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Volume 5, Issue 2 June 2007

Welcome to the Federal Growth Report, the newsletter published by Minuteman Ventures LLC, a firm 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


April 2007
February 2007
December 2006

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In This Issue
CEO Corner - Phil Nolan, Chairman, President and CEO, Stanley, Inc.
The Federal Deal - The Mantech-SRS Technologies Deal
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 Stuart McCutchan ( (702.327.8470) for a personal tour.

The Minuteman Federal Deal Meter
  Purchase price  
  Under $50m $50–100m Over $100m Total Deals
YTD 2007 20 5 6 31
2006 30 6 3 39

The Minuteman Federal Deal Meter covers M&A transactions of services firms principally serving federal agencies. Transactions covered are those announced from
January 1, 2007 through June 8, 2007, and the corresponding period in 2006.

For the list of M&A transactions closed in the sector through June 8, 2007 and 2006, email

CEO Corner

Phil Nolan, Chairman, President and CEO, Stanley, Inc.

One of the feel-good stories in the federal/defense IT services sector is that of Stanley, Inc., formerly know as Stanley Associates (NYSE:SXE).

After 40 years as a privately held company, Stanley completed a successful initial public offering in October, 2006, raising $62 million, net of underwriting discounts and offering costs.

Stanley's 2,800 employees provide IT services and solutions to a variety of U.S. defense and federal civilian government agencies under more than 200 active contracts. The company specializes in five core business areas: systems engineering, enterprise integration, operational logistics, business process outsourcing, and advanced engineering and technology. Stanley customers include the U.S. Army, U.S. Navy, U.S. Marine Corps, Departments of State and Treasury, and many others.

Wall Street analysts project fiscal 2008 revenues of nearly $500 million. (The company's 2008 fiscal year runs from April 1, 2007 to March 31, 2008.)

Stanley has become a formidable acquirer in the sector in recent years, having bought five companies since 2000 that added nearly $164 million in revenue at the time of the transactions.

Minuteman Ventures' Paul Serotkin caught up with Chairman, President and CEO, Phil Nolan about his views on the company and the capital markets.

DMA: What is Stanley's current appetite for M&A?

PN: There is continued strong interest in acquisition on our part. While we will go smaller for the right deal, our scope has expanded as sales have grown and more financial resources have become available. Using cash and leverage, we could pay up to $200 million for a qualified target. (Ed. Note: Assuming a 1x price-revenue ratio, Stanley would therefore be adding a $200 million company, which would add nearly 30% to its top line.)

For the entire interview as it ran in Defense Mergers & Acquisitions, click here.

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The Federal Deal

The Mantech-SRS Technologies Deal

ManTech International Corp. (NASDAQ: MANT) completed its acquisition of privately held SRS Technologies, Inc. (SRS).

Newport Beach, California-based SRS is a provider of high-end, mission-critical, advanced technology systems engineering and Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) services and solutions. Founded in 1970, SRS offers specialized domain knowledge in the areas of space-based radar and communications; chemical, biological, conventional and nuclear weapons detection and defeat programs; imagery intelligence; and aeronautic, space and information systems development. More than 85 percent of its revenue is derived from the Department of Defense, intelligence community and the Department of Homeland Security (DHS). The company's largest customers include DHS, the U.S. Air Force, the National Reconnaissance Office (NRO), the National Geospatial-Intelligence Agency (NGA), the Missile Defense Agency (MDA) and the Defense Advanced Research Projects Agency (DARPA). SRS has a highly-cleared and highly-educated workforce of over 800 employees — 75% with security clearances and more than 40% at Top Secret or higher levels. Over 45% have Master's Degree and above.

The acquisition extends ManTech's presence in the high-end National Security marketplace by providing enhanced capabilities in C4ISR, systems engineering, modeling and simulation, and other advanced technology services and solutions.

ManTech chairman and CEO George J. Pedersen stated: "This acquisition is consistent with ManTech's growth strategy to broaden our footprint in the high-end intelligence, homeland security and defense markets. SRS is an outstanding company with a proven track record of strong growth, profitability and excellence in supporting their customers. Their long-term relationships with the DoD, the intelligence community and special agencies such as DARPA, MDA, DIA and other classified customers provides new opportunities for ManTech."

ManTech president and COO Robert A. Coleman stated: "The SRS acquisition deepens our position as a leading player in the national security marketplace. This is the largest acquisition we have made since going public in 2002 and it continues our trend of purchasing excellent companies in the mission-critical, advanced-technology, DOD, Intelligence Community and homeland security arena. SRS provides us access to new markets in national defense agencies which we believe will continue to play a leading role in counter-terrorism and homeland security initiatives. Lastly, SRS' customers will now have the ability to obtain support in over 40 countries around the world."


On May 8, 2007, ManTech International Corp. announced it had completed its acquisition of SRS Technologies, Inc. Under the terms of the Merger Agreement announced April 9, 2007, ManTech acquired all of the outstanding equity interests in SRS for a Purchase Price of $195 million in cash.

ManTech used cash available and $170 million in borrowings from its new senior secured $300 million credit facility to finance the acquisition.

ManTech expects SRS to deliver $120 million in revenue for the remainder of 2007 and will be neutral to earnings per share for the remainder of 2007. The Company expects SRS to contribute $27 million in revenue for the remainder of the second quarter. SRS is well positioned in its markets with over $750 million in backlog as of March 2, 2007.

SRS expects to deliver over $175 million in revenue in FY 2007, which ends in August 2007. At the time of the acquisition, SRS had over 800 employees.


