, Titan divested most of the contracts being performed by CSSD to a newly formed company called LinQuest Corp. in an effort to avoid potential organizational conflict of interest (OCI) issues due to a possible merger with Lockheed Martin, the Milstar prime contractor.

USAF ASC Picks QTSI Over Incumbent SAIC in US NDC Support Recompete

The U.S. Air Force Aeronautical Systems Center (ASC) (Wright-Patterson AFB, OH) awarded Quantum Technology Services Inc. (QTSI) (Cocoa Beach, FL) a five-year, $28 million, cost-plus-award-fee contract (FA8620-05-C-4301) for the sustainment and continual development of the United States National Data Center (US NDC).

Under the contract, dubbed US NDC Phase 3, the company will support the U.S. Atomic Energy Detection Systems (USAEDS) Squadron (DET 3 ASC) (Patrick AFB, FL) by operating and sustaining the present operational systems, increasing performance by fine- tuning current systems, and adding increased functionality to the current baseline. The work will be performed at AFTAC, Patrick AFB, FL.

The procurement is considered a follow-on effort. The incumbent was SAIC.

USAF ESC Selects Five Firms for Mission Planning Enterprise Contract (MPEC)

The U.S. Air Force Electronics Systems Center (ESC) (Hanscom AFB, MA) awarded five parallel, 15-year, IDIQ contracts, worth $2 billion collectively, for the Mission Planning Enterprise Contract (MPEC).

The recipients were:

— BAE Systems Mission Solutions - Intelligence Systems (San Diego, CA), teamed with BAE Systems IEWS - Information Dominance Systems (Nashua, NH) (FA8720-04-D-0002).

— TYBRIN Corp. (Ft. Walton Beach, FL) (FA8720 -04-D-0003).

— Northrop Grumman Mission Systems - Defense Mission Systems (DMS) (McLean, VA) (FA8720-04-D-0004). Work will performed in San Pedro, CA.

— Boeing Military Programs - Wichita Div. (Wichita, KS) (FA8720-04-D-0005).

— Lockheed Martin IS&S - Joint C3 Systems (Colorado Springs, CO) (FA8720-04-D-0006).

Under the multiple-award program, these companies now will compete for task orders to perform all mission planning software development, test and evaluation (T&E), maintenance, integration, training and fielding. These efforts may include:

— Joint Mission Planning System (JMPS) common capabilities development, evolution, and maintenance.

— JMPS aircraft and weapon unique planning components (UPCs) development, evolution, and maintenance.

— Evolution and maintenance of the JMPS framework.

— Migration of aircraft and weapon platforms from legacy mission planning systems to JMPS.

— Maintenance of legacy system software - core systems, installable software modules, and/or platform components.

— Development and evolution of future mission planning systems.

— Performance of mission planning and related C4I trade studies and/or prototyping.

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.