Acquiring a Company That Has Government Contracts? Here Are Some Things to Consider.

September 15, 2022 | Business Development, Government

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One way to begin doing business with the government is to develop a strategy focusing on propensity data (who buys what you sell and how they buy it) and begin the process of building relationships with government buyers and teaming partners. Another strategy is to simply purchase a company that currently has those relationships and past success in generating business from the federal government. 

I have experience with the latter approach as a consultant and–even more importantly–as someone whose company was sold about ten years ago. Personally, it was one of the best decisions I ever made. However, in terms of its impact on our government contracts, the results were more mixed. And what I learned can provide a guide for companies entering into government contracting through acquisition. 

So what are some determining factors in finding a great acquisition target to strengthen your government business position? Here are a few questions to consider–including those informed by my past experience:

Does the company you wish to acquire have IDIQ contracts? IDIQ stands for Indefinite Delivery/Indefinite Quantity. Examples include the GSA Schedule and OASIS (One Acquisition Solution for Integrated Service), an IDIQ that specifically provides professional services. Specific agencies also have specific IDIQs for specific products and services. Some of these have an on-ramping period and others are open for offers continuously. Having these contracts gives companies more access to opportunities and task orders.

Does the company have multi-year contracts? Contracts with a base year plus two or more option years are more solid than one-off contracts with multiple agencies.

What certifications does the acquiring company’s team have? Government buyers will respect the following:

• CMMI (Capability Maturity Model Integration)
• CGFM (Certified Government Financial Manager)
• PMP (Project Management Professional) Certifications
• DCAA (Defense Contract Audit Agency) Compliance 

What is the acquired company’s track record? Does it have positive CPARS (Contractor Performance Assessment Reporting System) records, with minimal cure notices and no contract terminations for cause?

Does the acquired target earn most, if not all, of its revenue through the business-to-government (B2G) sector? If you’re already strong in business-to-business (B2B), and there’s no significant strategic reason to target another B2B company, focus on companies that are strongest in B2G.

There are other items to consider as well, but they are case-by-case. One case-by-case consideration may include targeting a company close to an 8(a) graduation. 

While the target company will likely be much better versed in government business matters, a great way to make the case for acquisition is by promoting the strengths you bring to the table. These may include:

• Employee benefits. When my company was sold, we couldn’t hold a candle to the benefits the acquiring company could provide our employees. This alone isn’t enough to warrant a sale, but it is a huge advantage in today’s competitive employment environment.
• Talent acquisition. This was another case where we couldn’t compete with our acquiring company’s Fortune 100 talent acquisition apparatus.
• Ability to scale. We chose to self-fund all of our growth initiatives, leading to steady but not-earth-shattering growth. Acquiring companies may have the resources to accelerate growth for the businesses they purchase.
• Complimentary subject matter expertise. Acquiring companies may have expertise in an area that could be of use to the acquisition target’s government customers. Strategically combining expertise could open the new relationship up to more opportunities.

In theory, these areas should make an established government contractor even stronger.

On the other hand, acquiring organizations also must consider what the acquisition target already does well in terms of servicing government customers. Often, the company making the acquisition can overlook strengths that shouldn’t be tampered with, or at the very least should be carefully considered before making changes. For instance: 

What’s the target company’s culture? Do they care for their staff in more ways than just compensation? Do they find ways to promote teamwork and camaraderie? Do they empower their employees to provide excellent service to the government customer? The right approach can affect the level of service a company provides AND the government customer’s perception of the value they receive. A wise person once told me the best way to increase customer satisfaction is to increase employee satisfaction. I agree–and it’s also one of the key factors in positioning yourself for success in doing business with the government.

How did they treat their customers? How often did they contact them outside of formal meetings and putting out fires? Who made the calls? A Program Manager or someone in upper management? Does the C-Suite ever make calls? Are you insistent on onboarding customers into your way of doing business or are you open to sticking to what works? This question brings up another case where my experience is telling. Our acquiring company chose to take control of customer relations after the transition phase. We were no longer involved in the phone calls, the monthly meetings, or even trying to solve problems. Furthermore, the acquiring company had a different attitude. They didn’t say it directly, but their posture suggested, “We’re a Fortune 100 company. They should do what we tell them to do. We know best”.  Furthermore, one company representative spoke of how nasty the government customers were and how they just needed to “get over themselves.” Our company had never seen the nasty side of this customer. They were one of our greatest champions. That made for a rocky start, to put it mildly, and created a significant change in their relationship with some of our best customers. 

Perhaps the most important lesson is to go into any potential acquisition with optimism, tempered by caution. My experience is that the former tends to outweigh the latter in the excitement of a potential sale. When my company was sold, I was optimistic that we would retain my government customers–and some did stay with us. However, out of the six follow-on contracts we competed for after the sale, the acquiring company was only able to win two. This is even more significant when you consider that our company never had lost a follow-on opportunity prior to the acquisition. 

As these examples show, finding partners who can make each other stronger can be a challenge. It’s not something to go into lightly, but if you have a sense of urgency about the details, it can make you even more successful at winning government business. If my experience can benefit you as an acquiring company or one looking to be acquired, please email me at [email protected] or connect with me on LinkedIn.

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