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Volume 4, Issue 6 February 2007

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


December 2006
October 2006
August 2006

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In This Issue
2006 Year-End Review
The Federal Deal - Perot Systems acquires QSS Group
SBA's New Recertification Rule - New Recertification Rule Will Impact All Small Business Sales
Daily Deals - 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.

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.

2006 Year-End Review

M&A in the defense/federal services market kept roaring along in 2006. Private equity and other financial buyers remained strong in the sector while the UK invasion, so powerful in past years, slowed in 2006.

2006 compared favorably to 2005 in terms of M&A transactions in the sector, with 82 recorded this year and 81 in 2005. Again, reflecting the demographics of the sector, most of the transactions were for smaller firms. Nearly 67% of deals were for purchase prices under $50 million, while 16% went to companies who were bought for values between $50 and $100 million.

This article was published in the January issue of Defense Mergers & Acquisitions. For the complete article, click here.

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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,

Perot Systems Corp. to Acquire QSS Group, Inc.

Perot Systems Corp. (NYSE: PER) signed a definitive agreement to acquire privately held QSS Group, Inc.

Lanham, Maryland-based QSS Group is an IT services company providing services and solutions for federal government IT enterprise, scientific and engineering applications, and to the Intelligence Community. QSS Group's clients include the Army, Coast Guard, Department of Health and Human Services, NASA, NOAA, Department of Treasury and the intelligence community. The company currently operates as the prime contractor on more than 90 percent of its contracts.

Government-wide acquisition contracts held by QSS Group include the Department of Homeland Security's Enterprise Acquisition Gateway for Leading- Edge Solutions (EAGLE), the Army's Information Technology Enterprise Solutions (ITES-2), the Department of the Treasury's Total Information Processing Support Services (TIPSS-3), and the General Service Administration's Millenia Lite. QSS Group's awards under EAGLE complements Perot Systems' award.

Through this acquisition, Perot Systems strengthens its platform for growth within the federal government services sector, gains several significant government-wide acquisition contracts (GWAC's) and further strengthens its IT capabilities, including information assurance and applications development and management. It also expands both the scope of services and the areas Perot Systems serves within the Department of Homeland Security and the Department of Defense.

Perot Systems president and CEO Peter Altabef stated:

"QSS Group's experience, client relationships and strong team of talented professionals are a perfect complement to Perot Systems' government services team. With this acquisition, we will be even better positioned to support the important work of our government clients."

Following the acquisition, Perot Systems Government Services will have more than 3,400 associates serving the federal government and is expected to report 2007 full year revenue of approximately $600 million.

Perot Systems Government Services president Jim Ballard stated:

"QSS is an excellent addition to Perot Systems and the synergies gained in this transaction will provide expanded growth opportunities for our federal unit. Our goal is to optimize our capabilities to ensure we always deliver the most effective and efficient results to the government and integrating these two groups will further enhance our ability to accomplish these goals."

QSS Group Frank Islam stated:

"We are very pleased to join forces with Perot Systems. QSS and Perot Systems have complementary capabilities and very similar cultures, and I believe that together the two companies will produce a powerful government services growth engine. As a result, this acquisition will create even better advancement opportunities for our hard- working team."


On December 18, 2006 Perot Systems Corp. announced it had signed a definitive agreement to acquire QSS Group, Inc.

Perot Systems will acquire QSS Group for $250 million of cash. The acquisition is expected to be accretive on a cash earnings per share basis, which excludes expense related to the amortization of acquisition-related intangible assets, by $.05 per share for full year 2007. Acquisition-related intangible asset amortization expense for full year 2007 is expected to be approximately $14 million, equal to approximately $.07 per share. Perot Systems expects to complete the integration activities associated with this acquisition during 2007. Including the effect of acquisition-related intangible amortization expense, this acquisition is expected to be accretive to earnings per share beginning in 2008.

Perot Systems expects QSS Group to achieve revenue of between $260 million and $280 million for full year 2007. Perot Systems expects to close the acquisition during January and will consolidate revenue for the balance of the year.

QSS Group's fiscal 2005 revenues were approximately $300 million and, at the time of the acquisition, the company had approximately 1,400 employees.

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SBA's New Recertification Rule

Sellers Beware SBA's New Recertification Rule Will Impact All Small Business Sales
By Pamela J. Mazza and Antonio R. Franco

Some of the most important issues facing owners of small businesses pertain to the sale of their companies. Indeed, deciding to sell one's business involves navigating a host of legal and financial concerns, not the least of which is how the transaction will impact the company's small business status. On June 30th, the SBA's new size recertification will go into effect, bringing with it more restrictive small business size recertification rules. With these changes looming on the horizon, potential sellers must now take heed of how their small status, and consequently their valuation and attractiveness to prospective buyers, will be affected.

