Contractors Lessons Learned

Gov Shutdown Madness

No one plans to complete a GovCon M&A in the middle of a historic government shutdown. But, as the last shutdown revealed, not only are shutdowns more and more frequent, they can last a month — or more.

“Shutdown madness!” recounts Sharon Heaton of sbLiftOff. “The deal we were closing ran right into an unprecedented 35-day shut- down. We had difficulty holding it together until it finally closed. Time kills deals.”

C2 Solutions Group, based in Fairfax, Virginia, eventually sold to Oasys International Corporation. Originally planning to close the deal with an SBA, Oasys changed course and secured all its financing from FVCbank.

The owner, a proud veteran and founder of C2, was ready to retire. He and his partner sold his SDVOSB company to Oasys, an SDVOSB led by Tony Johnson, an Air Force veteran with more than 130 combat missions under his belt.

“My favorite moment was when the CEO of C2 Solutions Group appeared on the front page of the Wall Street Journal during the shutdown. An enterprising journalist got him on the phone at a moment of frustration.” “We sent out invoices to our government agencies in earlyfor work we did in November. They’ve all been approved, but the guy who actually pushes the print button on the computer is furloughed, so we can’t get a check,” C2's owner told the Wall Street Journal in the midst of his M&A deal. “How long can it go on? We’re counting the days until we’re out of business.”

Mums the word

There was a moment of panic before the unwelcome press attention was dealt with, recounts Heaton. “It might seem obvious to the M&A advisor, but for a Seller or Buyer, a major news event — in this case a government shutdown - was so distressing and dramatic that our CEO client felt he needed to speak out — and did so on the front page of the Wall Street Journal.” It bears repeating, mums the word until the deal closes regardless of what’s going on in the world.


  • There are capable veterans eager to buy and sell SDVOSB companies
  • A long government shutdown can happen in the middle of a GovCon M&A
  • Impress on all GovCon clients – Do not speak to the press during an M&A process.



Thought Leader


How would you describe the current market for GovCon M&A? Is it a Buyers or Sellers market?

In the small business marketplace we’ve seen an increase in buyers buying. Before what we were seeing was very aggressive earnout struc- tures, more difficulty getting it done. CAP performance was very import- ant. Now I think it’s different. It’s like the DC real estate market, there’s always demand. But now there are more Buyers that can buy. And more people understand that acquisition is a tool in the toolbox. However, there is a lot of demand for compa- nies with best in class vehicles given the focus on category management.

How is the GovCon market different this year than last year? What do you expect in the market for the next 12 months?

Of course, in any new Administration, there’s a transition. Positions have to get staffed up, etc. We saw more traction in 2018. The Shutdown slowed things, but I think now you’re going to see a pretty aggressive and active market, especially in the third and fourth quarter of 2019.

What about the availability of acquisition financing for GovCon M&&;A now?

With leveraging opportunities, with the SBA, you’re seeing smaller GovCon businesses doing M&A to build past performance. We’ve also seen an increase in PE firms coming into the small business GovCon space where set asides aren’t impacted. You’re seeing a lot more activity than you did even a few years ago. Small business owners are getting more sophisticated and really starting to understand the opportunities; they’re leveraging acquisition financing as a tool.

What are the biggest stumbling blocks to successful transactions?

For the Seller it’s having unrealistic valuation expectations. We’re not in Silicon Valley. Sellers really need to be realistic about the assets they have on the books and plan before they are ready to exit so their assets align with their desired valuation. A transaction will take a lot longer and might cost them a lot more in the long run if they start out with unrealistic expectations. Sellers also need to find folks they can trust to do these deals.

People who understand and know the small business GovCon space and people who have done these kinds of transactions.

On the Buy-side, making sure you are pre-qualified. It’s similar to a house. If you are going to be borrowing, be realistic from the get-go. Understand what’s possible. Strategically, understand what you are trying to accomplish and how the current assets will transfer. Also, get a good idea for how the transaction will impact your size based on the NAICs and revenues of the seller. What performance or what vehicles are you getting? Educating yourself about what is possible, and working with someone that can help, someone that has done these kinds of transactions. You can spin a lot of wheels and not get what you want.

Final thought:

The biggest mistake GovCon owners make in the lower mid market is not thinking about their exit early enough and building to their desired valuation.

Erin Andrew joined Live Oak Bank with over 6 years at the U.S. Small Business Administration (SBA). Most recently she was Associate Administrator for Capital Access, where she oversaw the Agency’s lending efforts that included $100 billion of government loan programs for small businesses. Erin can be reached at:

Small Business Runway Extension Act of 2018