Private equity investors are attracted to companies as target platform acquisitions that have the sufficient size, management talent, and infrastructure to support the critical mass necessary to achieve arbitrage available through increased scale. In addition, the rate of growth, profitability and customer base and how they are perceived by investors are important factors to consider. Finally, the capabilities of the management team and its commitment to the execution of plan which will enhance the growth of the firm are other important considerations.
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“In my opinion, DynCorp has always been a tough public stock,” says Joseph Vafi, a stock analyst covering defense contractors at Jeffries & Co. “A lot of what they do carries a lot of headline risk with it.
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I don’t usually talk about the money stuff in this industry, because it is out of my lane. But I want to understand it, and emphasize what matters to our industry. If in fact a company wants to be attractive to investors, they need to pay attention to what those investors are looking for in a company. With our industry, headline risk is a factor that can make or break a company. Customer service and satisfaction can make a or break a company as well. To me, it is the guy on the ground, and his leadership, who matters most when it comes to preventing headline worthy incidents or preventing poor customer service. So in this case, taking care of your people is pretty damned important–if you want to be attractive to investors.
The guy on the ground is what I like to focus on here at the blog, and any time I can convince a company to make the necessary investments into their people, I am happy. The individual on the ground, with the gun in his hand and fulfilling that contract in a war zone, can make or break that company. It is so important that a company do all they can to insure that contractor is happy and has guidance. Because the opposite of that, is an individual that can sabotage your company purely because they feel the company has wronged them or could care less about them. Worse yet, if the company has not done the necessary things to insure quality management at all levels, and sound policy implementation at all levels, then that can further erode the desire of an employee/contractor to do well.
In other words, customer service and satisfaction is highly dependent on how your people perform out there and how they feel they are being treated.
Your leadership needs to be treated well too. They should be well compensated, well supported, and given plenty of guidance. Because those are the guys who will either work hard to make their team shine, or fail miserably by not really caring what his people are doing. So with both cases, a company must care for both the management and work force out in the field.
Here is a metaphor for what I am talking about. In this war, there is a lot of effort and talk about not creating more insurgents in a village through violent or repulsive actions. When we accidently bomb a village and kill innocents, or go back on promises made to that village, or do actions that are offensive to that local population, we create people that hate us. They will work against us in all manner, either by joining the insurgency or helping the insurgency in little ways. We could create a hatred in someone that lasts a life time, and that someone will tell everyone about how they were wronged–for a life time. Some of these folks will even recruit people into their hatred campaign, and the damage will just keep perpetuating. Is your company creating insurgents in the work place? That is the point.
If a contractor felt they were wronged by a company, they could become like the villager turned insurgent. These folks will not care to do a good job, they will tell others how terrible the company is, and they will not care about the property of the company. And because most guys need to work in order to feed a family and pay bills, they will do just enough to stay with the company, but not care to do well for the company. Oh, and any guesses about how this individual will impact customer service and satisfaction?
Worse yet, their drive to not care could translate into an incident that actually requires them to care. Incidents where if that individual who has a gun, is tasked with a critical job in a convoy operation or static security, and now they are pissed off–will this askew their decision making ability for shoot/no shoot situations? War zones are stressful enough, and companies should do all they can to minimize undo stress upon their contractors/employees. Companies should ask, ‘will our actions and policies, create insurgents within my company’? Something to ponder if you want to make your company more appealing to investors. –Matt
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Private Equity – The Fuel of Industry Consolidation
Philip McMann
Thursday, May 6, 2010
Private equity firms have left an indelible mark on the Defense and Government Technology Services (GTS) markets. The investments made by private equity funds in the industry have spawned many of the premier public companies, including Anteon, SI International and Veridian. Once dominated by the activity of a few giants such as the Carlyle Group, Frontenac, and GTCR Golder Rauner, the number of private equity firms that are active acquirers today has increased dramatically. Private equity funds now account for a significant share of the M&A transactions. In 2005, approximately 20% of the 85 M&A transactions in the GTS market were completed by either private equity funds directly or the platform companies within their portfolios. A wide array of private equity players have emerged as buyers including Arlington Capital, Veritas Capital, The Edgewater Funds, New Mountain Capital, Littlejohn and Company, and Riordan, Lewis and Hayden. While Veritas Capital has been an active acquirer of defense hardware companies since the early 1990’s, they recently turned their attention to the large and rapidly growing technical and professional services markets with their recent acquisitions of DynCorp International, McNeil Technologies, The Wornick Company and the assets of MZM, Inc, which they renamed Athena Innovative Solutions.
