M&A value drivers for government services companies come in various strategic and financial forms, one of which being leveragability. Leveragability is the opportunity to bolster the competitive tools and attributes of an M&A target with the reach and resources of the acquirer’s – producing competitive advantages greater than the sum of the parts. Simply, one plus one equals three, four, etc. A key leverage attribute is highly strategic, large dollar contract vehicles. The purchase of a contract holder may afford the buyer access to vehicles previously lost or no-bid.
An “on-ramp” contract vehicle provision is generally defined by the ability for a small business (“SB”) awardee to “graduate” the SB size threshold, but continue to compete for full and open (“F&O”) task orders under that vehicle. Separately, it may or may not be the case that the same holds true if an acquisition causes the contractor to exceed the threshold. Contract vehicles with on-ramp provisions are typically characterized by (i) vehicles with one pool of money, under which awards were made to both F&O and SB contractors and (ii) the ability for SB awardees to compete for F&O task orders, but not vice versa.
In recent years, contracting offices have increasingly procured vehicles without on-ramp provisions, or on-ramp provisions except in the case of acquisition. That is, a non-small business could acquire an SB awardee; however, thereafter, the vehicle would be dormant and the company may no longer bid for task orders. Notable examples of these types of contract vehicles include GSA ALLIANT SB, NETCENTS II, or CDC CIMS, and most recently, the announcement by GSA of a separate SB contract as part of its $12 billion OASIS professional services vehicle.
Contract offices may be structuring procurements without on-ramps in order to impede contractors’ attempts to acquire access to vehicles, and maintain avenues to meet small business contracting goals. Regardless, even without an on-ramp provision, a SB contractor can utilize a vehicle award to build critical past performance, expand capabilities, and reinvest profits back into the business to create future value.
As a takeaway, contractors should be mindful of the value proposition when allocating bid and proposal dollars as it relates to how a win may support continued operations and / or M&A attractiveness.
Contributors: Marc Marlin and Robert Dowling