The promises of the second Trump administration — namely, reductions in bureaucratic redundancy and spending — have the government contracting industry sufficiently apprehensive about the prospects for funding in the year ahead, according to reporting by financial services company Raymond James. The organization has issued its monthly market update for the government technology sector, which reveals a 2.9 percent return in the last 12 months — 7.9 percent short of its compound annual growth rate over the last half-decade. That figure crested right around the election in November but has since dropped by 25.4 percent.
We spoke with Andy McEnroe, managing director of investment banking for the firm, about the motivators behind these trends.
McEnroe’s Perspective
“The start of 2025 has seen the post-election government contracting market uncertainty continue as the Trump administration has moved with incredible velocity to enact its agenda. Executive orders combined with the evaluation of numerous agencies by the Department of Government Efficiency has led to a lack of short-term confidence across the market. As a result, the government services, multi-platform (large primes), and defense technology public indices have seen flat or declining performance over the last month, with the government services and multi-platform indices continuing their slide since the election,” McEnroe shared.
McEnroe is a recent winner of the Wash100 Award, the highest honor in GovCon. If you’re selected to the list, it means you have a direct hand in transforming how the industry is operating. Cast a vote for Andy and your other favorite members of this year’s Wash100 class in the annual popular contest!
SAIC & CACI Weigh In
Two other 2025 Wash100 winners were featured in the Raymond James report: SAIC CEO Toni Townes-Whitley and CACI CEO John Mengucci. Townes-Whitley believes the GovCon market might see a focus on “fixed and incentive-based contracts over cost plus,” along with “certain program eliminations” and “lower funding in certain of our markets.”
Mengucci, meanwhile, said “I think there will be a push to find efficiencies. I think there will be a push to force speed. I think, there will be a push to get greater transparency. And that, nothing is really going to change except possibly for the better.”
Defense & National Security Grasp at Stability
However, McEnroe looked toward the future and foresaw some tangible changes brewing, predicting that while mergers and acquisitions and non-defense procurement may cool, the Department of Defense will emerge reinvigorated with more powerful funding opportunities than ever.
“Longer term, the impact of DOGE coupled with the ongoing budget reconciliation process as well as forthcoming FY2026 budget discussion and the Senate Committee on Armed Services Chair’s proposed $200 billion U.S. defense budget increase over the next two years has us bullish on the prospects for firms that operate within the national security community and that are bringing next generation technology designed to increase efficiency to the federal government. M&A new starts are likely to slow until further clarity is available through the budget process while transaction processes that are “in-flight” have a higher probability of seeing a negative impact to valuation or the introduction of deal structure,” McEnroe said.
M&A Deals
The February report also highlighted significant acquisitions over the last several months, including Core4ce’s October 2024 purchase of Azimuth, which added artificial intelligence, machine learning and data visualization capabilities; and Agile Defense’s January buy of IntelliBridge, both of whom are Enlightenment Capital-owned entities. Browse the full report here.
