By Marc Marlin, Managing Director at KippsDeSanto & Co.

This article was featured in the recent FedHealthIT Winter 2020 Magazine.

Digital transformation continues to be a dominant storyline across the Federal Government and Government contracting (GovCon) marketplace. Government decision makers are actively seeking technology-enabled solutions that drive access, efficiency, and enhanced user experience for stakeholders, and the GovCon industry is racing to address the demand. Digital transformation, a meaningful subset of “NextGen IT”, feels a bit all encompassing. GovCon firms of various technical and professional services expertise, end-customer orientation and revenue size are in hot pursuit of top-line growth and enterprise value enhancement through the association – tangible or perceived – with cloud, artificial intelligence, machine learning, and user experience and interface. GovCon websites are being updated and employee certifications are increasingly valuable, as industry looks to capitalize on the opportunity to push the technical edge, and deliver modernized systems for the Government internally, and public interface externally, that are more reflective of the “FANG” experience (Facebook, Amazon, Netflix, Google). However, is “digital” just the latest buzz, or true transformation of Government?

Early indicators are the latter, with identifiable programs, and confidence in the go forward opportunity evidenced by the highly active M&A activity along this thesis. From a programmatic side, the Federal Healthcare segment, inclusive of Health and Human Services, Veterans Affairs (VA), and the Defense Health Agency, has been trendsetters. Notwithstanding its stumbling blocks a few years back, and the concept of a customer facing health marketplace for the citizen consumer was a groundbreaking transformation concept, leveraging technology to enable the citizen consumer to not only enroll, but educate, compare and interact with the program. This program felt more “Amazon Prime Day” vs. an early 1990’s visit to the Department of Motor Vehicles for a driver’s license. The technology and transformation of customer interface and experience for one of the first times pushed the responsibilities for the interaction to include choice and purchasing power to the citizen customer. As we think about the drive towards similar programs such as the VA’s Blue Button program, or the continued quest for heath record interoperability, and then broader initiatives around population health management, technology, this FANG-like approach appears sustainable and is gaining momentum across multiple touch points between the Government and citizen consumer, and well beyond Healthcare alone.

The M&A markets have been equally excited about digital transformation across the entire GovCon landscape. The tech giants of Amazon, Google, Microsoft and Oracle have taken the path of organically building their Federal digital footprint, leveraging their commercial technologies and GovCon partner networks to help deliver solutions. However, the larger public and mid-market GovCon firms are placing meaningful M&A bets on the success of transformation, whereas smaller firms are helping to build the M&A acquisition supply side. With smaller businesses and the private equity dominated mid-market driving to create innovation at scale, the bigs can be expected to continue to consolidate capabilities and contract portfolios as the digital transformation opportunities evolve in size and complexity.

There have been approximately 140 announced Government services and technology solutions transactions since 2018, of which nearly one third promoted NextGen as part of the investment thesis.

During that period, nearly 40 percent of transactions in which private equity or an existing portfolio company of private equity was the buyer, had a NextGen element to the deal rationale. Recent examples include Arlington Capital’s strategic investment in Octo Consulting, promoting in their announcement a focus on “Agile software development, UI/UX, cloud, infrastructure, blockchain, and other emerging technologies” and Macquarie Capital’s strategic investment in Dovel Technologies, characterized as “deep domain expertise and advanced technologies in the health IT, life sciences, and grants management markets”, and then bolstered by Dovel’s acquisition of Ace Info Solutions. U.Group, a portfolio company of Enlightenment Capital, was born out of advanced technology firm ByteCubed and integrated technology creative marketing and design agency CHIEF.

The M&A activity isn’t limited to the private equity firms, but the publics are similarly active. Notable examples are Perspecta’s acquisition of Knight Point – its first as a public company, aimed to enhance its offerings in cloud, digital transformation and enterprise IT that modernize and transform Government mission delivery. Leading indicators are bullish for the impact of digital transformation in Federal Health and beyond given the intersection of mission need, funding support, enterprise value creation for GovCon firms, M&A activity and most important, an enhanced solution for the citizen customer end user/beneficiary strategy.

So where have all the health deals gone? Just wait. Those firms who invest for the long term, grounded in capability, technological innovation, and the right contracts vehicles, will be uniquely positioned to benefit from the next wave of Fed HIT consolidation.


Marc Marlin is a Managing Director at KippsDeSanto & Co., an investment bank focused on the aerospace/defense, and Government technology solutions sectors. Marc has a broad base of experience in providing transaction advisory services, with a particular focus on mergers and acquisitions for professional services and software companies. Past clients include DLH Corporation, Ace Info Solutions, NES, Edaptive Systems, 2020, GlobalNet Services, ASM Research, Magellan Health, and General Dynamics, amongst others.



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