What a deal

If buyer stock price is the sole measure of a deal's success, Stanley Inc.'s acquisition of Oberon Associates is a runaway. On June 10th, Stanley announced its acquisition of Oberon Associates for $170 million. On that day, Stanley opened at just under $30 a share and closed at $30.61. As I write this post less than two weeks later, Stanley shares are now trading above $35, up roughly 17% since the deal was announced. Not surprisingly, analysts have praised the deal.

Fast growth for seller (and buyer)

Started in 2002, Oberon reported $48.4 million in government revenue for 2007. Per the acquisition press release, Oberon will reach total revenue of about $80 million for 2008.

At the time of its IPO in 2006, Stanley had revenue of about $300 million and its stock started at $13 per share. Stanley is now at over $600 million in revenue with a stock price in the mid-$30s.

Rare breed or endangered species, take your pick

There aren't many mid-cap contractor stocks left. Argon ST, DRC, NCI Information Systems, SI International and Stanley are about all. ManTech and SRA crossed the $1B mark. RS Information Systems (RSIS) and McDonald Bradley (MBI) went with being acquired over an IPO. The number of contractors with revenue between $200 million to $600 million per year couldn't fill a room.

Additional evidence of the rare breed/endangered species: For over three years serial entrepreneur Ken Bajaj and his current venture SystemsNet have been sitting on cash looking for an acquisition. (A deal seems imminent though, as hinted at in recent coverage by TechBisnow)

A decline in the hunted increases competition among the hunters. In an exchange with Marc Marlin, Vice President with KippsDeSanto which represented Oberon in the deal, Marlin said Oberon received "strong interest from a broad universe of suitors". I think this may be an understatement. And with RSIS and MBI, it seemed like there was an article every couple of months musing about who was interested, whether they would be acquired or go public.

M&A value drivers

Marlin summed up the Stanley-Oberon deal: "The transaction reflects many core themes evident in today's M&A environment. Specifically, government services and defense companies (i) well positioned in high-priority, growth markets such as intelligence and national security, (ii) with intellectual capital in emerging technologies such as biometrics in the case of Oberon, and (iii) that exhibit a strong organic growth track-record and prospects, continue to drive premium M&A valuations."

Win-win

As it stands now, the deal appears to be a win-win for everyone involved. The seller is getting a price of more than 2x revenue (historically above-average consideration for a government services firm), the buyer's stock price increased immediately following the announcement, and with no overlap between the two firms the employees will not worry too much about their job security.