Recertification for Mergers and Acquisitions

As of June 30th, the SBA's new size recertification rule will require that all mergers and acquisitions that occur as of or after that date trigger the need for the small business to recertify its small size status. This is a notable departure from the earlier version of the rule which required size recertification for mergers and acquisitions that necessitated a novation, such as asset transfers. The new rule makes clear that the novation exemption from size recertification when there is a stock sale will no longer exist after June of this year.

The impact could be far-reaching for small business owners wishing to sell their companies after June 30th. If the acquisition results in the firm becoming large, it will be unable to recertify as small. Under the old rule, which provided that a concern is considered small for the life of a contract so long as it was small when it submitted its bid, the procuring agency could still exercise options and count the award toward the agency's small business goals. However, under the new rule, an entity's inability to recertify as small causes the procuring agency to lose the ability to count options or orders issued under the small business' contracts toward the agencies' small business goals. As a result, it is possible, and perhaps likely in some circumstances, that the procuring agency may decline to exercise options or even terminate the contract in favor of a contractor that can satisfy its small business goals.

It should be noted that under the new rule, recertification does not change the terms of a contract. This means that agencies can continue to issue task orders, and exercise options and modification under that contract. Contracting officers will likely consider several factors in determining whether to issue additional orders to the acquired company, including how well the procuring agency is otherwise meeting its small business goals, the entity's relationship with the contracting officer and its past performance on the contract, the adequacy of competition for the particular contract function(s), and whether the entity can be easily replaced. For these reasons, the only sure consequence of an inability to recertify as small under the new rule is that the procuring agency cannot count subsequent orders toward its small business goals.

Recertification for Long-Term Contracts

The new rule will also impact those prime contracts with a term greater than five years. Under the new rule, a firm performing on a long-term contract, whether in existence as of June 30, 2007, or entered into thereafter, must recertify its size no later than 120 days prior to the end of the fifth contract year. The new rule also gives contracting officers the discretion to require recertification on an order-by-order basis. As with mergers and acquisitions, the inability to recertify as small on a long-term contract prevents the procuring agency from counting that work toward its small business goals, which may cause the company to lose the contract

Impact on Potential Purchasers

Potential purchasers of small businesses will likely be wary of the impact the new rule will have on the small business' contracts. Indeed, an inability to recertify as small, either as a result of a merger or acquisition, or at the end of the fifth year of long-term contracts, may greatly diminish the contracts' worth. Accordingly, sellers of small businesses may find their valuations commensurately lessened. However, it is difficult to quantify the true impact of an inability to recertify as small because the impact will be determined by whether the procuring agency's ability to satisfy its subcontracting goals is outweighed by the benefits it receives from continuing to use the current prime contractor. This will typically be decided on a case-by-case basis.

What Small Business Owners Can Do

From a mergers and acquisitions standpoint, the surest way for potential sellers to avoid the negative consequences of the new rule is to complete a stock purchase of their small business prior to June 30th. Business owners should also cultivate and maintain strong relationships with procuring agency contract personnel and become indispensable to the project. In doing so, small business owners may be able to mitigate the impact of an inability to recertify as small.

This article is authored by Ms. Mazza and Mr. Franco, partners in the firm, PilieroMazza PLLC, Washington, D.C.   202.857.1000

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Daily Deals

Announcement Date
Buyer Seller Purchase Price Seller Revenue
February 9, 2007 SM&A Project Planning, Inc. (PPI) N/D $7.5m
February 1, 2007 NCI, Inc. Operational Technologies Services N/D $10m
January 30, 2007 Paradigm Holdings IMS, Inc. N/D $4m
January 30, 2007 AECOM The RETEC Group N/D 400 Employees
January 23, 2007 ICF Consulting Advanced Performance Consulting Group N/D 29 Employees
January 22, 2007 QinetiQ Group Analex Corp. $173m $153m
January 16, 2007 Powawatomi Business Development Corp Advancia N/D $130m
January 10, 2007 ICF International Energy and Environmental Analysis N/D 27 employees
December 21, 2006 Lockheed Martin Management System Designers N/D $80m est.
December 18, 2006 Perot Systems QSS Group $250m $260m
December 13, 2006 Protiviti Government Services Enspier Technologies N/D N/D

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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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