Private equity drives high transaction volume in 2023 Isabel Pavia

The steady pace of acquisitions continues as more private equity firms make their foray into the government market.

Merger and acquisition activity in 2023 trended downward slightly compared to the previous two years but remains at elevated levels.

The newest edition of our annual round up of transactions highlights 127 of them that closed in 2023, compared to 140 in 2022 and a whopping 190 in 2021. We typically see that number fall between 85 and 100.

But 2023 stands out for more reasons than just the number of transactions that closed.

First, it was a quiet year for the publicly-traded companies and other regular large-sized buyers of the last decade.

CACI International and its M&A machine is the lone exception. The company acquired Bitweave in May and then Cyber-Duck in November.

Leidos, Science Applications International Corp. and Booz Allen Hamilton made no acquisitions. Neither did the privately-held Peraton. But Booz Allen's venture capital arm for investing in young tech companies remains active.

Tetra Tech acquired Amyx last year and Parsons made two buys: IPKeys Power Partners and Sealing Technologies.

CACI, Persons and Tetra Tech are only public companies to make acquisitions in 2023.

SAIC and L3Harris participated as sellers, however. SAIC sold its logistics and supply chain business to ASRC Federal and L3Harris divested its visual information solutions business to NV5 Global.

As we’ve seen in recent years, activity from private equity groups remains high.

We counted at least 20 new investments last year from private equity names including these familiar ones – Arlington Capital Partners, Carlyle Group, CM Equity, Enlightenment Capital and Washington Harbour Partners.

But we also saw new entrants and some of them happened in a big way. Bain Capital’s estimated $5.3 billion acquisition of Guidehouse is one example there.

For our newest WT 360 podcast episode, Guidehouse's chief executive Scott McIntyre explains how the consulting firm is looking to continue its evolution into a "next-generation consultancy" with the backing of Bain Capital.

Other new entrants include One Equity, which acquired Mythics Emergent Group; CenterGate, which purchased Cartridge Technologies; and Fulcrum, which bought Advanced IT Concepts.

The typical private equity strategy is to buy a company and further build it out through acquisitions. That is why we see repeat buyers such as LinQuest Corp. and SMX, both of which made a pair of purchases each.

Arlington-backed Eqlipse Technologies came together in early 2023 through a combination of five other businesses. Eqlipse made another acquisition in July and is now being combined with BlueHalo, another Arlington-backed defense tech integrator.

Also in 2023, we observed an elevated level of activity by Alaska Native Corporations and tribally-owned businesses with eight closed acquisitions among them. ASRC Federal bought two businesses, including the SAIC supply chain unit we mentioned earlier.

ANCs and tribally owned companies can be large but they retain their small business status, so they can buy a contractor with significant set-aside work and retain it.

That can make ANC and tribally-owned companies attractive buyers for other small businesses. Their set-aside work will be more valuable to those companies versus a large business that can’t retain the small business set-aside work.

Or at the very least, cannot pursue that work when it comes time to recompete it. We expect ANCs and tribally owned businesses to remain active buyers.

One final observation we have is how the volume stays relatively even from quarter to quarter. The first and second quarters of calendar 2023 saw 29 closed transactions each, while the third quarter saw 35 and the fourth saw 34.

This tells us that what is often spoken of as end-of-year pressure to get the deal done is not huge. As bankers have told us over the years, deals get done when they are ready to.

So far in 2024, the activity has been steady but we already have a big one to watch over the summer – Amentum's merger with a pair of Jacobs' government services businesses to create a new company.

It is too early to predict if total transactions for the year will be more or less, but there is no doubt that we’ll see deals getting done.