Issue #18

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Acquiring Tomorrow: How Tech-Enabled Services Can Drive the Next Wave of Value in GovCon M&A

Key Takeaways:

• Tech-enabled companies incorporate technology into their core operations, transforming how they deliver value.

• GovCons acquiring tech-enabled professional services firms can achieve operational efficiency, scalability, and enhanced customer experience—critical in a competitive market.

• Investment rationale: Tech-enabled firms command higher valuation multiples due to their agility, innovation, and efficiency, making them attractive acquisition targets.

• Case examples: Leading companies like Leidos and Booz Allen Hamilton have capitalized on tech-enabled acquisitions to drive growth and gain market share.

• Strategic focus: Prioritize acquisitions of professional services firms that use technology as a key enabler, not just as a support function.

Main Idea: Tech-Enabled Companies as Strategic Investments in GovCon Acquisitions

In government contracting (GovCon), the landscape is evolving rapidly, driven by increasing competition and a growing demand for more efficient and innovative solutions. For existing GovCons, acquiring tech-enabled professional services firms offers a unique opportunity to enhance their capabilities, improve margins, and future-proof their portfolios.

What is a Tech-Enabled Company? A tech-enabled company is one that doesn’t just use technology as a support function but weaves it into the very fabric of its operations and strategy. Technology in these firms is a key enabler—it automates processes, enhances decision-making, and creates a superior customer experience. This is distinct from a technology company, which develops and sells technology as its core business. In short, tech-enabled companies are those that leverage technology to optimize their business, rather than simply being in the business of technology.

The GovCon Opportunity: Why Acquiring Tech-Enabled Firms Makes Sense

Professional services are a cornerstone of government contracting, accounting for billions of dollars in annual spending. However, traditional service models are becoming increasingly outdated. The federal government now demands more efficient, data-driven, and technology-integrated solutions from its contractors.

Tech-enabled companies bring a significant competitive edge to the table. By incorporating technology into their DNA, these firms can automate tasks, scale rapidly, adapt to market changes, and continuously innovate—all of which translate into stronger performance and higher valuations. For GovCons, acquiring these firms isn’t just a strategic investment—it’s a pathway to achieving superior service delivery and securing more lucrative contracts.

Summary of Valuation Impact:

Advantages of Acquiring Tech-Enabled Professional Services Firms

1. Automation of Tasks and Processes: Tech-enabled firms use automation to streamline labor-intensive tasks, such as contract management, compliance, and data analysis. This not only increases productivity but also allows resources to be redirected towards strategic, high-value activities. For GovCons, acquiring such a firm means immediate access to automated workflows that enhance operational efficiency.

2. Scalability: With the right technology, scaling operations to meet growing demand becomes far more manageable. Tech-enabled companies can expand their service offerings without compromising on quality or efficiency—an attractive trait for any acquiring GovCon looking to grow its footprint.

3. Agility and Adaptation: In the fast-paced GovCon environment, the ability to quickly adapt to new requirements, regulatory changes, and market shifts is crucial. Tech-enabled firms are naturally more agile, equipped to pivot in response to new opportunities or challenges, giving GovCons a competitive advantage in contract bids and project execution.

4. Catalyst for Innovation: By integrating technology into their core, tech-enabled companies are constantly exploring new ways to deliver value. This drive for innovation can help acquiring GovCons differentiate themselves in the marketplace, offering unique, tech-driven solutions that traditional competitors can’t match.

Real-World Example: How Leading GovCons Leverage Tech-Enabled Acquisitions

1. Leidos and 1901 Group: Leidos’ acquisition of 1901 Group exemplifies the strategic value of acquiring a tech-enabled services firm. 1901 Group, known for its cloud solutions, IT services, and cybersecurity expertise, brought advanced technologies and a tech-forward operational model to Leidos. This move not only expanded Leidos’ service capabilities but also positioned them as a leader in IT modernization, allowing them to secure high-value federal contracts that demand cutting-edge solutions.

2. Booz Allen Hamilton’s Digital Transformation: Booz Allen Hamilton, traditionally a consulting powerhouse, pivoted towards tech-enabled services by investing heavily in AI, data science, and cybersecurity. This shift wasn’t just about staying relevant; it was about redefining their market position. By integrating technology into their service offerings, Booz Allen has continued to win major contracts, including a $900 million AI project with the Department of Defense, showcasing how tech-enabled capabilities can drive contract success and boost firm valuation.

Strategic Focus: Identifying and Acquiring Tech-Enabled Targets in GovCon M&A

1. Evaluate the Tech DNA: When considering acquisition targets, look beyond traditional financial metrics. Assess how deeply technology is embedded in the firm’s operations. Is technology a support function, or is it driving business strategy? Firms with tech at their core are more likely to bring transformative value to your existing operations.

2. Prioritize Scalability and Integration Potential: Ensure that the target’s technology can be easily integrated and scaled within your current portfolio. Scalable tech-enabled processes not only enhance efficiency but also open up new opportunities for service expansion and revenue growth.

3. Leverage Tech-Enabled Innovation for Competitive Bidding: Use the acquired tech-enabled capabilities to differentiate your bids. Highlight automation, AI-driven insights, and advanced data analytics in proposals to stand out in a crowded marketplace. The ability to demonstrate innovative, tech-enabled solutions can significantly boost win rates.

4. Communicate Enhanced Value to Clients: After the acquisition, clearly articulate the new tech-driven value propositions to your clients. Show how these advanced capabilities will improve service delivery, increase transparency, and drive better outcomes.

Conclusion: Tech-Enabled Acquisitions as the Cornerstone of Future GovCon Success

Acquiring tech-enabled professional services firms is more than just a tactical move; it’s a strategic investment in the future of your GovCon business. These firms bring automation, scalability, agility, and innovation to the table, all of which are critical for thriving in today’s competitive market. By incorporating tech-enabled services into your portfolio, you’re not just enhancing your capabilities—you’re redefining your value proposition in the eyes of government clients.

In the race for contracts, tech-enabled firms don’t just keep up—they set the pace. Make them the cornerstone of your M&A strategy and watch your competitive edge grow.