A Wolf Den Associates analysis of the federal market shows that mergers and acquisitions in 2021 exceeded expectations when it comes to deal volume and valuations.
The McLean, Virginia-based consulting firm reported the sector saw a 38 percent rise in M&A transaction volume during 2021 and a 1 to 5 percent decline in valuations. The bulk of the increase came from deals closed under $100 million in enterprise value.
Kevin Robbins, co-founder of Wolf Den Associates and a previous Wash100 Award winner, said the company examined “how deals are being shaped, why the federal market continues to be robust and where we see the sector going” for its annual market outlook report.
“As this came together last month, we struggled to make sense of the impact of the global economy, the ongoing COVID-19 impacts, and the war in Ukraine on what was a record-breaking market in 2021. Even with all those pressures, we believe the market will continue to be hot – just a little cooler than last year!” Robbins added.
Wolf Den found that customers, contract vehicles and capabilities dominated federal market M&A activity in the past year. The demand for artificial intelligence, machine learning, cloud, DevSecOps, cyber and other next-generation information technologies will continue to drive transaction volume and valuation as federal agencies pursue modernization programs, according to the report.
The interest of sponsors and nontraditional investors such as special purpose acquisition companies and activist investors in the government services sector remained strong in 2021.
At least six SPACs and activist investors have backed many of the recent public transactions that are reshaping the federal sector, the report noted.
Wolf Den forecasts that the geopolitical environment, budget outlook, procurement proclivities, capital markets and technology trends will shape the federal M&A market in the year ahead.
