With the State of the Union address yesterday, we thought we’d get into the spirit of the event and look at the state of the National Capital region’s economy. 

After all, the economy is what’s on the top of the mind of most Americans, and is always the cornerstone of any good State of the Union speech when the nation is in, or recovering from, a recession. 

According to a recent article in the Washington Business Journal, the employment situation in the National Capital region is not all positive. Despite the unemployment rate remaining mostly the same, Virginia payrolls declined by 10,400 jobs in December and Maryland’s payrolls fell by 6,900 jobs. 

The positive news is that, unlike 20 other states in the union which saw their unemployment rates rise, the unemployment rate in the region remained wholly unchanged. Virginia’s still clocked in at 6.7 percent in December, and Maryland at 7.4 percent. 

The interesting thing about this is that it is somewhat counterintuitive to two other pieces of recent economic news. Despite the overall employment picture showing no signs of improvement, and payrolls falling, other economic indicators in the region are improving. Namely, consumer confidence is up and home prices are steady, if not rising. 

Consumer confidence is at the highest point that it’s been in almost three years. In fact, the Washington Business Journal is reporting that the Consumer Electronics Association Index of Consumer Expectations increased for the sixth month in a row. The increase in consumer confidence illustrates that people in the region are feeling better about both the economy and their individual financial situations. 

Also, the Washington region was one of the only metro areas in the United States to see an appreciation in housing value over the course of the past year. Granted, the National Capital region benefits from the presence of the federal government, and the economic stability that comes from it, but only three other metro areas saw an increase, including Los Angeles, San Diego and San Francisco. 

Despite the decrease in payroll in the region, all indicators are pointing towards a recovering economy. What’s more, the National Capital region continues to be one of the major metropolitan regions whose economy is taking the lead. The state of the National Capital region’s economy? Strong and getting stronger.

Every year, M&A Advisor, a network of mergers and acquisitions, turnaround and finance professionals, honors excellence in deal-making with their M&A Advisor Awards. 

This year, there were 234 finalists in 47 categories, which covered acquisitions of various dollar figures, deals in specific industries, and even individuals who worked hard to make deals happen. 

The nominations were weighed by an independent body of industry experts and the winners were announced at the 9th Annual M&A Awards Gala and Summit in December. 

One of the deserving award recipients, RSM McGladrey, a leading professional services firm providing tax and consulting services under the McGladrey brand, is a member of ACG National Capital. The company was named the “2010 Accounting/Due Diligence Firm of the Year.” 

RSM McGladrey received the award for its work in the past year, providing buy-side, sell-side, tax and IT due diligence, tax structuring, merger integration, working capital assistance and other transaction-related services on more than 250 domestic and international transactions. 

The practice has seen tremendous growth and, in the past three years, increased its client roster by nearly eight times thanks in large part to the quality and value of their transaction services group. 

Congratulations to all of the winners of this incredible award and specifically to ACG National Capital member, RSM McGladrey. For a complete list of all of the M&A Advisor Award winners, click HERE.

With the economy steadily improving over the course of the year, many experts believed that 2010 would be prime for some significant corporate growth and M&A activity. 

During the “Great Recession,” many companies were hesitant to invest significant amounts of money in organic growth. Many more felt that keeping large amounts of cash on hand would be wise for fear that another credit crunch would leave them unable to borrow. 

The end result was an improving economy with many companies sitting on piles of cash that was doing nothing for them. That cash in hand was providing no return or working to make additional profits for the companies. 

Coming out of a slow 2009 with very little organic growth, companies also felt pressure to show some kind of growth for 2010. With organic growth still difficult to come by in a recovering, but sluggish, economy, acquisitions became increasingly attractive. 

Between the piles of cash and pressure to show growth, it was the perfect storm for M&A activity to take off. And boy did it!

According to Thomson Reuters data, M&A activity grew nearly a fifth this year to a tune of $2.25 trillion, globally. Emerging markets made up 17 percent of the transactions and the energy sector was the busiest. 

With the New Year just days away, this is all old news! What matters is what will happen in 2011, and luckily, things aren’t expected to slow down one bit. 

The continued pressure to show growth, increased liquidity, amiable financing terms and the continued presence of cash on hand are expected to continue to drive M&A activity in 2011. 

According to a recent article in Businessweek, there are a handful of markets that can be expected to see significant M&A activity, including: 

• Energy
• Mining
• Healthcare
• Technology
• Consumer products
• Financial services

Also expected to see significant M&A activity is the airline industry and deals across borders as companies from Asia and Brazil step into the fray. 

These projections are very much in line with what ACG members and other thought leaders in business and finance said in our recently released survey. According to the survey, an overwhelming percentage of the 473 respondents were confidant about the improving economy and expected increased M&A activity moving forward. 

2010 was an exciting year for those interested in corporate growth and M&A. After activity fell off of a table for a few years during the economic downturn, the market swung back around and drove upwards tremendously. What’s better…it shows no signs of slowing down. 

