The 20-year industry vet provides financial and M&A consulting to defense and technology firms and was recognized in 2007 as the Investment Banker Dealmaker of the Year by the Association for Corporate Growth.
His company has advised on more than 100 transactions totaling more than $10 billion in deal value.
In the first of two conversations with ExecutiveBiz, Kipps discussed American Systems’ acquisition of SAIC‘s T&E business, the government’s changing organization conflict of interest rules and the general trends in GovCon business realignments.
ExecutiveBiz: For a firm such as CACI that is so heavily invested in using M&A, how would your approach be different from an advisement perspective than for a company like PwC, who is not as active in the deals market?
Bob Kipps: CACI has a very professionally run acquisition process. It's a core competency at CACI. While as a company, they are also focused on business development oriented growth, they supplement that organic growth very effectively through targeted acquisitions. They've done 50 or more acquisitions over the last 15 years and have a very clean, structured system and approach.
They are a more active buyer with the processes, people and resources to do this full time, versus PwC where M&A is bit more episodic. But PwC is actually much bigger than CACI revenue-wise and is more diverse, internationally, vertically and offering-wise. So doing a transaction with CACI vs. PwC requires a different approach.
ExecutiveBiz: When SAIC dealt its testing and evaluation business to American Systems, it was about to split into two operations. Is that divestiture been part of an overall split strategy?
Kipps: That particular divestiture was sort of unique. However, the reason behind the big corporate split that is going on with SAIC is one of the other drivers for acquisitions right now in the government market as larger firms redefine themselves. Today, firms are increasingly either an integrator or system developer who act as a true vendor to the government or alternatively they are seeking to act as a trusted advisor to the government and where they would be the eyes and ears looking out for the government's best interests. I make the analogy often that it's like a general contractor that you have working on office buildings or a home and an architect. You have an architect who's really looking out for the owner's behalf, in this case the government, and you have a contractor/vendor who in this home example is sort of the builder.
The government has tightened its organization conflict of interest (OCI) rules, over the last few years. Many deals, including the split of SAIC, as well as the Engility and L3 split and several others have followed that, have been prompted by that tightening of OCI rules. The government has gotten less and less comfortable with having a contractor like SAIC “trusted advice“ to it on a particular system or program while another side of the same Corporation was building that particular system.. That's why whether or not there were actual organizational conflict of interests for larger firms like L3, SAIC and Northrop, it was limiting to the part of the business that wanted to be the trusted advisor and the part of the business that wanted to be doing integration work. As such, the market place is less limited for each part of those businesses if they are separate organizations.
When you get to the T&E part of the recent SAIC/American Systems deal, that test and evaluation work has the possibility of having conflict of interest or OCI issues even with Trusted Advisor-oriented businesses. So the T&E unit could sometimes have an OCI issue with the part of SAIC that is being separated out to do non-integration work.
ExecutiveBiz: And would have to look at this as a big opportunity for American Systems to sort of enhance its role in the marketplace?
Kipps: American Systems was already doing T&E work and so it was a great fit. The SAIC T&E business was a very well regarded, major player in the T&E business. American Systems was a participant in the business but they are a leader in that business. It was more similar to the PWC and Ray Group where they were already in T&E and this makes them a major player. In both situations, PWC and American Systems were both participants in the respective markets that they bought into, but the acquisition may have propelled them up into the top rung.
ExecutiveBiz: You mentioned now that GovCon has all these deals going on, a frenzy of sorts. When you have everyone trying to get deals done before the end of the year, does that have anything to do with sequestration going into effect on the 2nd of 2013?
Kipps: While Sequestration concerns played a role, the deals would have occurred whether we were talking about sequestration or not. It was more of an exclamation point on the budget changes as well as concerns (amongst sellers) over higher taxes. Most buyers understand that if want to be successful in in today's government market, and want to grow in the government market, they need to have depth, critical mass, innovation, etc., in areas where money is going to be spent. They also cannot have OCI issues.
Kind of tying all the things we talked about. When you look at a lot of the acquisitions, many were repositioning type of acquisitions to extend the buyer into a new market and/or move the buyer up to being a major player versus a just participant. Some were also oriented towards removing impediments like OCI issues for other parts of their businesses to be eligible to compete on new opportunities.
So you look at any of the deals we mentioned, they kind of fit into those categories.
We played the same role for EmergInt that we played for Ray Group, in both cases we advised the sellers. CACI was already in the Center for Disease Control market, which is part of HHS, and it's more broadly thought of as part of the health IT market. CACI was a participant in that market, now they are much more competitive in that market. They are not number one, but they are a major player in that market.
In all three of these deals, American Systems, PWC and CACI, all buyers substantially improved their competitive business position in markets they saw as strategic via these deals.