It is always hard to predict the future. In addition, the government marketplace is undergoing a major transformation. Agencies are struggling to understand which services and products to buy, how to invest, or how to manage their workplace environment.
Marc Marlin is a Managing Director at Kipps DeSanto and Company – an investment bank that specializes in government contracting. He is well versed in the art of providing transaction advice. Marlin has provided transaction advice for government contractors: GlobalNet Services Inc., IDL Solutions and PerformTech.
Kipps DeSanto and Company is an investment bank focused on defense and technology mergers and acquisitions concerning government IT. Marlin sat down with Chris Dorobek on the DorobekINSIDER program to discuss what the future marketplace will look like within the government and how government service contractors are beginning to change.
So why are government contracting services transforming? Marlin noted in a Federal Times article, The Evolving Competitive Landscape, that this new era is due to “The combination of more challenging procurement dynamics and a highly selective budget environment have prompted many large government and defense primes to carefully evaluate their portfolios in order to enhance competitiveness, bolster profitability, and focus on core tenets of their businesses.”
Therefore, agencies are now “thinking about ways to grow, how to accelerate growth, and how to increase their competitive positioning over the next few years.” Marlin also pointed out that this new long-term mentality is something that can be found “across companies of all sizes…amongst a select group of the larger, private companies, as well as the public companies in the government contracting space.”
It should, therefore, come as no surprise that a lot of the new focus is on areas such as health, cyber, and intelligence where some more robust funding opportunities lie. Marlin explains that success factors can be found in areas of scale and contract vehicles. He outlines that the key to success is “diversification across [one’s] customers and markets, and there is also really [the need] for patience, given the elongated procurement cycle.”
In other words, be prepared for something Marlin titled “ a changing landscape” in which we can find “a nexus of public companies and all of their movements, combined with what’s going on with the larger private companies.” Basically, there is a lot of shaping and reshaping amongst the government service contracting firms as they attempt to explore strategic alternatives for some of their services business.
So a snapshot of the future, according to Marlin, shows that there will be more companies “sprouting up” due to the coming back and feeling of re-stabilization in the market. He also believes the gap between big business and small businesses (due to the Obama administration’s pro-small business campaign) will close, as we will see more inclusion of midsized contractors.
Lastly, we can expect to see a desire to target the areas where companies and contractors can grow. Marlin shares with us that “growth motivates people. Growth is good for the shareholders and growth for the sake of growth is good.” A great example of this reshaping can be found in the split-up of Science Applications International Corp. (SAIC) a few years ago-into SAIC and Leidos. Due to alleged organizational conflicts and the ability to provide a more focused service, SAIC split into two midsized government service-contracting companies two years ago. Marlin explains that this split helped SAIC focus on becoming more competitive as they were then viewed as more differential in their services compared to other service contracting companies.
In other words, realize that every company and agency is different. Some may feel that they need to “split” in order to provide more efficient services. Others may feel that they need to simply expand and grow. But one thing is certain; the future marketplace will continue to change. Change is a constant we can always rely on.