| In This Issue
CEO Corner - Eric DeMarco, CEO, Kratos Defense and
Security Solutions, Inc.
The Federal Deal - Booz Allen-Carlyle Group: The Buy-in 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. 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 (firstname.lastname@example.org) (703.327.8470) for a personal tour.
Eric DeMarco, CEO, Kratos
Security Solutions, Inc.
The name "Kratos" says it all.
Standing for the Greek God of Strength and
Power, it is the corporate name adopted by
Kratos Defense and Security Solutions, Inc.
(NASD:KTOS), headquartered in San Diego. CEO
Eric DeMarco, with a number of Titan Corp.
compatriots (from whence he came), is leading
the company through major transformation
which is expected to be substantially
complete by mid year. Once known as Wireless
Facilities, Inc. (WFI), a large supplier of
wireless network services, Kratos has very
recently divested itself of the wireless
assets and focused on DeMarco's clear
strength — building a DoD services
company, which he did at Titan, taking the
Company from approximately $100 million in
1996, to approximately $1.5 billion in 2003.
He will be trying to reprise his role at
Titan as a master consolidator in the DoD
sector. We caught up recently with DeMarco.
DMA: Why such a massive transformation,
totally redefining the company?
ED: When I joined WFI, the strategic
plan laid out by the Board of Directors, was
to build a company with two primary pillars
— commercial wireless, and network
applications for the U.S. government. Shortly
after I arrived Cingular bought AT&T
Wireless, Sprint acquired Nextel, and the
consolidation of the wireless space began and
accelerated. The wireless business soon
became a commodity with limited margin upside.
DMA: How quickly did the company respond
to market conditions?
ED: I believe that we moved into
action quickly. What started as a
diversification plan became a transformation
plan. I liken it to a 747 in mid-flight
switching out engines.
DMA: Kratos has grown rapidly in the
federal sector. How did the company achieve
ED: We acquired our first Federal
company, which was based in San Diego, (High
Technology Solutions, Inc.) in 2004, which
became the anchor business in the DoD sector.
Since then we've acquired companies with
about $240 million in revenue at the time of
the transaction. Now under the Kratos banner,
these businesses collectively are projecting
over $300 million in 2008. The growth is
primarily attributable to a great management
team and clear and focused support by the
Kratos Board of Directors. Given that we
started in 2004 with zero federal revenue, I
have been told that some describe us as the
fastest growing DoD services pure-play in the
last four years. Once again, this is truly
attributed to the team that we have built
here at Kratos, many of which were the true
builders of Titan.
DMA: Kratos recently acquired Haverstick
Consulting, Inc., which adds 50% in revenue
to your company. What drove the deal? Why
such a large acquisition relative to your
ED: Haverstick was exactly what we
wanted. Literally just about all of their
contracts are awarded on a "full and open"
basis, which is a Kratos hallmark.
Haverstick's President, Howard Bates, is
clearly one of the best business executives I
have had the pleasure of working with, and we
both saw the benefits of combining the
businesses so the merged company could
successfully pursue large contracts in the
prime role. Also, Kratos had previously
acquired Madison Research Corp. in
Huntsville, which had a similar contract
profile, and just an outstanding management
team. In summary, I would say that Haverstick
deepened and diversified our business
portfolio while helping Kratos gain superior
past performance qualifications in the Key
business areas we are targeting (critical in
bidding on larger contracts.)
DMA: How has the market responded to this
ED: The reaction has been highly
positive from the Equity market, Industry,
and Employee stand point across the board.
The merger with Haverstick clearly
demonstrated that Kratos is stepping up as a
major consolidator in the space, and that
Kratos is able to do so at reasonable cost
(under 10x trailing EBITDA). Analysts realize
the importance of adding critical mass
quickly in the key strategic focus areas of
the business, i.e. being a rifle in focus and
not a shot gun. Further, we arranged an
outstanding bank financing vehicle, headed by
KeyBank Securities, which our Chief Financial
Officer, Deanna Lund, executed. In my
opinion, it was just a phenomenal feat in an
incredibly difficult debt market. One of the
most significant aspects of our
transformation activities has been the
support we have received from the banks in
these deals. This is a very competitive
economic climate to secure financing, and the
bank's commitment to Kratos is, we believe, a
solid endorsement of our viability and
long-term strategy. (ED: DeMarco
lauded KeyBank's ability to commit to the
capital raise in a difficult debt market.)
