2019 Market Outlook: ACT I’s Neil F. Albert on Small Business and M&A

We look forward to the new year and new opportunities for innovation and growth in the government contracting community. This past year, the public and private sectors both experienced more emphasis and demand for cybersecurity, merging technology with health care, and how to best mitigate the insider threat.

As a part of an annual series, WashingtonExec reached out to those most knowledgeable and experienced in the federal contracting space. We asked executives in and around the Beltway for insight on the direction they see in the industry. Topics discussed include M&A activity, public/private sector collaboration, cloud computing migration, the incoming millennial workforce in defense/IT/health care, talent retention and more.

Neil Albert, ACT I

Next in the series is Advanced Concepts and Technologies International, LLC President Neil F. Albert.

What will 2019 hold for government contracting? More M&A activity? Consolidation?

What the market holds is yet to be seen, but from my perspective, small businesses have numerous challenges they face over the next few years. One of the biggest one will be ongoing merger and acquisition of small and midsize companies, which could lead to consolidation and reduction of bid opportunities for these smaller businesses. Of course, this all depends on the political impact and resiliency of the GovCon services community.

In the late 1990s, hardware and software manufacturers were encouraged to consolidate the overcrowded defense market. Smaller companies soon found themselves being bought by the “Big Four” — Lockheed Martin, Raytheon, Boeing and Northrop Grumman. Today, we face a similar situation within the services community.

Companies such as Leidos, ASRC, SAIC, CACI, Parsons and ManTech are trying to take the lead in providing services in a very intense and fast-growing high-technology market, where contractors have developed or procured capabilities through merger or acquisition. What was once a niche company-based skill or capability has now become the next acquisition target by many of these companies.

Leidos jumped to the top of the market by buying Lockheed’s Information Services business. Now, other companies are following the same path. For example, SAIC buying Engility and Parsons buying Polaris Alpha. Each is growing or maintaining the capabilities necessary to perform in the market as much as they are trying to keep up with the competition.

The result could be that smaller businesses may be left behind, either to fend for themselves in this General Services Administration-based competitive environment or be class=”qowt-font1-Tahoma”>acquired as a niche player that adds capability to give a larger company a leg up.

With the budget expected to shrink over the next two years (fiscal years ’20-’21), it is the small to midsize companies who will be working harder to find opportunities to grow or even make themselves attractive to these growth-based companies. They might also consider ways to consolidate with other small and midsize businesses to maintain or grow their workshare, but also provide those capabilities the government is demanding.

We can only watch to see if the consolidation of the service companies will continue or eventually find the same result that the Big Four of the 1990s found themselves — in a market consolidation process that led to fewer procurements and being less competitive. That resulted in the environment shifting from the use of fixed-price contracts to cost-plus contracts. Unfortunately, this is already happening.

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