Subtle shifts in mergers and acquisitions trends, demand, and talent were sources of excitement for government services executives during fourth-quarter earnings calls, transcripts provided by Bloomberg show. While each company has its own strategy and areas of focus, three common themes emerged: a growing appetite for M&A, increasing demand for highly specialized solutions, and improving workforce retention.
More M&A please
Visibility and predictability bring confidence. While the Federal Reserve continues to hold on rate cuts, executives are gaining confidence in their capital deployment strategies. Executives shared details about their M&A strategies and near-term expectations.
CACI chief financial officer Jeff MacLauchlan said that the company’s long-term value-creation model relies heavily on M&A to scale the business and maximize cash flow.
At Booz Allen Hamilton, CFO Matt Calderone emphasized that their M&A strategy is laser focused on addressing capability gaps. This often prioritizes patience and synergy over speed and scale.
While commentary from executives generally suggested an uptick in M&A activity relative to recent quarters, not all companies are looking to deploy capital in this way. Leidos chief executive officer Tom Bell told investors that the business will continue to share repurchases and not prioritize acquisitions for now.
While M&A was a common topic of discussion in the ecosystem, each business has its own unique strategy, priorities and investment horizon as they build and maintain large, diversified program portfolios.
Only the latest and greatest technology will do
Federal government demand for advanced technical solutions continues to grow and evolve. Near peer threats are growing, diversifying and becoming more sophisticated, necessitating a strategic and efficient response to stay ahead.
The large industry players are developing proprietary solutions to stay one step ahead of their peers while simultaneously positioning the nation to stay ahead of its near peers. Proprietary solutions and technologies touted by executives include those relating to cybersecurity, critical infrastructure, advanced communications, electronic warfare and missile defense.
Government services contractors will continue to invest in programs that are insulated from significant budgetary risk. Whether its CACI investing in Infrastructure Investment and Jobs Act-related opportunities, or Leidos pushing the envelope with its cutting-edge hypersonic missile program, we expect to see the large players continue to invest where long-term demand is expected to remain elevated.
Talent is mission critical
As the industry emerges from an extended period of tight labor conditions, executives doubled down on the importance of making sure the right talent is joining their workforces and remaining on the payroll.
SAIC CEO Toni Townes-Whitley said her team has been able to execute well on talent acquisition and that the company’s workforce attrition is at its lowest level in years. CACI CEO John S. Mengucci expressed similar observations, noting that CACI’s retention levels remained strong relative to recent years.
While celebrating workforce stability and consistency, executives also want to instill in employees a desire to innovate with agility. Leidos is spending to upskill existing talent, giving employees opportunities to expand their skillsets to address their customers’ increasingly complex challenges.
Paired with strong retention rates, upskilling is a more economical option than continually on-boarding and training new talent. Government services businesses must work hard to engage and build loyalty with current employees to mitigate the risk of exodus when the broader technology ecosystem regains its footing and attempts to lure top talent.
The takeaway
In the current economic environment, operational excellence reigns supreme. Opportunity costs are high, and competition is tight. In the government services ecosystem, even subtle market shifts can make waves. Industry executives must strategically deploy capital with confidence to gain capability, talent and market differentiation. Government services businesses must continue to execute on their strategies amid the pressures of a rapidly evolving global threat environment.
