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Volume 5, Issue 4 October 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


August 2007 June 2007
April 2007

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In This Issue
Common Contractor Missteps - ifourLLC Examines the Pitfalls
The Federal Deal - ITT Corp. (NYSE: ITT) Agreed to Acquire EDO Corp. (NYSE: EDO)
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. Its Defense Mergers and Acquisitions (DM&A) module (reachable at, is the most comprehensive collection of industry M&A data and analysis in the market.

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 ( (703.327.8470) for a personal tour.

The Minuteman Federal Deal Meter
  Purchase price  
  Under $50m $50–100m Over $100m Total Deals
YTD 2007 39 12 15 66
2006 45 9 9 63

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 October 12, 2007, and the corresponding period in 2006.

For the list of M&A transactions closed in the sector through October 12, 2007 and in 2006, email

Common Contractor Missteps

ifourLLC Examines the Pitfalls

This article was prepared by Vienna, Va. based ifour,LLC, a management consulting firm that provides superior research and analysis, business development and strategy consulting, and targeted support for specific pursuits. The firm serves federal, state and local government markets.

Corporate mergers/acquisitions and federal contract consolidation, combined with declining budget trends continue to make the federal contractor market a more highly competitive space than ever before.

Double-digit growth experienced by many firms over the past 5-10 years is giving way to much less optimistic forecasts. More than ever in recent years, companies are projecting that their growth must come at the expense of competitor market share instead of through the market expansion that has fueled growth for most players in this space.

Many high-performing businesses embrace the concept of using analytics/metrics as principle bases for decision-making. Consistent with this thought, succeeding in the face of stiff competition requires highly effective and sophisticated fact-based business development practices. One such area is competitive assessment (CA), and its close relative, price-to-win (PTW), which is actually a special case of competitive assessment.

For the full article, click here.

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The Federal Deal

ITT Corp. (NYSE: ITT) Agreed to Acquire EDO Corp. (NYSE: EDO)

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. on-line publisher of the market-leading Defense/Aerospace Competitive Intelligence Service (DACIS). Opinions expressed below are those of InfoBase. All rights reserved. For more on InfoBase Publishers' services, see

New York, N.Y.-based EDO Corp. designs and manufactures a diverse range of products for aerospace and defense, intelligence, and commercial markets. Major product groups include: defense electronics, communications, aircraft armament systems, undersea warfare, integrated composite structures, and professional and engineering services. EDO designs and develops advanced systems that are at the center of the military's transformation to lighter, faster, and smarter defense capabilities. EDO has grown revenues at a compound annual growth rate of almost 16 percent over the last three years, and is positioned to grow at approximately 60 percent in 2007 to its current-year forecast of approximately $1.15 billion.

ITT chairman, president and CEO Steve Loranger stated: "This combination is all about growth and demonstrates our disciplined approach to creating value for our shareholders by expanding from our strong core businesses and entering attractive adjacent markets. ITT's continued strong overall performance this year gives us the capability to make this key acquisition, which will be a powerful addition to our existing business. EDO's extremely talented people, complementary technologies, and customer relationships, when joined with ITT's strong defense team, will enable us to reach new heights in meeting the changing needs of our military and civil customers."

EDO CEO James M. Smith stated: "We believe this is an excellent strategic fit and offers shareholders tremendous value. It substantially increases our business scale and opens new opportunities in defense markets. We expect employees and customers to benefit substantially from the combination of our technology-driven businesses."

EDO's attractive positions in defense electronics add to ITT's well-established sensing and surveillance capabilities. In tactical communications, ITT's leading position in battlefield communications is complemented by EDO's expertise in mobile networking and integration, interference cancellation and antennas. Both companies offer engineering and professional services to a diverse customer base, serving all branches of the military and civil agencies.

ITT defense president Steve Gaffney stated: "We're bringing together two successful defense organizations into one team with one mission: To meet the needs of our customers in support of our nation and its allies. We are confident in our plan to integrate our businesses and unlock tremendous value, creating opportunity for employees, customers and shareholders."

The combination capitalizes on ITT's and EDO's mutual strengths. By leveraging the diversified portfolios of both companies, the transaction positions ITT to play an important role on some of the U.S. military's vital transformational initiatives, such as the Joint Strike Fighter, the Navy's Littoral Combat Ship, counter improvised explosive device (IED) programs, and the Coast Guard Deepwater programs.

