This is not another article highlighting the sweeping changes directed by the Department of Government Efficiency (DOGE), because frankly government contractors and down-stream businesses are already feeling them.  Since these impacts will continue and likely increase for years to come, a discussion on ensuring the survival of our businesses is more fitting.  When cutting costs and streamlining operations is not enough, a merger or acquisition might be the right strategic move.

Adapt or Perish

Some GovCons are laying off significant portions of their workforce because they cannot instantaneously acquire new clients to replace suddenly lost or renegotiated government work.  Though this initially impacts front-line employees, support staff must be trimmed too; otherwise, indirect costs devour remaining income and escalate your Wrap Rate (i.e., indirect costs divided by direct labor costs).

Contractors are also now under increased scrutiny for efficiency, accountability, and transparency, at the risk of losing credibility and, ultimately, any remaining contracts.  But unless businesses were actively tracking these goals before DOGE, they may perceive adding these metrics as paradoxical…the “you can only choose two” dilemma (e.g.):

Building accountability and transparency require additional work, supported by more staff, which increases costs, therefore decreases efficiency.

For smaller contractors, and those who exclusively support the federal government, the impact is even more pronounced.  A narrower client base and limited access to diverse resources make it difficult to absorb the financial shocks.  As the same number of businesses vie for fewer contracts, these firms may struggle to survive without significant changes to their business models.

M&A as a Solution

Inevitably, DOGE is going to push some GovCon leaders to adopt the mantra of many movie heroes who reach their limits after years of stress, turmoil, and risk: “I’m getting too old for this #*%&” – creating an opportunity for those needing to grow or diversify?  Contractors who choose to remain in the game are recognizing it may no longer be viable to go it alone; a merger or acquisition is likely the best way to position their company for long-term success, to:

• Rebuild Economies of Scale:
  • streamline operations and reduce redundancies, and spread indirect costs across more direct workers
  • consolidate from multiple headquarters buildings, production facilities, etc.
• Strategically Compete:
  • combined portfolio offers greater capabilities, relevant experience, and past performance across more government agency clients
  • merging with a certified woman-, veteran-, or other minority-owned business opens doors for priority bid selection
  • vertical integration and well-placed regional hubs may decrease cost and better serve clients
• Talent and Creativity:  integrate the talent and best practices from both companies to enhance delivery of high-quality services and generate creative solutions to changing government priorities
• Market Expansion:  new geographic regions and industries open the combined organization to markets and customer segments to create a more diversified client portfolio to reduce risk

The Path Forward

Firms considering M&A must conduct thorough due diligence, assess cultural compatibility, and develop and implement a clear integration plan.  This is not business-as-usual, so partnering with an experienced advisor, like Visionary Growth Advisors, can help ensure a successful transition and maximize the benefits of the merger or acquisition.

DOGE’s cost-cutting measures are reshaping the federal contracting landscape, creating both challenges and opportunities for government contractors.  For those impacted, M&A represents a strategic option to adapt, innovate, and thrive in this new era of efficiency.  By embracing change and exploring collaborative solutions, contractors can not only survive but also emerge stronger and more competitive for the years to come.