The Use of Management Projections for Valuations: A BVR Special Report

Business Valuation

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For the first decade of this century, government spending on wartime and homeland security efforts escalated significantly, and government agencies leaned heavily on contractors to provide consulting services, support, and solutions. However, over the last few years, government budgets have been mostly flat or declining. Government contractors are now operating in an extremely competitive environment with fewer new business opportunities outside of a handful of areas, such as cybersecurity, data analytics, cloud computing, health information technology IT , and C4ISR national security-oriented solutions for command, control, communications, computers, intelligence, surveillance, and reconnaissance.

Efforts and programs related to the above areas are perceived to be less prone to potential budget pressure; in fact, on a relative basis, these areas are booming in terms of business growth and mergers and acquisitions.

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Given the broader budget trends, valuations for most other government contracting firms including even the large public companies have been flat to down over the last couple of years. As such, executives are rethinking strategies and becoming more aggressive in order to grow. Seventy-four aerospace deals were announced in the first three quarters of , up significantly from the 54 announced through the equivalent period in The number of transactions in the defense and government services sectors, meanwhile, has declined slightly in relative to As we approach year-end, the threat of sequestration is becoming increasingly eminent.

On the tax front, the previously extended breaks set forth by the Bush administration are due to expire, with uncertain probability of being extended into With a lack of clarity around the next fiscal year mounting, sellers are becoming more aggressive about reaching deal terms before closing the books on This portends a potential rise in activity during the fourth quarter of BVR: What drives government contractors value?

This question requires an understanding of the basics of the business. To work as a prime contractor with a governmental agency, a business must have: As an aside, when looking at acquisitions, most buyers are focused on buying at least two, if not all three, of the above components.

When it comes to placing value on such firms, the target s growth, risk, and leveragability also heavily influence the analysis.

Especially in a tightening market like today s, the ability for a business to deliver sustainable medium-to-long-term growth is a crucial valuation input. That growth potential typically is a function of the company s customers do they have growing needs and budgets? Like the valuation of any asset, inherent risk or uncertainty is a major valuation consideration.

For government contractors, business risk includes the common factors such as management quality, strength of internal processes and procedures, and business diversification, as well as several unique considerations. In particular, the nature of their contracts can heavily influence the risk profile of government contractors specifically, the amount of their backlog or awarded work less work performed to date , whether the business works as a prime contractor or subcontractors, and whether their contracts were awarded based on any government preference programs perhaps based on the business s size or minority ownership.

Buyers are generally larger firms that do not qualify for these types of contracts and, as such, often are careful about placing much emphasis or value on them. Another value driver is what I call leveragability, or situations where the proverbial 1 plus 1 may equal more than 2. For example, a small business may have a new technology, but it can t do anything with it because the company doesn t have the reach, capital, or scale.

Another example is when a company that has a large, attractive customer relationship or in the government world, a large prime contract vehicle. A large contract vehicle often can be much more valuable to a large business than to a smaller company that may not be able to harvest business opportunity from it on its own.

What advice can you give to business appraisers valuing small government contracting firms? Valuations of government contractors are more difficult than in the past.

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First, there s the lack of publicly available data on smaller transactions. Second, there s a larger dispersion of valuations in today s market than in the past.

So valuing a government contracting company requires an enhanced level of market understanding in order not to dramatically overvalue some companies. Appraisers who value just one or two businesses a year might incorrectly assume that all government contracting companies are similar to the larger public firms or are at risk because federal spending is declining. There are very few pureplay public government contractors, so it s very hard to find comparability. As mentioned earlier, business performance and prospects are very different for different sectors.

Valuing a company that manufactures parts for unmanned air vehicles is very different from valuing a company that provides security guards in Afghanistan. The large bellwethers, such as Lockheed Martin and SAIC, are trading at very low market multiples because they have exposure to both the attractive and less attractive market areas. Appraisers who are not familiar with the particular niches should follow the announcements of transactions, read the analyst reports, and listen to analyst calls.

But because a lot of information isn t publicly disclosed, appraisers need to do some investigative work because there is a dramatic difference in the valuation of a cloud computing or cybersecurity business and the valuation of Lockheed Martin or SAIC. Meeting the Needs of Private Equity in the Finance Organization When there is a change in a company s ownership, significant changes are generally required in its finance organization.

All rights reserved No part of this publication may be reproduced,. How to best position your construction company to a surety in Table of Contents Surety market forecast The Savvy Marketer s Guide to Attribution: Where Does Search Fit? After all, blueprints are used in the construction of buildings,. Statement of Financial Accounting Standards No.

Mick Raich Vachette Pathology www. By Jean-Christophe Lebraud and Peter. And why would anybody want to know? Valuing a company could have a major impact on whom a development officer decides. Supplier of technology solutions to major defense contractors Established: Defining smart beta, and what is classified.

Companies historically have viewed mergers and acquisitions as a way to spur growth by bulking up: Innovating the talent brand Social media has erased whatever lines used to exist between the corporate brand and the talent brand. They re two sides of the same coin. Third Quarter Results Ray. Valued Representation VR is celebrating 32 years of successful business sales through valued representation Valued Representation defines VR. Small Business Economic Outlook and Challenges Median Annual Company Revenues for.

February ISK 7. TM earnings after taxes in amounted to ISK 7.

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Fiscal Major Goals Met or Exceeded. January 13, -- Tri-Isthmus. Ward PMP and former co-chair of. It's understandable that owners would want to reap the rewards of recently signed clients. Often times, clients don't learn about your company one day and then hire.

Financial statements are a key feature in financial reporting. They are a principal means of communicating accounting information to those outside an activity. What do investors want to know? Good day everyone and welcome to the irobot first-quarter financial results conference call. This call is being recorded.

At this time for. Protect your business and preserve your legacy. The 10 questions every business owner should consider. Our top ten questions and answers While there are many Top Ten Questions lists published in the financial. Does this product have an incorrect or missing image? Send us a new image. Is this product missing categories? Checkout Your Cart Price. Description Details Customer Reviews Many of the companies appraisers work with don t have meaningful forecasts, and even if they do, they often contain unreliable assumptions. Appraisers are often faced with the choice between no forecast, adjusting a weak forecast or providing their own.

All of these options have their downsides, and no one can accurately predict the future. But short of abandoning the income approach all together, there are steps appraisers can take to ensure they have provided a meaningful forecast in their valuation. This new report from BVR provides tips and strategies appraisers can use to address management projection issues. Included in the report are recent court decisions where management projections were at the core of dispute.

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