Recently it was announced that FedCap Partners, LLC, a private equity fund, through its holding company National Security Partners, Inc., had acquired Point One, LLC and FuGEN, Inc. The combined entities will collectively be called Point One after the acquisition.
Headquartered in Arlington, Virginia, Point One provides cyber security policy development, as well as strategic planning andsupport to the U.S. Intelligence and Defense Community.
Knowing that this niche is a very hot M&A sector, I decided to do a little research on FedCap Partners. It turns out that FedCap is a classic middle-market focused investment firm; but unlike many middle-market professional investors who are typically industry agnostic, FedCap has a very defined industry focus.
In fact, according to their website, “FedCap is focused on making minority and majority investments in small and middle-market companies in the federal contracting industry”.
It appears that FedCap invests in federal services and technology companies whose “expertise provides a competitive advantage”. Their target investment range is between $1 million and $5 million. Most interestingly, “FedCap partners with owners that desire an active investor and are interested in a liquidity event in two to six years”.
FedCap essentially exists to help middle-market government contractors who need capital and advice grow to the next level, and they do so by partnering with an existing owner that is interested in retaining a minority stake in the new company with the goal of selling a much larger entity in several years (or taking it public).
This is a classic win-win deal structure. It allows the existing management team to not only cash out a portion of the company today, but it enables them to participate in a second liquidity event later. And it is a great deal for the investment firm because it allows them to partner with existing management to help grow the company.
In many cases middle-market business owners have great ideas regarding growth and expansion. They may even have superior products and technologies that set them apart from the competition. What they typically lack is financing, This is how Point One’s President, Brigadier General (ret.) J.O. McFalls described it:expertise, and professional financial management. Partnering with an equity firm like FedCap brings all of those to the table for the entrepreneur who may be struggling to grow.
“Teaming with FedCap Partners will significantly benefit our customers, partners, and. With access to additional resources and our new relationship with FedCap Partners, we look forward to continuing to provide the superior service that our customers have come to expect from Point One.”
As you look for buyers like FedCap that can bring these types of resources to your firm keep one thing in mind: professional buyers look at literally hundreds of acquisition opportunities every year. The key question is this: How do you make your company stand out among the hundreds of profiles reviewed every year?
The most effective method is to obtain the services of an experienced M&A advisory firm. Professionals who have sold companies to private equity firms, corporate strategics, and private individuals will have the ability to package your company and prepare it to be buyer ready. Certainly you can do this on your own. If you have approximately 1,000 hours of free time spread over 12-18 months that is! And even if you do, you are an expert in running your company, not in finding and negotiating with professional buyers.
Remember that specialized investors like FedCap can walk away from your deal because they know that they have 10 others in the queue. Because of this you need to make sure that your company is ready to be scrutinized, examined, and probed during the entire marketing process, but especially during due diligence. An experienced M&A advisory firm can prepare you for this process and ensure that when the deal closes, it is a true win-win for all parties.
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