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Volume 4, Issue 4 October 2006

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 leaders in the federal contracting sector. These people build companies and increase equity value.


Paul Serotkin
Minuteman Ventures LLC


August 2006
June 2006
April 2006

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In This Issue
Snapshot of the Government Services Industry, 1995-2004 - Through the eyes of Government Services Insider editor Michael Lent, we review the seminal CSIS study on the industry.
The Federal Deal - For BAE Systems' Mark Ronald, The Past is Prologue
Daily Deals - Check out the latest sector M&A deals

Minuteman Ventures LLC partners with InfoBase Publishers, Inc., to bring you expert analysis of recent federal M&A transactions. InfoBase is a provider of information on buyers and sellers in the global defense, aerospace, and government technology marketplaces. Their Defense Mergers and Acquisitions (DM&A) module is the most comprehensive collection of industry M&A data and analysis in existence.

InfoBase is a lot more than M&A. Their on-line service links the defense sector's latest news on companies, contracts and programs to insightful sector analysis, budget trends and M&A transactions. For more on InfoBase Publishers and its web-based Defense/Aerospace Competitive Intelligence Service (DACIS), visit or contact Bill Burton ( (410.820.6821) for a personal tour.

The Minuteman Federal Deal Meter
  Purchase price  
  Under $50m $50–100m Over $100m Total Deals
YTD 2005 45 7 12 64
YTD 2006 47 11 9 67

The Minuteman Federal Deal Meter covers M&A transactions of services firms principally serving federal agencies. Transactions covered are those announced from January 1 through October 10, 2006.

For the list of M&A transactions closed in the sector since January 1, 2005, email

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, products, and solutions to federal government clients. We pride ourselves in being the investment bank for entrepreneurial companies in the federal sector.

Snapshot of the Government Services Industry, 1995-2004

Through the eyes of Government Services Insider editor Michael Lent, we review the seminal CSIS study on the industry.

Release of a major study in late summer on the federal government services industry chronicles the extraordinary upheaval in the sector since 1994.

The study was conducted by the Center for Strategic and International Studies.

As summarized in a recent issue of the Government Services Insider, the study findings underscore the topsy-turvy market, tracking the impact of federal budgets, 9/11, public markets, procurement policy and private capital from 1995–2004.

Top Contractors Providing Information and Communications Technology Services: Kings of the Fastest-Growing Category

Note: the CSIS figures were not inflated to normalize for inflation.

The Top 20 Information and Communications Technology Services (ICTS) firms, in order, are: EDS, SAIC, Northrop Gruman, Lockheed Martin, CSC, Accenture, IBM, Booz Allen Hamilton, Unisys, CACI, Anteon, General Dynamics, DynCorp, SRA, BearingPoint, Titan, BAE Systems, Mantech, AT&T, L-3

From 1995 to 2004:

  • Had a 14 percent compound annual growth rate, reaching $ 21.4 billion in contract actions — tripling.
  • The number of firms in this category grew 2.7 times to 6,400
  • The value of contract actions for the top 20 firms increased 3.6 times to $11.5 billion
  • Ten of the top 20 companies in 2004 did not appear on the 1995 list
  • As a group, the top five firms grew faster (3.8 times) than the top 20 firms as a whole — 3.0, with three far ahead of the others:

    • EDS: 11.1 times
    • SAIC: 6.2 times
    • Lockheed Martin: 5.5 times
  • The top 20 list includes three top aerospace terms, but is not as dominated by hardware and construction firms as the professional, administrative, and management support services category

Top Contractors Providing Professional, Administrative, and Management Support (PAMS) Services: Most Dollars, Most Populous

The Top 20 firms, in order, are: Northrop Grumman, Lockheed Martin, SAIC, Booz Allen Hamilton, DynCorp, Raytheon, Boeing, Titan, BAE Systems, CSC, Anteon, CACI, L-3, Parsons, MITRE, Battelle, CH2M Hill, Honeywell, Bechtel, General Dynamics

