Business leaders are using terms like ‘roaring Twenties,’ ‘contracting on steroids’ and ‘full storm’ to describe the current flurry of contracting activity by Fort Meade agencies and commands. After more than a year of slowed or altered business operations due to the pandemic, federal officials and contractors are working through heightened numbers of RFPs and business opportunities. Government and industry professionals, however, are also navigating an altered business landscape, following an uptick of local mergers and acquisitions mid-pandemic.
“Last year was famine, this year is feast,” said Doreen Harwood, President of DEHarwood, LLC and President of the Fort Meade Alliance.
“As we are coming out of the pandemic, the government has been very proactive in getting a lot of opportunities onto the street,” said Brian Cooper, Chief Operating Officer of BrainTrust. “I think this is one of the best environments we have seen for opportunities in a long time.”
In addition to issuing a large number of draft and finalized RFPs, agencies and commands are employing different procurement strategies and practices for some contracts, such as shorter contract cycles, expanded unsecured work and more distributed contracting.
“They are breaking some monopoly contracts into smaller opportunities — letting some go unrestricted to large business but carving out others as small-business opportunities. For small business in general, this is great news,” Cooper said.
Meanwhile, small companies are increasingly adopting new strategies to prime contracts.
“I am seeing more small companies who may not yet be ready to prime on their own, band together and form joint ventures. Together, that group of companies can prime a contract,” Harwood said.
The past year’s heighted M&A activity has also created expanded contracting opportunities for small companies.
“At the macro level, there is a great deal of capital available and principals are considering hedging against potential tax changes,” said Martin O’Neill, Managing Director Chesapeake Corporate Advisors LLC.
During the first months of the pandemic, “strategic investors completely stopped and private equity investors focused internally to ensure their portfolio companies were healthy,” O’Neill said. However by Fall 2020, “things really broke loose with private equity being very aggressive and strategics jumping back into the market.”
Bouyed by federal pandemic response packages, changes in capital gains taxes and sustained, strong business fundamentals among Fort Meade contractors, private equity firms and large system integrators completed a wave of mergers and acquisitions. Those included the acquisition of BrainTrust by Everwatch, Wavestrike by Novetta, NextCentury by CACI, KeyW by Jacobs, Bridges Consulting by Applied Insight and PCI by BigBear.ai.
In an especially large and striking deal, Peraton acquired Perspecta and the information services wing of Northrop Grumman. That pair of deals resulted in the rapid creation of a $7 billion company and one of the largest players in the federal and defense IT sectors.
For many local companies, acquisition was the logical, even essential next step.
“This market has always been a difficult place for mid-sized firms,” said Diana Gresham, a consultant to Bridges and FMA Board Member. “Once you meet that mid-size range, you are competing with the larges. So companies face a fork in the road: Are they going to acquire other firms in order to grow or are they going to look at being acquired? Either way, they have to grow to go after those bigger opportunities.”
Those acquisitions have opened up gaps in the Fort Meade contracting space, which creates both challenges and opportunities.
Most Fort Meade agencies and commands have goals of spending about 25 percent of their contracting dollars with small businesses, Harwood said. “Many people believe that will be tougher to achieve in the next few years because there are fewer small businesses left and the remaining small companies can’t go after all the contracts,” she said.
The region, however, has seen rounds of M&A activity before and that cycle has fueled the growth of small businesses, said Bill Dunahoo, Co-Founder of Nexxis Solutions and Chair of FMA’s Meade Business Connect. “I think it’s a healthy cycle. Every company that becomes really successful and gets acquired or grows into a bigger company opens up small business contracting opportunities for the 100 companies that are coming up behind them. Some subset of those small companies fill the gap.”
Given the high levels of contracting in the Fort Meade market currently and steadily rising needs for cyber and IT services, Dunahoo says the region is an especially fertile place to grow firms. “There is plenty of opportunity for existing small businesses to grow and for new small businesses to start. For decades, I have exceedingly encouraged people to start small businesses here if they have a passion for it. There is ample opportunity for as many small businesses have the wherewithal to get started.”
“The Fort Meade region has always been blessed with really robust small and lower, middle market segments. NSA has always been a great partner for small businesses and has always done a good job encouraging large companies to partner with small ones,” O’Neill said. “With some of those lower, middle market companies having been acquired, there is this great opportunity for someone else to fill that space. There’s a bit of a race to see who is going to be the next mid-market company that everybody wants to be. It’s fun to watch.”