An exclusive interview with Kevin DeSanto, Managing Director, KippsDeSanto & Company

The buzz began to build the moment the press release crossed the wires on June 3, 2011. Dynamics Research Corporation (DRC) announced its intention to spend $143 million in cash to acquire High Performance Technologies, Inc. (HPTi), a fast growth technical and professional services firm in the government space.

DRC's chairman and CEO Jim Regan touted HPTi's outstanding reputation and proven technical abilities in announcing the deal. "We are very enthusiastic about having the HPTi staff with their impressive capabilities join the DRC team," he said.

The story behind an acquisition in the government contractor space is typically much deeper than the content of the market announcement. That's certainly the case when it comes to the pending marriage of DRC and HPTi.

I sat down with Kevin DeSanto, one of the investment bankers who worked on this transaction, to get more insight into why this deal came together. And what lessons it provides for other executives at government contractors.

Marc Hausman: Your firm represented HPTi in this M&A transaction. Why was the company so heavily courted by prospective buyers?

Kevin DeSanto: HPTi's president Tim Keenan and their management team did an exceptional job building the fundamental attributes of a successful, growth-oriented business in the government contractor space. Let's break it down into a couple of key areas.

First, they had grown the business to $90 million in annual revenue which provided a certain amount of corporate infrastructure and bandwidth. There's no magic revenue number for a government contractor interested in exploring a sale. Yet, you need to be able to demonstrate the ability to compete for and win business.

Second, their portfolio of contracts and type of work they were handling for clients was incredibly desirable. The contracts were all won in full and open competition, and HPTi specialized in high-end consulting and technical services in areas like military intelligence and health IT.

Additionally, Tim and his team made a significant and ongoing investment to build a culture that helped them recruit and retain high-end workers. HPTi employees had well defined career paths and understood how important their contributions were to the success of the business.

Finally, HPTi was well respected in the market. It's often referred to as a positive brand. The company had a reputation for excellence which made them desirable to a pool of prospective buyers.

What role did you and your firm play when representing HPTi's interests as part of the M&A process?

There are many things we do as investment bankers to facilitate a positive transaction for both the buyer and the seller. However, our primary focus is to understand the goals of our client – in this case HPTi's management and shareholders – and how this then influences the process.

In this particular transaction, KippsDeSanto's ability to communicate HPTi's story effectively to the market was critical. We knew there would be a lot of buyer interest because it was such a quality company. Yet, we wanted the most qualified buyers at the table and they needed to understand HPTi's unique positioning.

We also spent a significant amount of time with Tim and his team helping them understand the buyer options. Is it better to align yourself with a buyer that is backed by a private equity fund? What are the ramifications of selling to a government contractor that is already in the public markets?

These are important considerations as it influences the valuation of the company in the actual transaction. However, the buyer model also shapes the post-deal integration.

You have mentioned to me that HPTi's Tim Keenan was a good client. Why? What did he do to help make this process successful?

My partner Bob Kipps and I have worked on hundreds of M&A transactions over the course of our careers as investment bankers. We've had entrepreneurs, technologists and professional executive managers as clients.

There are a couple of core attributes a client needs to have to ensure this process is a productive one. First, it's imperative to provide clear direction with your M&A advisors when it comes to expectations. What are your goals? What issues are deal breakers for you?

Then, it's just as important to be transparent about your thoughts and views during the process. Most of our clients are presented with a mix of different opportunities from prospective buyers and, in some cases, new teaming situations may also arise.

Yes... we provide guidance every step of the way. However, our guidance is always influenced by what our clients think about each opportunity. Is this buyer a good culture fit? Do you have concerns about their strategy?

These are all issues we address well before a deal is consummated.

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Marc Hausman is the president and CEO of Strategic Communications Group, a social media marketing consultancy based in Silver Spring, Maryland. Read more at his blog: http://www.thestrategicguy.com/.