DMA: How should investors look at your
ED: With Haverstick aboard, we now
have several offerings with some of the best
past performance qualifications, customer
relationships and employee resumes in the
industry, focused on growing areas of the DoD
budget. Our two lead services —
extending the lifecycle for legacy weapons
systems, and operations and technical
services for military weapons and targets
ranges — have very favorable
characteristics. Both see little competition
in the space, strengthening the position of
subject matters experts like ourselves. This
is something that we are all extremely
excited about here at Kratos.
Also, one of the more promising areas is that
of target rockets used to test ballistic
missile defense weaponry. We have exclusive
rights to the Oriole Rocket system, a
supersonic "sounding" rocket, and an initial
order to deliver 18 Haverstick Oriole Rockets
in 2008. This brings Kratos into markets that
we feel are very attractive, which we can
leverage, and which have great margin
potential due to the nature of the contract
vehicles and the exclusivity of the system.
DMA: Given the growing number of
consolidators in this sector and the slowed
DoD budget, what growth pattern can we expect
ED: Yes, the number of companies
attempting to be successful consolidators in
this industry is clearly growing. Kratos has
been growing organically at approximately 10%
p.a. and expects to be in the 5–10% rate
going forward. The management team here is
well steeped in M&A; we're confident that the
company can grow externally by 15–20%
per year. It adds to anticipated top line
growth in the 20–25% range annually.
DMA: Compared to your successes in
building and growing Titan (ED: Eric's
tenure there was from 1996 to 2003), how
challenged is the market for federal
consolidators who desire to quickly (and
liberally) use M&A?
ED: Many factors are different now,
and in my opinion, they present greater
hurdles to accelerated growth. For instance,
the SBA rule change last year makes it harder
for larger companies to successfully acquire
firms with small business or other types of
set aside contracts.
Additionally, the tight labor market for
cleared personnel at the secret and up level
is causing issues related to filling billets.
Also, the supply of solid, qualified and well
rounded sell-side acquisition candidates is
far less, while the demand for these
companies is greater.
Finally, from a pricing standpoint, many
business owners have "stars in their eyes"
from a valuation perspective, which makes
generating true value for your shareholder
base more challenging, and the art of
executing a successful acquisition more risky.
(in $ millions)
|Haverstick Consulting, Inc.
|Madison Research Corp.
|Defense Systems, Inc.
|High Technology Solutions,
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The Federal Deal
This article was written by Michael Lent,
publisher of Government Services
Insider, an independent source of insight
and commentary on the professional and IT
services firms that serve the federal
government. Now in its fifth year of
publication in January, the Insider focuses
on successful business strategies, lessons
learned, best practices and critical inputs
to thinking through improvements in business
management and development. Contact: www.gsinsider.com or email@example.com or
202.237.0765 for subscriptions or other
Booz Allen-Carlyle Group: The Buy-in Deal
While both privately held firms remain mum,
there is ample evidence that the deal-making
goes on between venerable
consultant/contractor Booz Allen Hamilton and
the Carlyle Group, one of the top private
The emerging deal is attracting lots of
attention in the industry because of the
recent dip in large M&A transactions, the
small presence of PE firms in the government
services arena, as well as the mystique about
Booz Allen's government business, which is in
the $3.5-4.0 billion revenue range.
Publicly, the Booz Allen press spokeswomen,
while not referring to Carlyle or a deal, has
referred in a public statement to "tension"
between the government and commercial
businesses of Booz Allen. Also, and with
circumspection, Ralph Shrader, Booz Allen
CEO, told the firm's alumni last month that
the firm is:
For the full article,
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Engineering and Planning Corp (AEPCO)
Services Pty Ltd
|December 24, 2007
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Minuteman Ventures LLC advises company
the sale of their businesses, and assists
equity buyers in strategic acquisitions and
team consists of experienced entrepreneurs and
executives who founded or operated companies and
We specialize in companies that sell services,
solutions to federal government clients.
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