Winning Vendors on Next Major IT Contract Ripe for M&A Attention

Contractors that win spots on a $50 billion governmentwide IT services contract may soon find themselves targeted by deal makers and prospective buyers looking to lock down long-term revenue streams.

The National Institutes of Health Information Technology Acquisition and Assessment Center March 31 announced that it was “posting a ‘preliminary’ notice of apparent successful offerors until such time that we can post the actual apparent successful offeror notice” for the Chief Information Officer–Solutions and Partners 4, or CIO-SP4, contract.

Read more: ‘Preliminary’ List for $50 Billion IT Contract Is 425 Companies

NITAAC has planned for CIO-SP4 to result in record participation by small businesses over the next decade.

Deal-makers are expected to notice.

“Anytime you see any of those lists get announced, read down that list and below a certain critical mass, they become very good M&A fodder for folks that did not win spots on those contracts,” Kevin Robbins, Senior Advisor, Deep Water Point & Associates and general partner at Blue Delta Capital Partners, said in an interview.

Predecessor contracts have fueled a flood of mergers and acquisition deals targeting small businesses, with CIO-SP3 winners landing around 40 deals in the years after its release.

That contract came out in 2012, and deals took off a few years later as task order awards ramped up and deal negotiations wrapped up.

Buyers included competitors looking to get a piece of the action to private equity firms intent on leveraging the visibility into long-term revenue once the task orders—and actual dollars—started to be dished out.

CIO-SP3 expires at the end of the month, and its successor could fuel an even frothier flood of deal activity with a record amount of dollars planned to be spent and the pool of buyers eyeing contractors for acquisitions continuing to grow year over year.

Private equity, long a smaller player in the space, has steadily grown its share of the contractor mergers and acquisitions pie to around half of activity now.