Gaffney added: "This transaction combines ITT's and EDO's technology prowess, customer relationships, and proven operational capabilities to scale mission-critical military programs and create new markets for our technologies."

On September 17, 2007 ITT Corp. and EDO Corp. announced they had reached a definitive agreement for ITT to purchase all outstanding shares of EDO for $56 per share in cash, or approximately $1.4 billion. Including approximately $120 million of net debt and the anticipated conversion of convertible notes, this transaction values EDO at $1.7 billion. The transaction is expected to be neutral to ITT's earnings per share in 2008, and accretive thereafter.

The transaction, which is subject to approval by EDO's shareholders, as well as customary closing and regulatory conditions, is expected to close in early 2008.

EDO Corp. had revenues of $715 million in 2006. At the time of the acquisition, EDO had approximately 4,000 employees.

In connection with the transaction, Lazard LLC and UBS Investment Bank are acting as financial advisors to ITT, and Simpson Thacher & Bartlett LLP is legal counsel. Citigroup is acting as financial advisor, and Debevoise & Plimpton LLP is legal counsel to EDO.

Sometimes a deal seems to carry a meaning out of proportion to its size, simply because of the time at which it comes.

With ITT's acquisition of EDO, we have a deal which follows a sudden summer drought brought on by disarray in the private equity community… and a deal which flies in the face of a prospective wind-down of the U.S. role in Iraq. Good buying weather? Not hardly.

This acquisition serves as a reminder that there still are forces which are reshaping the defense industry, that there still are enough industry buyers to keep the game interesting, and there still is a compelling national interest where Iraq is concerned.

So yes, this deal punches above its weight — but at $1.7 billion, it hardly needs to. Among pure defense plays only one other deal (the sale of Armor Holdings to BAE Systems) ranks larger for the year. Like the Armor Holdings deal, this deal is driven to a large extent by the Iraq war (of which more below). And it serves as notice that consolidation in the defense electronics sector is not yet over, especially where mid-tier suppliers like Curtiss-Wright, DRS Technologies, Harris, ITT, Rockwell Collins, and L-3 Communications are concerned. With dealmaking for the year now running at more than $40 billion (a threshold reached, appropriately enough, with this transaction) it's evident that the industry's consolidation remains in high gear.

What ITT Is Getting?

ITT might have acquired EDO even if the Iraq war wasn't taking place — but it's much less likely. Without the war there would have been no need to counter Improvised Explosive Devices (IEDs), and without that need there would have been no requirement to fit up to 1,100 U.S. military vehicles with JCREW 2.1 Radio-Controlled Improvised Explosive Device (RCIED) Electronic Warfare (CREW) systems. Earlier this year EDO was selected as the sole producer of JCREW 2.1 systems — a win which was doubly welcome since it came after the company nearly was shut out of this important business area, before instituting technological changes which locked in its predominance for years to come. And so it is that sales of electronic force protection products, which accounted for 22 percent of sales in 2005 but slipped to just four percent of sales in 2006, are primed for a rebound in 2007 (these sales are a leading contributor to the 60 percent surge in sales which EDO expects for the year).

Interestingly, the JCREW 2.1 program comes under the cognizance of the U.S. Navy (NAVSEA specifically), to which it was recently transferred from the Army Communications-Electronics Life Cycle Management Command (C-E LCMC) (Ft. Monmouth, NJ). Also interestingly, the U.S. Navy has been the service with which ITT has been the most laggard as a contractor — during FY06 ITT ranked 9th among Army contractors, 16th among Air Force contractors, and 27th among Navy contractors. But when you add in 33rd-ranked Navy contractor EDO, ITT moves up the rankings to 19th — and as the JCREW 2.1 program comes online, that ranking is bound to climb higher. Perceptions of ITT as an Army contractor may die hard, but deals like this one point to a new reality: in terms of its customer base, ITT is emerging as a broadly-balanced firm.