Here’s to an incredible 2011. May it be filled with an improved economy, continued corporate growth and prosperity for everyone, both in the Nation’s Capital and across the country.

The results of a twice-yearly ACG-Thomson Reuters DealMakers Survey were released, and the results show increased confidence in the economy and an expectation of increased corporate growth. 

The survey was given to 473 ACG members and Thomson Reuters customers comprised of members of private equity, venture capital and buyout firms, investment bankers, intermediaries, brokers, lenders, finance providers, corporate professionals, entrepreneurs and service providers, such as lawyers, workout specialists, accountants and consultants. In other words…everybody with a mind for business. 

Across the 473 responses, there’s a clear confidence that the economy as a whole will continue to rebound, and the environment for mergers and acquisitions will improve. 

Only 16 percent of respondents stated that they were modifying their current investment strategy due to the poor economy. In fact, 74 percent of dealmakers expected an increase in M&A activity in the next six months. Of that 74 percent, 10 percent expect to see a significant increase and 64 percent are calling for a moderate increase. Although this is down slightly from the mid-year 2010 survey, it’s a significant increase compared to 2009 numbers when only 56 percent predicted an increase in M&A activity. 

Nearly 50 percent of respondents that identified themselves as private equity, venture capital and buyout firm members anticipated job growth at their portfolio companies. That’s a large increase from even the mid-year 2010 survey which stated only about 30 percent stated the same.

When asked for their long-term prognostication on the economy, 77 percent of respondents believed that the economy will improve in the next 24 months. Only 2 percent believed the economy will get worse in the next 24 months.

Despite the overall confidence in an improving economy as a whole, there were some industries that the respondents thought would grow faster than others.

Healthcare and life sciences, industrial manufacturing and distribution and technology were expected to see the most merger activity in the first half of 2011. Healthcare and life sciences, technology and business services were expected to see the most organic growth.

The ACG-Thomson Reuters DealMakers Survey is an incredible barometer for the business climate for both the present and future. The world’s top business minds are confident that the economy is improving and now is the time for increased M&A activity. We can’t help but agree with them!

The District of Columbia and its surrounding metro areas got a bit of mixed news today. The good news came in the area of the city’s unemployment rate. The bad news came in the form of a decrease in the region’s consumer confidence index.

But first, the good news.

According to an article in the Washington Business Journal, the unemployment rate in the Washington area remains the lowest in the nation. The region’s unemployment rate fell to 5.8 percent in October. That’s a .1 percent decrease from the recorded 5.9 percent unemployment rate in September.

Washington remains the only major city in the country with an unemployment rate below 6 percent, beating out Oklahoma City, Minneapolis, Austin and Boston. There were 177,700 area residents collecting an unemployment check in October.

Despite the solid news about the region’s unemployment rate and it being the best in the nation, the Greater Washington Board of Trade’s latest index of consumer confidence slipped this month. This is the first time in two years that the index has slid backwards.

The Consumer Confidence Survey fell from 62 in June to 58 in December. However, the Index of Current Conditions improved by 2 index points, going from 43 in June to 45 in December. Unfortunately, the Index of Future Expectations fell 9 index points, from 80 to 71.

This shows that consumers feel that current conditions are better than where they were, but that the current job market and ongoing financial hardships are making their future outlook grim.

This was reflected in what area consumers said about their holiday shopping plans. Only 9 percent of the region’s consumers plan on spending more this year on the holidays, 36 percent plan on spending less and 54 percent plan on spending the same as they did last.

The large federal government presence in the DC region did, however, have an impact on the findings. Federal employees were overall more optimistic about current conditions. Also, 48 percent of respondents had a positive view of the region’s economy compared with just 18 percent that had a positive view of the national economy.

So, the unemployment rate in DC remains strong, and the best in the nation, in fact. Unfortunately, consumers are down about the future and letting it impact their spending decisions today. Regardless of the findings, the nation’s capital and its economy remain in strong economic standing and are ripe for continued corporate growth today and into the future.

Many times when people think about c-level executives, they think of individuals who are loaded and have drivers, assistants, and servants. Unfortunately, many people fail to realize the c-level executive is just like them. They’re busy people with families, friends, social obligations, homes, and a lot of responsibility.

In fact, the jet-setting CEO can very easily get overwhelmed with the responsibilities of the job and their personal lives. With the New Year fast approaching, ABS Capital Partners released a list of organizational tips that c-level executives can implement to help them keep the balance.

We’re not going to share all of them (just click the link), but here are a handful of our favorites that we think our readers could really benefit from:

• Don’t leave emails of newsletters, articles, or presentations in your inbox. Save them in a separate folder or print them out, then read them during long trips.

• Use your camera phone to take a picture of the number on your hotel room door. If you get in late or have stayed in multiple different hotels in a short span of time, it can come in handy.

• Pack your lunch at night (if you bring your lunch). This saves valuable time during the chaos of early mornings.

