For all the talk of a slowing M&A market in the government services sector, we see the M&A transaction "headcount" for 2007 comparing favorably to recent past years.

At press time, 2007 had seen 73 deals close. For all of 2006, 77 transactions were completed.

Expectations in some quarters were — and remain — that the deal count will weaken. Several factors contribute to this view:

• M&A pricing multiples remain high relative to comparable companies trading publicly


• The SBA rule making it harder to recertify as small business for continuation of seller contracts has stalled some deals from proceeding


• The slowing growth of the federal IT budget, leading to several slower company ramps in some segments of the government market

• ATS Corporation (OTCBB:ATCT) acquires Number Six Software, Inc. for $36 million. ATS began life in the public sector as the first acquisition of a New York-based SPAC (special purpose acquisition corporation). Since ATS merged into this SPAC (known as FSAC, initiated by partners at private equity group, CM Equity), the company has made 5 acquisitions. While still a micro cap stock, ATS desires increasing `respectability' as a legitimate investment worthy of the public markets.
• ICF International (NASDAQ:ICFI) acquires Simat, Helliesen and Eichner, Inc. for $51 million. A fairly recent IPO like ATS, ICF has designs on increasing size and deepening market verticals, thereby leading to a broader following in the public markets. This transaction added to ICF's federal Transportation practice.
• Accenture (NYSE:ACN) acquires Gestalt LLC. Already having branded itself as a defense contractor, Accenture gained an even more solid foothold in the Command and Control (C2) vertical.

Despite some of the headwinds cited above, M&A in the federal services sector will remain very active. Buyers still need scope and size, Sellers want liquidity, and the Government must optimize it shrinking workforce. Plug that into a reasonable interest rate environment and you get continued sector M&A activity.

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FGR offers analysis of M&A transactions involving government services contractors. The analysis is written by Stuart McCutchan, president and CEO of InfoBase Publishers, Inc. on-line publisher of the market-leading Defense/Aerospace Competitive Intelligence Service (DACIS). Opinions expressed below are those of InfoBase. All rights reserved. For more on InfoBase Publishers' services, see www.dacis.com.

Wyle Laboratories, Inc. Acquires RS Information Systems, Inc. (RSIS)

Wyle Laboratories, Inc., a portfolio company of Littlejohn & Co., entered into a definitive agreement to acquire privately held RS Information Systems.

McLean, Va.-based RS Information Systems is a federal systems integrator providing advanced technical and business services in information technology, systems engineering, telecommunications, scientific support and management consulting. The company has more than 100 prime contracts with defense, federal civilian and law enforcement agencies.

Wyle chairman, CEO and President George Melton stated: "This is an important addition to Wyle's business portfolio as we continue to grow the company. While we have some major contracts in the information technology field, this acquisition will enable Wyle to significantly broaden its presence in the information technology services sector and add key new contracts and customers that will complement our current client base. This acquisition makes Wyle a major federal information technology provider with a major presence in Washington, D.C."

RS Information Systems CEO, president, and founder Rodney Hunt stated: "Like RS Information Systems, Wyle has a strong, mission-oriented culture and will provide leadership and resources to leverage RS Information Systems strengths that will benefit Wyle, our customers and our employees."

Wyle, a privately held company, is a leading provider of high tech aerospace engineering, testing and research services to government and industrial customers. The company also provides life sciences services, special test systems and other technical support services to the aerospace, defense, nuclear power, communications and transportation industries.

Stifel, Nicolaus & Company, Inc. acted as exclusive financial advisor to RS Information Systems.

Terms

On Dec. 3, 2007 Wyle announced it had signed a definitive agreement to acquire RS Information Systems. Terms of the transaction were not disclosed.

RS Information Systems has more than 1,400 employees at 10 offices and more than 50 customer sites. The organization will become Wyle's fourth strategic business unit joining the Aerospace Group; Life Sciences Group; and Test, Engineering and Research Group.

The acquisition of the RS Information Systems is expected to increase Wyle's 2008 annual revenues to approximately $800 million and the number of employees to more than 4,200.

Completion of the transaction is expected in early 2008.

Analysis

It's been four years to the month since Wyle Labs brought aboard Littlejohn & Co. as an investor. That transaction was attended by a fair amount of mystery — neither company ever said just what percentage of Wyle which Littlejohn actually acquired. But the fruits of that transaction have been easier to quantify: Once this deal is complete, Wyle's revenues will have more than tripled under Littlejohn's stewardship. A nice track record, although we're a bit puzzled by the decision to branch out into a fourth new business area. Roll-up acquisitions are part of the private equity playbook, but driving your investment vehicle into new terrain definitely is not.

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Closing/ AnnouncementDate	Buyer	Seller	Purchase Price	Seller Revenue
December 11, 2007	National Interest Security Company	Information Manufacturing Corporation	N/D	N/D
December 6, 2007	National Technical Systems	United States Test Laboratory	$12.5m	N/D
December 3, 2007	Wyle Laboratories, Inc.	RS Information Systems	N/D	1,400 employees
November 30, 2007	Mantech International	McDonald Bradley	$76.5m	$50m
November 23, 2007	Camber Corp.	Complex Systems	N/D	N/D
November 13, 2007	ICF International	Simat, Helliesen and Eichner	$51m	$36m
November 5, 2007	Kratos Defense & Security Solutions	Haverstick Consulting	$90m	$97m
October 25, 2007	Accenture	Gestalt LLC	N/D	250 employees
October 15, 2007	ICF International	Number Six Software	$36m	$33m

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Minuteman Ventures LLC advises company owners on the sale of their businesses, and assists corporate and private equity buyers in strategic acquisitions and divestitures. Our team consists of experienced entrepreneurs and business executives who founded or operated companies and corporate divisions.

We specialize in companies that sell services, products, and solutions to federal government clients.

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