EDO's Navy business points to another new trend as well: a shift away from hardware and towards services. In saying this, we realize that perceptions of EDO as a hardware provider are both long-standing and well-deserved. But EDO's Professional and Engineering Services business, built with three acquisitions over a six-year period, has opened some new doors for the company — and nearly all those doors open to the Navy. While the company is certainly still a provider of equipment as varied as minesweeping equipment and aircraft bomb racks, the initiative to diversify beyond hardware means that services accounted for 38 percent of the company's $159 million in prime contract awards with the Navy in FY2006. We note that EDO's Professional and Engineering Services business stands to receive 15 percent of the JCREW 2.1 program as well — a percentage which is likely to be of serious interest to ITT's Advanced Engineering & Sciences Div. in Annapolis, Md., which has a business of its own supporting current-generation CREW systems.

How EDO Changes the Game for ITT

ITT had revenues of $7.8 billion in 2006 and is projected $8.6 billion for 2007. EDO had revenues of $715 million in 2006 and is guiding for $1.05-$1.1 billion in 2007. So we calculate that EDO will expand ITT's top line by 12.5 percent for the current year.

The effect on ITT's defense business will be more pronounced. ITT's Defense segment accounted for 46.8 percent of its revenues in 2006. Add just over a billion dollars from EDO, and you've got a defense business which will top $5 billion in size for the first time ever.

There's much to admire in the fit between the companies. We've already discussed aspects of the synergies in the Navy contracting arena. But at the heart of the business is the fit between ITT's battlefield communications business and EDO's jammers business (including JCREW 2.1). Viewed simply as vehicle installations, the two have much in common, both in terms of provisioning and support. What's less clear is the outlook for anti-IED technology beyond the 2009 year (which is the first year ITT expects this very-fully-valued acquisition to begin paying off). Will President Bush's plans to bring home up to 30,000 troops by mid-2008 begin a long inexorable drawdown in demand for JCREW systems? Or will the Pentagon's tendency to prepare its forces to fight the previous war sustain demand for the system even in peacetime?

What's Next?

Typically an out-of-the-blue deal like this would tend to trigger a spike in the value of companies similar to the company being acquired. But on the day the deal was announced the shares of all of EDO's competitors declined — as did the shares of ITT itself — while EDO shareholders realized a comparatively modest "pop" of about $3.50 (or 6.7 percent). But EDO shareholders could be forgiven for viewing that premium as anticlimactic after seeing their shares increase 150 percent over the past year. And therein lies the rub: when companies are fully valued, paying a significant premium requires a leap of faith which not too many are willing to pay.

So we don't expect this deal to inspire many others, but we do see continuing interest in the technologies (body armor, vehicle armor, detection systems, robotics, and counter-IED work) which have risen to prominence in this counterinsurgency effort. Investors (and companies) may have some white-knuckle moments in front of them, but we think that time will bear out the wisdom of these investments. For the past half-century the United States has been using technology as a force multiplier. Enemy efforts to negate that advantage will necessarily be short-lived. There will always be a high-tech way to fight a low-tech war.

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Daily Deals

BuyerSellerPurchase PriceSeller Revenue
October 9, 2007 Laguna Ventures Oakhill Group N/D N/D
October 3, 2007 CACI International Dragon Development Corp N/D N/D
October 1, 2007 HIS, Inc. EnvironMax, Inc. $22.5m +65m IHS shares N/D
September 26, 2007 Leonard Green & Partners Scitor, Inc. N/D N/D
September 24, 2007 CACI International Athena Innovative Solutions $200m $110m
September 17, 2007 Raytheon Co. Oakley Networks N/D N/D
September 17, 2007 ITT EDO Corporation $1.7Bn $1.05-1.1Bn
September 14, 2007 Ultralife Batteries Innovative Solutions Consulting up to $3m max N/D
September 12, 2007 SAIC Scicom Technologies N/D N/D
September 10, 2007 Cambridge Systems, Inc. SSI Business Solutions N/D N/D
September 7, 2007 Calibre Systems Cizer Software N/D N/D
September 4, 2007 Accenture George Group N/D 250 employees
August 27, 2007 ATS Corp. Potomac Management Group N/D $13m
August 27, 2007 ITT Corp Dolphin Technology N/D $15m
August 16, 2007 Argon ST Coherent Systems International $20m+$17m max earnout $29m
August 13, 2007 Alion Science & Technology LogConGroup, Inc. N/D N/D
August 7, 2007 Gores Group & affiliates CompuDyne Corporation 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.

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