A&D and GovCon M&A: The Diligence That Is Regulatory, Not Financial

Buy a defense or government-contracting business and, on paper, you're buying any other company. There's revenue. A backlog of signed work, a management team, a margin that looks like every other margin. Value it the way you'd value a commercial company, straight off the financials, and you'll get a number that looks right and is dangerously wrong. The worth of a government contractor sits inside a web of rules, and those rules can carry over to a new owner or fail to, in ways no income statement will ever show you.

This is the thing about the sector. In government contracting, the diligence that decides whether you actually get what you paid for is regulatory, not financial. The backlog is only as good as the government's willingness to let it move to you. Margins ride on contract types that carry their own rules. And a handful of federal requirements can quietly bleed off value in the weeks between signing and closing. The financial review is table stakes. The regulatory work is the part almost nobody prices correctly.

Selling a GovCon Business: Why It's Its Own Animal

Every M&A deal is, underneath, a bet on the target's customers. Here the customer is a government, and you can't diligence a government the way you'd diligence a commercial account. You can't call up the buyer and take the temperature of the relationship over lunch. That relationship runs on regulation, on past-performance records, on a procurement system with a logic all its own. The revenue is real. It just rests on rules instead of the ordinary goodwill that keeps two companies doing business.

That one difference runs through everything else. Contract terms come dictated by federal acquisition regulation, not hammered out across a table. The customer can rewrite requirements or sit on funding, and it can decide, on its own schedule, to throw the work back out for anyone to re-compete. And the things that make the business worth buying, its clearances and its standing on the contract vehicles that let it bid, are creatures of that same regulatory world, and they don't always survive a change of ownership. Value a contractor without getting your arms around that layer and the financials you worked so hard on are describing something that might not actually convey.