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Mergers & Acquisitions (M&A) Issues among Government Contractors

Government ContractorsWhile the United States economy has been slow to recover, government contractors have continued to thrive.  This stability has led to considerable Mergers & Acquisitions (M&A) activity over the past few years. Government contractors, however, have all the challenges of other businesses with the additional challenges imposed by the vast array and complexity of government regulations. Because of this, careful attention must be taken in any acquisition to ensure all potential problems are exposed and analyzed, that proper warranties and representations are provided in the sale agreement, and that the deal is structured in an effective manner to handle future problems that may arise.

To accomplish this, it is advisable to use government contract counsel.

Acquiring Government Contractors

  1. Due Diligence: You can never do too much research before an acquisition. As part of most deals, the seller or its broker will prepare a deal or briefing book, detailing the more salient aspects of the company and its marketability, such as operational details, capabilities, assets, revenue streams, cost analyses, and customer identifications. Counsel can also obtain information on the targeted company through a number of different resources, including www.sam.gov, www.usaspending.gov, and the Contractor Performance Assessment Reporting System (CPARS), which includes Federal Awardee Performance and Integrity Information (FAPIIS). The more information you have, the better.
  2. Stock Purchase vs. Asset Purchase: Should the transaction be handled as a purchase of assets, a purchase of stock, or a merger? This is one of the most common questions posed to government contract counsel. While some acquisitions are handled as an asset purchase, most are handled as stock purchases. Why? For starters, one of the biggest assets of any government contractor is a strong history of past performance. This resume only transfers with the company and its stocks, not its assets and/or employees. Secondly, under a stock sale, novations are not necessary.
  3. TINA and FCA: Government contractors are subject to certain unique risks, such as the Truth in Negotiations Act (TINA), which is designed to promote truthful negotiations in government contracts. TINA allows government agencies to access the same cost and pricing data used by contractors. All proposals for contracts expected to exceed $500,000 are also subject to TINA. Government contractors are also subject to the False Claims Act (FCA), which “provides for liability for treble damages and penalties for anyone who knowingly submits or causes the submission of a false or fraudulent claim to the United States .” (Unique Issues in M&A Transactions of Government Contractors, p. 3)(Quotations marks shoud go around quote, not source.)
  4. Purchasing Intellectual Property: Unlike other industries, government contractors may not always own the rights to all developments or innovations that are developed while carrying out a government contract. Because of this, contractors must take specific steps to ensure their intellectual property (IP) claims are protected. This is of specific importance to anyone looking to acquire a target contractor.
  5. Organizational Conflicts of Interest (OCI): The government has recently heightened its focus on OCI and, as a result, a detailed analysis should be performed when acquiring a company with contracts in a similar sphere of agencies as your company.
  6. Security Clearance Sensitivity: If a target contractor contains a facility security clearance, the agency’s security officers must be notified of any pending acquisition. Failure to do so could result in the revocation of the clearance.
  7. Notification Post-Purchase: Numerous notices and certifications must be made post-closing. Most of these are available at www.sam.gov.

If you have any questions about Government Contracts or want a more in-depth explanation of the acquisition process, please contact an Offit Kurman attorney

Offit Kurman Attorneys at Law: Government Contracts Practice Group

At Offit Kurman Attorneys At Law, the attorneys in our Government Contracts Practice Group educate our clients on steps to take and pitfalls to avoid when entering into, performing, and/or closing out prime contracts and subcontracts in the government contracting environment. Our attorneys’ expertise ensures that clients have the tools they need to grow in this complex marketplace.

Offit Kurman is perfectly positioned in both geography – near Washington, DC – and experience to help government contractors succeed.

If you would like to learn more about Offit Kurman’s Government Contracts Practice Group to see what we can do for you, please fill out our contact form to access the knowledgeable legal guidance that our experienced attorneys offer. You can also connect with Offit Kurman via FacebookTwitterGoogle+YouTube, and LinkedIn.

Sources:

Unique Issues in M&A Transactions Of Government Contractors, BNA, May, 2013