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Volume 5, Issue 5 December 2007
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Happy Holidays to all our friends in the M&A community and the federal sector!

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.

Regards,

Paul Serotkin
President
Minuteman Ventures LLC



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In This Issue
 
Notes from the M&A Front - M&A Transaction "Headcount" Comparing Favorably
The Federal Deal - Wyle Laboratories, Inc. Acquires RS Information Systems, Inc. (RSIS)
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 www.dacis.com), 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 www.dacis.com or contact Stuart McCutchan (sjmccu@dacis.com) (703.327.8470) for a personal tour.


The Minuteman Federal Deal Meter
  Purchase price  
  Under $50m $50–100m Over $100m Total Deals
YTD 2007 45 14 16 75
2006 51 11 13 75


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 December 15, 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 paulserotkin@minutemanventures.com.


Notes from the M&A Front

For all the talk of a slowing M&A market in the government services sector, we see the M&A transaction "headcount" for 2007 comparing favorably to recent past years.

At press time, 2007 had seen 73 deals close. For all of 2006, 77 transactions were completed.

Expectations in some quarters were — and remain — that the deal count will weaken. Several factors contribute to this view:

  • M&A pricing multiples remain high relative to comparable companies trading publicly

  • The SBA rule making it harder to recertify as small business for continuation of seller contracts has stalled some deals from proceeding

  • The slowing growth of the federal IT budget, leading to several slower company ramps in some segments of the government market
However, look at the most recent sector deals to explain in part the varied, continued motivations driving buyers of government contractors.
  • ATS Corporation (OTCBB:ATCT) acquires Number Six Software, Inc. for $36 million. ATS began life in the public sector as the first acquisition of a New York-based SPAC (special purpose acquisition corporation). Since ATS merged into this SPAC (known as FSAC, initiated by partners at private equity group, CM Equity), the company has made 5 acquisitions. While still a micro cap stock, ATS desires increasing `respectability' as a legitimate investment worthy of the public markets.
  • ICF International (NASDAQ:ICFI) acquires Simat, Helliesen and Eichner, Inc. for $51 million. A fairly recent IPO like ATS, ICF has designs on increasing size and deepening market verticals, thereby leading to a broader following in the public markets. This transaction added to ICF's federal Transportation practice.
  • Accenture (NYSE:ACN) acquires Gestalt LLC. Already having branded itself as a defense contractor, Accenture gained an even more solid foothold in the Command and Control (C2) vertical.
M&A continues to be one highly used weapon of choice for contractors of all sizes looking to: grow by double digits, bid on larger contracts, and, in some cases, morph into more of prime contractor. Case in point - We recently accepted an engagement with an under-$30 million federal contractor in Northern Virginia that is using M&A as a key element in its strategic growth plans.

Despite some of the headwinds cited above, M&A in the federal services sector will remain very active. Buyers still need scope and size, Sellers want liquidity, and the Government must optimize it shrinking workforce. Plug that into a reasonable interest rate environment and you get continued sector M&A activity.

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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. 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 www.dacis.com.

Wyle Laboratories, Inc. Acquires RS Information Systems, Inc. (RSIS)

Wyle Laboratories, Inc., a portfolio company of Littlejohn & Co., entered into a definitive agreement to acquire privately held RS Information Systems.

McLean, Va.-based RS Information Systems is a federal systems integrator providing advanced technical and business services in information technology, systems engineering, telecommunications, scientific support and management consulting. The company has more than 100 prime contracts with defense, federal civilian and law enforcement agencies.

Wyle chairman, CEO and President George Melton stated: "This is an important addition to Wyle's business portfolio as we continue to grow the company. While we have some major contracts in the information technology field, this acquisition will enable Wyle to significantly broaden its presence in the information technology services sector and add key new contracts and customers that will complement our current client base. This acquisition makes Wyle a major federal information technology provider with a major presence in Washington, D.C."

RS Information Systems CEO, president, and founder Rodney Hunt stated: "Like RS Information Systems, Wyle has a strong, mission-oriented culture and will provide leadership and resources to leverage RS Information Systems strengths that will benefit Wyle, our customers and our employees."

Wyle, a privately held company, is a leading provider of high tech aerospace engineering, testing and research services to government and industrial customers. The company also provides life sciences services, special test systems and other technical support services to the aerospace, defense, nuclear power, communications and transportation industries.

Stifel, Nicolaus & Company, Inc. acted as exclusive financial advisor to RS Information Systems.

Terms

On Dec. 3, 2007 Wyle announced it had signed a definitive agreement to acquire RS Information Systems. Terms of the transaction were not disclosed.

RS Information Systems has more than 1,400 employees at 10 offices and more than 50 customer sites. The organization will become Wyle's fourth strategic business unit joining the Aerospace Group; Life Sciences Group; and Test, Engineering and Research Group.

The acquisition of the RS Information Systems is expected to increase Wyle's 2008 annual revenues to approximately $800 million and the number of employees to more than 4,200.

Completion of the transaction is expected in early 2008.

Analysis

It's been four years to the month since Wyle Labs brought aboard Littlejohn & Co. as an investor. That transaction was attended by a fair amount of mystery — neither company ever said just what percentage of Wyle which Littlejohn actually acquired. But the fruits of that transaction have been easier to quantify: Once this deal is complete, Wyle's revenues will have more than tripled under Littlejohn's stewardship. A nice track record, although we're a bit puzzled by the decision to branch out into a fourth new business area. Roll-up acquisitions are part of the private equity playbook, but driving your investment vehicle into new terrain definitely is not.

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Daily Deals

Closing/
AnnouncementDate
BuyerSellerPurchase PriceSeller Revenue
December 11, 2007 National Interest Security Company Information Manufacturing Corporation N/D N/D
December 6, 2007 National Technical Systems United States Test Laboratory $12.5m N/D
December 3, 2007 Wyle Laboratories, Inc. RS Information Systems N/D 1,400 employees
November 30, 2007 Mantech International McDonald Bradley $76.5m $50m
November 23, 2007 Camber Corp. Complex Systems N/D N/D
November 13, 2007 ICF International Simat, Helliesen and Eichner $51m $36m
November 5, 2007 Kratos Defense & Security Solutions Haverstick Consulting $90m $97m
October 25, 2007 Accenture Gestalt LLC N/D 250 employees
October 15, 2007 ICF International Number Six Software $36m $33m

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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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