From 1995 to 2004:

  • Had a nine percent compound annual growth rate, reaching $42 billion
  • The number of firms more than doubled to 28,000
  • 20 firms garnered 30 percent of PAMS total in 2005
  • The value of contract actions increased 2.4 times to $13.4 billion
  • Eleven of the top 20 companies in 2004 did not appear on the 1995 list
  • As a group, the top five firms grew more slowly than the top 20 firms as a whole — 2.0 times, with two very different exceptions:
    • Booz Allen Hamilton grew 5.0 times
    • Dyncorp grew 4.6 times

  • The top 20 list remains heavily populated by firms in hardware and construction for which the services business is a minor share of revenue
  • Two not-for-profit organizations appear on the 2004 list — MITRE and Battelle; none appeared in 1995

Michael Lent, who watches the industry closely in his post as editor and publisher of the Insider, highlighted several key issues raised in the report. Click here for his analysis.

Government Services Insider provides insight and commentary on companies that provide professional services to the federal government. For more, visit or email Reach them at 202-237-0765.

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The Federal Deal

FGR offers analysis of M&A transactions involving government 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,

For BAE Systems' Mark Ronald, The Past is Prologue

If a recent article appearing in the Financial Times is any indication, the run of U.S. acquisitions activity by BAE Systems plc (LSE: BA.L) may not be over.

Indeed, words from Mark Ronald, the respected head of BAE's $11 billion, 45,000-employee business, suggest that the company is toying with the possibility of making a deal which could eclipse the $4.2 billion acquisition last year of United Defense Industries (NYSE: UDI).

"We can grow by bolt-on acquisitions," Mr. Ronald tells the newspaper, "Yet we look at things over $1 billion and I guess $10 billion, maybe even $20 billion. At some point [this] wouldn't be completely out of the question."

There hasn't been a U.S. defense/aerospace deal over $10 billion in four years — not since Northrop Grumman's acquisition of TRW in 2002. And prior to that we'd have to cast back a decade to the 1990s for examples. And even that storied decade only furnishes three examples of "ten-baggers": the $15.5 billion Honeywell/AlliedSignal deal in 1999, the $17.5 billion Boeing/McDonnell Douglas deal in 1997, and the $10 billion Lockheed/Martin Marietta deal in 1995.

In the entire history of the industry there has never been a $20 billion deal (at $45 billion in size, the GE/Honeywell deal would have broken the mold, and perhaps for that reason... didn't).

So when a man with an illustrious track record mentions the possibility of doing something that's never been done before, we tend to view the matter in the same way we'd view advice given to budding playwrites: if your audience is shown a gun hanging above the mantle in Scene I, they had better see it fired before the curtain falls.

Is that overstating the matter? Read Mr. Ronald's words, and decide for yourself: "My own view, obviously not shared by everybody, is that there probably is not a limit to what we could buy."

With his 65th birthday looming, Mr. Ronald is now entering the span of years in which successful dealmakers are often looking for one last opportunity to take down that gun and go elephant hunting. It was during these years that GE's Jack Welch set his sights on Honeywell (with results which should not detract from the rest of his storied career). It was during these years that Norm Augustine made arrangements for the future of Martin Marietta. And it was during these years that Frank Lanza took L-3 Communications to greatness, although that process would have to be characterized as a steady march rather than a single great leap.

Operating at these rarified levels, failure can come as readily as success. The GE/Honeywell deal we've already mentioned. Other mega-flops have included Lockheed Martin's abortive bid to acquire Northrop Grumman in 1998 and General Dynamics' attempts to buy United Defense (in 1997) and Newport News Shipbuilding (in 1999 and again in 2001). Even in those years, prior consolidation activity had all but closed the window against further mega-deals.

