More private equity firms are investing in federal contracting companies as they wake up to the potential payoff, industry officials said Tuesday at a government services symposium in Tysons.
“Private equity groups are making inroads in the federal contracting space,” John Hennessey, vice president of RSM EquiCo, a global mergers and acquisitions firm based in Southern California, said in an interview with The Examiner. “We’ve seen a recent surge from the private equity groups in the last 12 months.”
Federal contracting firms are an attractive investment because they’re typically stable and have a steady payoff, said Peter Schulte, a managing partner with the New York private equity firm CM Equity Partners.
“Basically, you’ve got a customer with a long-term contract that has good credit,” he said. “As a contractor, you can’t make a lot of money in terms of margin, but you can have a long-term relationship and grow your business over time.”
Four private equity firms — CM Equity, Veritas Capital, Arlington Capital Partners and The Carlyle Group — have been investing in federal contracting companies for some time, but in the past year about 50 new firms have dipped their toes in the market, Hennessey said.
Part of the reason those newer investors are only getting into the game now may be that federal procurement is a complicated process.
Proximity to the federal government also plays a role in seizing investment opportunities, said Chris Ullman, a spokesman for the Washington-based Carlyle Group.
“It can pay to have an expertise in how government does contracting and understanding budget cycles,” he said.
“If there isn’t a lot of competition out there in terms of people who have that knowledge, then it’s a great place to find deals.”
