Government Contracts Mergers and Acquisitions: Key Considerations for Success
Mergers and acquisitions (M&A) are common in the business world. Companies merge or acquire other businesses to increase their market share, diversify their product or service offerings and gain access to new customer segments. However, when it comes to government contractors, M&A involves a complex set of rules and regulations that must be followed to avoid legal and financial pitfalls.
Government contracting is a highly regulated industry, and the Federal Acquisition Regulation (FAR) imposes strict compliance requirements on contractors. M&A transactions involving government contractors must consider these requirements and ensure that the acquired company is in compliance with all applicable regulations.
Here are some key considerations for companies contemplating M&A in the government contracting space:
1. Due Diligence
Due diligence is critical in any M&A transaction, but it is even more important when dealing with government contractors. Due diligence should include a review of the target company`s contract portfolio, compliance with FAR requirements, accounting and financial systems, and past performance.
2. Compliance with FAR Requirements
Government contractors must comply with a host of FAR requirements, including those related to contract administration, cost accounting, labor standards, and subcontracting. Failure to comply can result in hefty fines, contract termination or suspension, and damage to the company`s reputation.
Companies should conduct a thorough review of the target company`s compliance history and ensure that all compliance issues are resolved before the deal is closed.
3. Intellectual Property and Data Rights
Government contractors often deal with sensitive data and intellectual property. M&A transactions should ensure that the target company`s data rights and intellectual property are protected and that all necessary licenses and clearances have been obtained.
4. Security Clearances
Government contractors are subject to security clearance requirements, and M&A transactions should ensure that all employees and contractors with access to classified information have the necessary clearances.
5. Small Business Set-Asides
Government contracts often have set-aside requirements for small businesses. M&A transactions should ensure that the target company meets the eligibility criteria for these set-asides and that the acquiring company does not jeopardize the target company`s eligibility.
6. Change of Control Notification
Acquiring companies must notify the government when there is a change in control of a government contractor. Failure to do so can result in the termination of contracts and suspension or debarment from government contracting.
In conclusion, M&A transactions involving government contractors require careful planning, due diligence, and compliance with a complex set of regulations. If done right, M&A can be a strategic way for companies to expand their footprint in the government contracting space and gain a competitive advantage. However, companies must ensure that they have the necessary resources and expertise to navigate the legal and regulatory complexities of government contracting M&A.