But BAE Systems is just the kind of company that could slip in through that window, even in these more constrained times. As the Pentagon's seventh-ranked contractor, even a $20 billion deal would make it only roughly the same size as Lockheed Martin. And then there's the company's programmatic mix-heavy on defense electronics, IT, and services. Politicians and regulators tend to focus on companies with big- ticket, high-profile programs. BAE has relatively few of those — so if opponents were going to rise against a mega-deal, they would have to find different ground upon which to rally.

Two Footprints, One Headquarters

The "Special Relationship" between the U.S. and the U.K. notwithstanding, that ground would almost certainly be the company's foreign ownership. Here BAE is vulnerable on both ends of its trans-Atlantic tether. In the U.S., the company has done all the right things in terms of how it acquires, integrates, and operates sensitive defense properties. But if the company were to seek entry, say, into the Top Three of U.S. defense contractors, it might find that its unique ocean-straddling stance put it in the sights of politicians who are dead-set against the military dimension of the U.S.-U.K. "special relationship." If enemies of George Bush see an opportunity to tie a bloody scalp to their belts, they will not hesitate to do so. The regulators might yawn, but if the politicians begin to fulminate, look out.

In the U.K. BAE Systems faces a different set of problems. The company's relationship with the Ministry of Defence (MoD), already somewhat strained by its perceived tilt towards the U.S., could reach a breaking point if a deal with a U.S. giant suddenly reduced the company's U.K. business to less than half of revenues. In the Financial Times article Mark Ronald waves off concerns about the company's trans-Atlantic balancing act. His words, which are quite emphatic, are worth reprinting in full: "I just don't think it matters. There are some companies where nobody knows where the hell their headquarters are. Governments are primarily concerned with national security and jobs.

"If push came to shove, I am not convinced the government is really going to care whether we are in Stirling Square [BAE's London head office], New York City, Brussels or somewhere else."

While we are staunch supporters of the U.S.- U.K. "special relationship", we do think that a company which was 75 percent American and 25 percent British would be forced to choose where its headquarters would be. And when that choice was made ‐ and it would almost have to be made in favor of the U.S. ‐ the perquisites painfully won in the Defence Industrial Strategy (DIS) could go glimmering in an instant. While BAE Systems' U.K. footprint would remain as large as ever, many British politicians would focus on where the company's head was located, and would agitate for a reduction of the company's quasi-monopolistic hold over the U.K. defense marketplace. (Which would represent a golden opportunity for up-and-comers like Cobham, Meggitt, Ultra Electronics, and VT Group ‐ and, yes, for EADS, Thales, and Finmeccanica ‐ to fill the vacuum left at the center of Britain's defense marketplace.)

So our hunch is that a transformational deal like a $20 billion U.S. buy would require a transformation in the company's somewhat cavalier attitude about its unique place in the industry's firmament. Do we think the company is capable of undergoing such a transformation? Absolutely. And do we think the company has the will to make a deal of this size happen?

Well, that's the $20 billion question. One early indication will be whether the company makes the fateful decision to unload its somewhat depreciated stake in Airbus SAS. That would provide it with several billion dollars worth of wherewithal. And then we would pay close attention to the company's potential merger partners in the U.S. for clues about their strategic receptivity.

Three Potential Mega-Partners...

The company basically has three candidates in the "transformational acquisition" category. They are (in alphabetical order) General Dynamics, L-3 Communications, and Raytheon.

M&A rumors have persistently linked BAE Systems to all three U.S. firms — and to none more than General Dynamics. The companies' submarines businesses are already genetically linked, the fit in land systems would be good (maybe a little too good ‐ remember what happened when GD tried to buy United Defense, which is now part of BAE), and the combination of the two companies' IT businesses would move them solidly into the industry's first tier.

L-3 Communications, a bit of a dark horse, joined this group with the death of Frank Lanza. Three of L-3's four segments would fit well with BAE Systems — but its largest, Specialized Products, would not. Still, the company could monetize the business (as Northrop Grumman did with Litton's Components business), a move which would go a long way towards making a deal possible.

