Does DynCorp deal mean anything for security?

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04/14/2010
Nice post over at theDeal.com from Lou Whiteman about the $1.5 billion deal for DynCorp. He says this ought to put the spotlight on government services firms, many of which play a little bit in the security space. That doesn't necessarily mean we'll see a bunch of further deals, but we might:
According to Gesuale, the deal is the first for a public government services company since 2008 and could portend more in the sector, though perhaps not in the immediate future.
These government services companies have always been hard for me to get my arms around. They do so many things, but so many of them are hidden inside government and military programs it's unclear exactly what some of they are. Check out DynCorp's "What We Do" page:
Across the globe, DynCorp International operates major programs in aircraft and land systems maintenance, modifications, and operations; base operations; rapid-response and long-term contingency operations and logistics support; infrastructure development and operations; broad-based international development; and law enforcement and intelligence training and support. * Aviation * Contingency Operations * Infrastructure * Intelligence * International Development * Land Systems * Logistics * Training & Mentoring
Oh, you do international development? I've been looking for a company that develops stuff internationally. Wait, you do infrastructure, land systems, and logistics, too? Crazy! I was just looking for those kinds of services.... Seriously, are these giant government services companies anything like your standard security integrator? No. They are little governments unto themselves and they have a giant bureaucracy that needs to feed at the federal government teat. They're not interested in your little commercial business, but they might want you to do some subcontracting for them. In that sense, these deals might be beneficial to the average security integrator/contractor. When a big capital firm buys a public company, they generally start stripping out costs and try to streamline operations so they can make more money. Might that mean more subcontracting to independent firms like yours? Maybe. It's also a sign, though, that maybe more capital is coming off the sidelines in general and more money might be infused into the security industry - at least that portion of it that's serving the federal government.
The deal also continues the trend toward a return to leverage, which could provide the fuel needed for future mergers. As the credit crisis struck, sponsors were often forced to fund deals entirely with equity in hopes of refinancing down the road. With the debt markets improving, however, private equity firms have been able to finance their buys with an increasing amount of leverage.
There could be a bad sign there, too, though: Do the capital guys only trust government spending, and are they wary of commercial spending coming back to pre-recession levels? How and why private equity moves into security in 2010 could be an interesting indication of where growth is likely to be in 2011 and beyond.

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