CEO Sharon Heaton featured on

How to know if it’s time to sell your GovCon company


The government contracting mergers and acquisitions market has been strong with the number of transactions completed at or near pre-Covid-19 levels. But when the federal government is your customer and there is a presidential election ahead, some GovCon owners wonder if this is really a good time to sell their company.

As advisors to GovCon companies around the country, including companies with set-aside designations, I can tell you that an organization with strong recurring revenues, disciplined management, and deep customer relationships can readily sell their business in 2021 and beyond. Valuations have remained steady since 2019 according to GF Data’s evaluation of private M&A transactions for companies with a total enterprise value of $10 and $250 million. In fact, according to GF Data’s analysis, while the number of M&A transactions declined in the first half of 2020, the earnings before interest, taxes, depreciation and amortization (EBITDA) multiple went up. This is further indication that strong companies are still doing well in 2020.

The federal government has shown itself to be an excellent customer, providing long-term contracts with predictable revenue streams to GovCon owners. As a result, GovCon companies present a more compelling investment opportunity these days to prospective buyers. But one of the biggest mistakes a GovCon owner can make is to try and sell the business when things are not going well. They think of selling when the probability of a win on a big contract recompete does not look promising, when the company pipeline is weak and shrinking, or when the company is approaching its North American Industry Classification (NAIC) code five-year average revenue limit. A prospective buyer never wants to step into someone else’s problems. They are buying the value the company has today, but they need to know there will be value years down the road.

In our experience, the moment an owner wants to transfer their business, is usually the most important time for an owner to stay. And when an owner is comfortable with the current state of the business and everything is going well, that’s usually the best time to sell. This is what we often refer to as “The GovCon Owner’s Dilemma.”

One of the best ways for an owner to navigate their ideal lift off from the business is to understand the market climate and dynamics. Are GovCon companies an attractive investment opportunity given the current macroeconomic climate? What does the prospective buyer pool look like today? Are buyers willing to entertain different deal structures? How long will it take to sell the business? Is this a good time to maximize the potential for a satisfying liquidity event?

Most GovCon owners hold the majority of their wealth in their business. The transfer of that business is a very important lifetime event, and it needs to be done at the right time. Owners also need to understand how selling the company will impact their life, including the risks and rewards of a sale. With the right planning and the right M&A support owners can successfully transfer their business, even in times of political and economic uncertainty.

Read CEO Sharon Heaton’s full article here.