Federal contractors jockey for spending

For the first time in a while, investors are betting big on 'big government.”

The federal-services market has experienced a jolt of dealmaking activity in recent months as companies position themselves to capture new government spending, breathing life into a sector that has been sluggish for years.

In late January, fast-growing technology contractor ECS Federal was bought for $775 million by On Assignment, a California-based recruiting business with little experience in the federal market. In the same week, Lockheed Martin spinoff PAE bought financial-management contractor Macfadden and Associates in a move that largely was viewed as an effort to consolidate amid shifting budgets.

Meanwhile, Falls Church, Va.-based defense giant General Dynamics upped the ante last week when it announced a $6.8 billion agreement to buy CRSA, one of the largest government IT services companies.

Also last week, two private equity businesses added to their stable of federal contractors: Veritas Capital is acquiring the government business of PricewaterhouseCoopers; and Arlington Capital Partners is buying a small engineering services company called Integrity Applications.

Analysts took the flurry of activity as a sign of changing times for the government services sector, which was hit hard by the sequestration-related budget cuts that started in 2013.

'I'm confident 2018 will be the best government contracting (mergers and acquisitions) year since 2012, and will maybe even beat 2012,” said Robert D. Kipps, managing director of the aerospace- and defense-focused investment bank KippsDeSanto. 'People are looking through budget volatility as a near-term blip, and right now we're in a cycle where government contracting is in vogue.”

The deals come at a time when federal spending is once again set to increase, drawing fresh attention from Wall Street and investors.