Selling Your Government Contractor Business

1

• Selling Your Government Contractor Business
• Douglas Rodgers
• Special Briefing
• The McLean Hilton
• October 3, 2001

2
SBA 8(a)How Can You Monetize True Value?

• In a sale, buyer may not step-up the asset value
  in charging overhead costs to cost-reimbursable
  contracts.
• In a sale, if the seller retains the pension
  plan, the government will claim its "share" of
  the amount by which the plan is overfunded. If
  the plan is underfunded, the contractor can
  charge the government its share of underfunding.
• In a sale, SBA 8(a) contracts may not be
  transferred to a non-8(a) company. They must
  either be retained by the seller or sold
  separately to another 8(a) contractor (requires
  SBA and contracting officer consent).

3
Continuum of Transaction Types
Corporate Alliances
Traditional MA
Subcontracting Shared resources and
competencies (non-equity)
Partial acquisition non-controlling (non-equity) lt
50
Joint Ventures
Partial acquisition controlling gt50
100 Acquisition
ESOP or Strategic
Third Party or MBO
Collaborative
Increasing Degree of Integration
4
Determine Your Objectives

• Timing
• Lifestyle
• Financial

5
Determine Your Objectives

• Timing
• Preferences--Shareholders and Management.
• When Market is Ripe.
• Seek a Professional Opinion.

6
Determine Your Objectives

• Owner Lifestyle Post Transaction
• Long term full-time position.
• Limited term full-time position.
• Short term full-time position.
• Limited involvement - board member or advisor.
• No involvement - retire or move on.

7
Determine Your Objectives

• Financial
• Maximize Potential Proceeds Higher Risk.
• Earn out provisions.
• Retain minority interest.
• Equity/stock in acquirer or merged company.
• Cash and unsecured debt.
• Minimize Risk.
• All Cash.
• Cash and cash equivalent.
• Cash and secured debt.

8
Execution Strategy

• Market the Company While Operating.
• Delegate Operating Role and Devote Time to
  Creating a Transaction.
• Hire a Financial Intermediary.

9
Steps for A Successful Transaction

• Study Company and Determine its Strengths and
  Weaknesses.
• Determine Objectives and Priorities.
• Agree on Expectations
• Range of Values.
• Types of Transactions.
• Prepare Offering Memorandum.

10
Steps for A Successful Transaction

• Identify and Contact Transaction Candidates.
• Short List Prospects and Begin Dialogue.
• Negotiation and Due Diligence Phase.
• Closing Transaction.