With federal contracting budgets on the wane, private equity firms are looking to snatch up bargains as contractors streamline their businesses and sell off divisions that could see reduced profits or contribute to organizational conflicts of interest.
This should be a busy year for mergers and acquisitions in the government contractor market, experts said, attributing part of the change to declining budgets and the uncertainty around sequestration, a series of automatic budget cuts set to slash about $52 billion from 2013 federal spending unless Congress agrees on an alternative deficit reduction package by March 1. Private equity firms will look to profit from contractors’ belt-tightening, while also seeking to purchase smaller companies in hot areas that will continue to see government investments, such as cybersecurity.
“Government contractors are looking to shed some of their businesses and divisions that are not going to give them the returns they had captured in previous years,” said Scott M. Heimberg, a partner with Akin Gump Strauss Hauer & Feld LLP. “I think that gives some opportunities to private equity companies who are looking for bargains out there.”
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