IN SEARCH OF: Billion-dollar government systems integrator desires profitable mid-tier systems engineering firm with established "national security" customer base and strong ties to the intel community. Must have annual revenues between $100M and $200M, a high percentage of employees with security clearances, and be willing to integrate into publicly held company and culture.

If SRS Technologies responded to this imaginary personal advertisement, we're certain ManTech International felt it was a match made in heaven. After all, the California company with a C4ISR focus has everything ManTech needs to make a big splash on Wall Street and live happily ever after (or at least until the stock price begins to fade).

Though ManTech had courted businesses in this space before (Gray Hawk Systems in May 2005, CTX in December 2002, and Aegis Research Corp. in August 2002), the size of those deals barely moved the needle. At nearly twice the size of any previous ManTech acquisition, however, the SRS deal makes Wall Street stand up and take notice.

Five years ago, the addition of more than 800 employees might have choked ManTech's acquisition machine, but today the company stands at $1.1B in annual revenues, is 5,600 employees strong, and has integrated a total of 16 acquisitions since 1993. To ManTech, the SRS buy is big, yes, but not too big for the Fairfax company to handle at this time.

And look at SRS's client list: the U.S. Dept. of Homeland Security (DHS), the U.S. Air Force, the National Reconnaissance Office (NRO), the National Geospatial-Intelligence Agency (NGA), the Missile Defense Agency (MDA) and the Defense Advanced Research Projects Agency (DARPA). There simply couldn't be a better fit to the ManTech mold.

ManTech's stockholders must be especially smitten with SRS's curvy figure: $195 million! This for a privately held company with $175 million in annual revenues and an amazing $750 million in backlog? What's not to like?

The acquisition has an attractive 111% price-to-revenues ratio at a time when intel businesses like SRS routinely fetch much greater P/R multiples. In fact, we count exactly 29 deals since 9/11/01 that yielded a price-to-revenues ratio of 1.5 or greater. These include BAE/Alphatech (11/04) Nortel/PEC Solutions (6/05), BAE/DigitalNet (10/04), CACI/AMS DIG (5/04), DRS/Integrated Defense (11/03), and General Dynamics/Veridian (8/03). On the surface, it appears that ManTech paid below-market value. All this seems too good to be true for a profitable company, and therein — we suspect — lies the rub.

ManTech has not revealed SRS' EBITDA (though it may in its next SEC filing after the deal is completed). The only reference to profitability in the announcement of the merger is an opaque reference to SRS' "solid operating margins." We don't know about you, but whenever we see the word "solid" in this context, we itch to add the qualifier "but unexciting" — and in this case, "solid, but unexciting" would go a long way toward explaining why a company in a hot marketplace with a long roster of "A list" customers and a four-year backlog is selling for only 111% of revenues. We suspect that SRS' $750-million backlog contains more than a little low-margin work.

And that is probably just fine with ManTech, a company which has itself demonstrated a year-in, year-out ability to prosper in the "solid but unexciting" world. In 2006 the company derived more than 64 percent of its revenues from cost-plus contracts and nearly 25 percent from cost-plus work. This is the kind of grind-it-out, arms-and-legs work which led Wall Street to all but ignore the sector before 9/11. And even after 9/11, ManTech is hardly a household name: 98 percent of the company's shares are held by institutions.

Only once in the past five years have ManTech's net margins reached the five percent threshold. But likewise, only once have they slipped below three percent. When your margins are that steady… and you can keep your top line rising… and you can limit growth in your pool of shares… well, then good things can happen to earnings per share. In ManTech's case, the number of shares of common stock rose from 26.2 million in 2001 to 33.8 million in 2006 — an increase of 29 percent. But net income rose from $19 million to $51 million during the same period — an increase of 164 percent. Crunch the numbers, and out drops a figure which may raise at least one eyebrow: ManTech's earnings per share climbed from 88 cents in 2001 to $1.64 five years later.

That near-doubling of earnings per share may be as close to "exciting" as ManTech gets. We suspect that suits the company just fine-and believe that's why it was happy to plunk down $195 million to buy $175 million worth of "more of the same" in the form of SRS Technologies.

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Daily Deals

Announcement Date
Buyer Seller Purchase Price Seller Revenue
June 4, 2007 VSE Corporation Integrated Concepts and Research Corporation $11.6m $59m
June 1, 2007 Harris Corp. Multimax $400m $315m
May 31, 2007 CACI International Institute for Quality Management N/D $20m
May 30, 2007 ASRC Holding Analytical Services, Inc. N/D 300 Employees
May 30, 2007 CACI International Wexford Group International N/D $100m
May 24, 2007 SI International Logtec $59m $54m
May 23, 2007 Tech Team Global NewVectors $40.75m $34m
May 23, 2007 WC Holding Sentel Corp. N/D $50m
May 22, 2007 Honeywell International Dimensions International $230m $173.5m
May 15, 2007 White Oak Group Dataline (federal services division) N/D N/D
May 5, 2007 CapRock Communications Arrowhead Global Solutions N/D $100m+
May 2, 2007 L-1 Identity Solutions Advanced Concepts $71.5m $45m
April 17, 2006 Lockheed Martin RLM Systems N/D 100+ employees
April 13, 2007 Paradigm Holdings Trinity IMS N/D $4m
April 9, 2007 Deloitte & Touche Consulting TI Consulting N/D 25 employees
April 9, 2007 Mantech International SRS Technologies $195m $175m

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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.

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