March 2005 • Issue 1, Vol. 1

Market Update

Department of Homeland Security – What now?

by Chris Campbell, Senior Analyst, Public Sector Market Analysis, INPUT

Since its inception in 2002 the Department of Homeland Security has struggled to consolidate 22 different agencies into a unified organization. From an IT perspective, the greatest challenges facing DHS have been the consolidation of legacy systems as well as enabling cross-agency information sharing. Looking ahead to FY 2006, technology priorities for DHS will be continued consolidation of department infrastructure, information sharing applications, communications, and information security.

The President's FY 2006 budget request validates the view that the ability of DHS to perform its mission is heavily dependent on IT. IT related spending within DHS will account for just over 17% of the total department budget in FY 2006 compared to approximately 12% in FY 2005. DHS's total IT budget request includes a $1.2 billion (or 24.7%) increase in FY 2006, growing from $4.7 billion in FY 2005 to just under $6 billion. More>>

Legislative Update
Provided by Venable LLP

• Protecting Competition in FSS Contracts
• Protecting Competition Under IDIQ Contracts
• Avoiding the Risks of Pressing the FSS "Envelope"
• Transfer of Proposals Prior to Contract Award
• New DFARS Interim Rule on Contract Consolidation Hopes to Aid Small Businesses

Financial/M&A Update
Provided by Aronson Capital Partners

Private Equity - An Attractive Liquidity Option for Government Contractors

For most participants in the government contracting industry liquidity has been realized through three primary sources: a sale to a strategic buyer; a sale to a leveraged Employee Stock Ownership Plan (ESOP); or through an Initial Public Offering (IPO). The strategic sale option is most commonly used by owners who desire full liquidity and want to obtain a premium valuation due to the synergies that exist with the buyer. Owners who have sold their shares to an ESOP can benefit financially from the favorable tax treatment of this type of transaction. More infrequently, companies with strong management teams, attractive market positions and critical mass (i.e., usually revenues in excess of $200 million) have taken advantage of favorable public market conditions to maximize shareholder value.

However, another attractive option exists for owners who are optimistic about the future prospects of their business but want to achieve substantial liquidity under a favorable market environment. Owners that fit this profile should consider a control sale of their company to a private equity sponsor. In these transactions the company is sold and the selling shareholders reinvest a portion (10%-20%) of the sale proceeds in the recapitalized entity. The owners usually remain actively involved in the day-to-day operations of the company after the change in control occurs. These transactions are a unique solution which allows owners to obtain liquidity while at the same time benefit from the company’s future performance. More>>

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Dickstein Shapiro Morin & Oshinsky LLP, founded in 1953, is a multiservice law firm with 325 attorneys in offices in Washington, DC and New York City, representing clients in diverse industries with a wide variety of requirements. Clients include more than 100 of the Fortune 500 companies, as well as start-up ventures and entrepreneurs, multinational corporations and leading financial institutions, charitable organizations, and government officials in high-profile investigations. Dickstein Shapiro’s five core practice groups (Corporate & Finance; Energy; Intellectual Property; Legislative & Regulatory Affairs; Litigation & Dispute Resolution) involve the Firm in virtually every major form of counseling, litigation, and advocacy.

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INPUT

Silver Sponsors

GTSI

Morrison and Foerster LLC

Panacea Consulting, Inc.

Venable, LLP

Vistronix, Inc.

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