In the second part of an interview series with Bob Kipps, managing director at investment bank KippsDeSanto, the GovCon industry veteran discusses his firm’s work advising Ray Group International on its recent acquisition by PwC.
Ray Group had operated for less than five years before the deal, when PwC saw an opportunity to win more business with the Department of Veterans Affairs and other federal agencies.
In the conversation with ExecutiveBiz, Kipps covers what considerations Ray Group made assessing potential takeover partners, how the deal matches M&A activity trends in the federal market and KippsDeSanto’s big end to 2012.
ExecutiveBiz: When were you approached about advising Ray Group and what were those first conversations like?
Bob Kipps: We were first introduced to the the Ray Group in late 2011 and thereafter began advising them about what the market might be for their company, and what they would need to be prepared for in a transaction process.
ExecutiveBiz: Did PwC jump out as the right buyer or was it a elongated process?
Kipps: Ray Group was a young company, having been in business less than 5 years. It had grown very quickly and had recently begun getting on larger firms' radar screens. Many firms had called on them seeking to introduce themselves, partner, inquire about acquisition, etc.
Ray Group obviously knew PwC but the transaction process involved multiple parties. So this deal was not only PwC calling them and us negotiating a one off deal but rather one where there were multiple parties interested in the business and PwC was the successful suitor.
ExecutiveBiz: Ultimately, what made it work? What made PWC stand out from the crowd?
Kipps: It was both strategic business fit as well as executive chemistry. There were a lot of common connections between the principals and senior management of both firms. That comfort afforded from those common experiences, beliefs and approach toward business helped make it the right choice for both sides.
ExecutiveBiz: Was PwC already in the Veterans Affairs space, or does the deal move them into an adjacent market space from where they previously were? Will they be considered a major player there?
Kipps: Yes, PwC was a particpant at VA but clearly not so active that they didn't want more of a presence. Adding the Ray Group was strategic to PwC and elevated them to more of a leadership role versus just being a participant in the market.
ExecutiveBiz: When you were advising Ray Group, what's it like going through a deal like this? Was it clear that it was going to come together well and then it followed what you were expecting?
Kipps: The relationships and chemistry were critical for this deal because PwC was not an overly active acquirer of companies so they wouldn't normally have been on the short list of folks that would be buying a business even though they are a participant in that market.
Given they are a very large company that wasn't very active in making acquisitions, especially in this space, the fact that there was great chemistry between the principals actually made what otherwise could have been an elongated cumbersome process much more effective.
ExecutiveBiz: It sounds like PWC was like Booz Allen where it had been a long time between acquisitions and then they made several recently. It that something that we're seeing more in the marketplace, firms that are not traditionally huge buyers of other companies making these strategic acquisitions?
Kipps: Yes, there's a very eclectic sort of buyer universe right now for government IT companies. We are seeing a lot of companies at all sizes looking at acquisitions based on the reduced growth opportunity overall and the reductions in the number of areas that are going to be growth areas. Budget money is being more focused in certain areas than it once was. Where it was once more like spreading butter across a broader number of areas, now there is a more discreet number of budget growth areas, and so companies that are not in those areas that want to continue to grow are often using acquisitions as a way to reach the markets they deem strategic/attractive.
Booz and PwC have a common theme that they generally are not active acquirers, but rather rely more on organic growth and strategic/ senior partner level hires to really lead the growth of a practice or consulting group, versus M&A as a growth tool. But going back to the broader market, there was a frenzy in the marketplace of people trying to get deals done before years end. We had a record year last year closing 13 deals overall, including 5 deals in December plus 2 others in November.
There are still a lot of buyers looking to reposition themselves for the current and future market. Similarly, sellers are either strategically choosing to partner with a larger firm via a sale or merger) to be successful in this market or alternatively choosing to remain independent and perhaps making select acquisitions of their own, sometime in concert with a private equity partner. All those elements are sort of feeding into a very active deal market right now.