For a mid-tier businesses competition is more fierce than ever. Small business set-asides are growing. So is pressure to navigate being a low-price or best-value player – a tension that will only grow as we settle into an unpredictable election season and beyond.
But navigating a murky market, and accompanying uncertainties, is what ASRC Federal, a Beltsville, Md.-based holding company, has done since its founding in 2003.
On the heels of its recent acquisition of Data Networks Corporation, an IT and program management company in Reston, Va., ASRC Federal stands ready for greater growth. Learn how the company is navigating choppy industry waters, and see how your mid-tier business can do the same, in this conversation with ASRC Federal president and CEO Mark Gray.
WashingtonExec: How’s your recent acquisition of Data Networks Corporation progressing?
Mark Gray: The acquisition is going great. We have two very compatible cultures. From an employee standpoint the DNC [Data Networks Corporation] workforce really appreciates the fact that we’re a hold-for-the long-haul acquirer. We buy to build, not sell. And from our perspective, as an acquirer, DNC brings a very sales-driven mindset to the table. When you combine that with the contract vehicles that we both have in aggregate, it really makes this combined entity quite formidable.
WashingtonExec: What separates a good acquisition from a bad one?
Mark Gray: There are a couple of things. First and foremost, can the acquirer add something to sustain and then accelerate the new company’s growth? If the answer is no then the deal shouldn’t be done. Second, you must build your integration plan, stick with it – and execute on it – without excuses.
Lastly, are the seller’s acquired markets, capabilities, and customers truly in line with the key elements of the acquirer’s strategy or are you just simply doing an available deal? If they’re all in line with key elements of your strategy, then by definition you should be able to sustain and accelerate that new company’s growth. If not and you are simply doing a deal because it is available – the odds become much, much lower that deal can become successful financially or culturally.
WashingtonExec: Last year we saw a lot of acquisitions in the federal contracting space. Do you think we will see more this year?
Mark Gray: I believe deals will continue throughout 2016, even given it’s a presidential election year. There are several reasons why. First is that organic sales growth remains a very steep challenge or in some cases a non-reality. Flat is the new organic growth bar, so getting deals done helps on that front.
Also the pressure to manage profitability, whether you are talking about total-dollar profitability, a profit-margin target or, in the case of publicly traded companies’ earnings per share growth, will remain. That’s going to drive companies to consolidate to get more scale. Also you’ve got an appreciable number of corporate spin-outs still to happen. Lastly, private equity firms will continue to desire to be in the government services space and they need new platforms.
WashingtonExec: You said flat might be the new bar. But there are still growth areas. Where do you see them occurring?
Mark Gray: The healthcare market immediately comes to mind. Certainly the acquisition of DNC gave us a presence both in Health and Human Services and, more specifically, in the Centers for Medicare and Medicaid, as well as the Defense Health Agency. You are also going to see contract expansion with options that can facilitate new net growth via indefinite IDIQ and GWAC contracts.
Lastly, while the market is still very large, the ability to take away business from others will remain a formidable way to grow. To grow, part of the assessment needs to be, “Where are you focused?”
Are you primarily in federal civilian agencies or DOD or both? Right now, we are roughly two-thirds federal/civilian and one-third defense – that’s pretty close to where we want to be.
WashingtonExec: What are some challenges of having the federal government as a primary customer?
Mark Gray: I see three challenges ahead over the next three years. One, there is more of an imperative today to decide whether you are going to be a low-price player and/or a best-value player. In many cases, it is difficult to do both well. The second is attracting and retaining top talent.
In uncertain times it becomes harder to attract and retain top talent. You have to make sure you’ve got a broad offering that makes them really want to stay and work. The third thing is uncertainty associated with the federal administration election year. Where will the dollars be? Those, in aggregate, are the main challenges that industry faces over the next three years.
WashingtonExec: How is your latest acquisition an example of all these steps?
Mark Gray: Our acquisition of Data Networks Corporation was largely due to three primary things. First, we wanted to be in the healthcare IT consulting space. With DNC, we were able to do that in both HHS and DHA. Second, we wanted a company with an established, focused sales mentality and solid organic growth track record. DNC grew overwhelmingly via its IDIQs and GWACs, and had both business development and operations personnel who were very focused on growth in a hands-on manner.
Third, we desired a culture that was well-aligned with our own – a culture of integrity, energy, genuine care for employees and customers, and ultimately excitement about delivering no less than exceptional services to our customers and growing the business. The acquisition has in fact helped us already (in a few short months) reposition our business for growth that’s better aligned with our strategy – for example, expansion into health IT consulting, more efficient and effective overall growth from a heightened GWAC/IDIQ focus, and an increased sales aggressiveness and growth competitiveness within our broader organization.