Finally there's Raytheon, with whom BAE has long enjoyed a good relationship. Raytheon's missiles business would be a particularly nice fit at a time when the MoD has targeted missiles technology for growth. Once Raytheon sold its corporate jets business (and BAE Systems withdrew from MBDA Missile Systems) the fit would be exemplary.

So... three strong prospects, three opportunities for corporate transformation. But any mega-deal is unlikely in the current strong marketplace, since a deal must first and foremost be affordable and enhancing to earnings.

...And the Current Target Set

The company remains alert for opportunities in the $2 billion-and-under category-Mr. Ronald says that "There are in order of 20 possible targets out there but they are not for sale."

Mr. Ronald identifies defense electronics as a market segment of special interest to the company right now. His reason for doing so harks straight out of the down-budget 1990s: as budget cuts begin chipping away at big-ticket U.S. defense programs (like the F-35 Lightning II), customers will be forced to meet new requirements by upgrading their existing platforms. If a rising tide does indeed float all boats, this line of thought says, then a receding tide will affect different boats in different ways. Where BAE Systems is concerned, says Mr. Ronald, dawning budget realities could mean that the future holds more deals like the company's buy of Sanders in 2000 (and, one wonders, perhaps fewer buys of platform makers like United Defense?)

Mr. Ronald sees neither deal has having been as important as an earlier deal: the 1999 acquisition of Marconi Electronic Systems from GEC. That deal put the "Systems" in the company's name, and laid the foundation for future moves in the electronics sphere. Significantly, Mr. Ronald says that work remains unfinished: "We have 12 years' experience of this going back to the Marconi days but we are looking to bring it together in a more unified way."

Companies that could help BAE Systems Inc. achieve a more unified product offering in the area of defense electronics would include ITT and Rockwell Collins.

And beyond defense electronics are areas where the company has continuing strategic ambitions. These include homeland security, commercial aerospace and government IT services.

On one point Mr. Ronald does not equivocate: the North American business, which has grown 250 percent during the past five years, has more strategically-fueled growth in front of it. "We are only at the level of $11 billion," he says. That's a revenues figure any other U.S. subsidiary of an international defense firm would look at with envy. For Mark Ronald, it's the point of reference against which the company's future greatness will be measured.

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Daily Deals

Announcement Date
Buyer Seller Purchase Price Seller Revenue
October 10, 2006 Command Information Anvicom (merger) N/D 220 Employees
October 6, 2006 ManTech International GRS Solutions N/D $10m
October 4, 2006 Engenuity Technologies AcuSoft $2.66m $3m
October 4, 2006 SRX RABA Technologies N/D $60m
October 3, 2006 Kforce Bradson Corp. $73m $30.6m
October 2, 2006 URS Corporation Cash & Associates N/D 20 Employees
October 2, 2006 Infoscitex Corp. Systran Federal Group N/D $10m
September 29, 2006 NetStar-1 RGII (Division, Computer Horizons N/D 14.1m
September 29, 2006 PWC Logistics Services Taos Industries N/D 27 Employees
September 25, 2006 Rockwell Collins Anzus N/D $12m
September 1, 2006 Pine Creek Partners LLC Engineering Support Personnel N/D $20m
August 31, 2006 Hellman& Friedman/Texas Pacific Group Intergraph Corporation $1.3 billion $600m
August, 2006 CenterScope Technologies National Systems Management Corporation N/D $3.4m
August 29, 2006 L-1 Identity Solutions SpecTal LLC $100m $60m
August 23, 2006 Homeland Security Capital Corporation SecurityInc. LLC N/D $3m
August 17, 2006 Lockheed Martin Pacific Architects and Engineers N/D 6000 Employees

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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, products, and solutions to federal government clients. We pride ourselves in being the investment bank for entrepreneurial companies in the federal sector.

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