By Charles Chappell - Washington Technology
The stock market debut of Global Defense Technology and Systems Inc. (GTEC) last November was notable as the first government-services initial public offering in three years.
Is the GTEC IPO the start of a trend? It’s possible. Many contractors have grown substantially since the last wave of federal IPOs in 2005-06, and with the equity and debt markets continuing to recover from the 2008-09 financial-sector crisis, the time could be right. Also, new organizational conflict-of-interest (OCI) rules narrow the field of eligible buyers, making an IPO more likely as a path to liquidity.
But while the near-term IPO outlook is a little cloudy, the longer-term signs are brighter than ever – thanks to the strong, sustained and ever-expanding role of private-equity groups in the federal sector.
These groups are outside investors that typically rely heavily on borrowed money to buy majority stakes in companies. They then use their financial and managerial discipline to build growth, profitability and the return on their equity investment.
Private equity groups help companies reach IPO size faster by relying heavily on mergers and acquisitions to build value, and they commonly look to IPOs as a way to recoup their investments, usually after three to five years. So, recent private equity activity is a leading indicator of future IPO activity.
Right now, that indicator is pointing straight up.
Washington Technology’s roundup of the top M&A deals of 2009 shows that private equity groups are more involved than ever in the government-services sector. About 20 percent of the deals involved buyers which are private equity platforms or private equity groups themselves – most notably, the $1.65 billion acquisition of TASC by General Atlantic and KKR.
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