• Be prepared for inspiration at the most random of times. Keep a notebook or voice recorder for when you have your next great idea.

• Finish tasks before starting another. This helps reduce the amount of things on your mind and gives you a sense of accomplishment.

That’s only 25% of them, and the others are just as good.

If you’re often fighting the mountains of mail and papers on your desk, scrambling to figure out what to do next, or simply struggling to juggle your obligations and responsibilities, these tips can help. After all, just because you’re a CEO doesn’t mean that you’re always on top of everything … yet …

By Jason Rigoli, Principal at The White Oak Group

As you may have read recently in the Washington Post or other government publications, GTSI, an IT services and solutions provider for the federal government, was suspended by the Small Business Administration (SBA) recently. Although the SBA lifted the suspension shortly after, they forced CEO Scott Friedlander and the company’s vice president and senior counsel to step down.

There have been many questions as to what GTSI had done. Essentially, the company established a joint venture with an Alaska Native-owned small business contractor where GTSI controlled 49% and the small biz controlled 51%. This allowed the company to bid on contracts that were set aside for small businesses and Alaska Native-owned companies and avoid most competition.

GTSI also received “sole-source” contracts through this joint venture that allowed the company to win work that was directed solely to them without any potential for competition at all. Technically the Alaska Native company is required to perform and deliver at least 51% of any contract, but in reality it appeared GTSI was delivering 99%.

In that scenario it was possible that GTSI received 99% of the contract revenue and then split the remaining 1% along the joint venture ownership lines of 51/49. The end result was GTSI, a large company, earning and delivering on 99.49% of the contracts awarded to the “small disadvantaged business joint venture.”

The joint venture was essentially created to win more business for GTSI, which runs completely contrary to the SBA’s mission to create opportunity for small contractors.

Unfortunately, this is not an isolated incident. We see this type of situation frequently. Many large prime contractors set up similar joint ventures with small businesses and often own 49% of the venture and 49% of the small business.

In these joint ventures, almost 75% of the financial benefit from contracts goes to the large business. The small business walks away with only about 25%. What’s worse, most of these small business contracts are non-competitive or restricted competition, so the margins are greater than the large business would have earned otherwise.

This kind of activity continues today and is completely legal. What GTSI did was likely illegal or at least inconsistent with SBA regulations, but it’s fair to say that even the legal version of this game can be somewhat unfair for small businesses.

Regardless, while these joint ventures continue to remain legal and accepted in the government, companies will look to form and profit from them. However, for companies in joint ventures, it’s becoming increasingly important to adhere to SBA and federal acquisition regulations. In addition to being the right thing to do, the SBA will most likely begin paying closer attention to these joint ventures moving forward in light of the GTSI situation.

Also, for companies looking to form a joint venture with a prime or sub, increased due diligence is mandatory. If companies have had issues like this in their history, you should look to avoid partnering with them in the future. How? There are some new tools to help alert companies to these red flags. In fact, govWin recently added “vendor verification” to the list of services.

What occurred with GTSI was just the tip of the iceberg when it comes to companies taking advantage of SBA joint venture regulations. With increased government attention, now’s the time for companies to ensure that all rules are being adhered to.

Investors were not kind to publicly traded government services companies in Q3 2010. In fact, you could say these companies took a beating from their investors. The federal services space took the brunt of it, with pricing down 19%, while defense prime contractors declined 5%. Even worse, valuation multiples are at the lowest levels in the past decade.

While this sounds like a lot of ‘glass half empty’ perspective, it isn’t all bad news. Recently ACG National Capital member Jean Stack of Houlihan Lokey wrote an article in Washington Technology regarding mergers and acquisitions in the government services sector. She, like so many others, predicted the M&A pace will remain strong into 2011 even though the industry has experienced downward momentum in pricing. Why? Companies and investors are cautious about organic growth prospects and are looking at M&A opportunities in order to support growth.

Between the Obama Administration increasing federal insourcing, the Department of Defense scaling back its spending, and the winding down of military efforts in Iraq, an increase in M&A activity among government contractors seems imminent. Especially since 2010 is already shaping up to be one of the strongest years for industry consolidation. This will definitely continue well into 2011 as more public companies are targeted for acquisitions by larger prime contractors and private equity sponsors are emboldened by relatively inexpensive public pricing.

However, for these deals to truly support long-term growth, companies must reconsider the “buying for size” mentality and focus on acquiring new capabilities, contract vehicles, and customer relationships in areas that are perceived budgetary priorities.

The current economic outlook for defense contractors may not be all positive, but the market is primed for aggressive M&A activity and consolidation. For small and medium-sized companies with competencies in growth markets like cybersecurity, this negative turn can end up having very positive consequences.

Despite the market cooling off, there’s a hot front of M&A activity on the horizon. What do you think the market will look like when things cool back down?

By Jason Rigoli, Principal at the White Oak Group

Social media has been a hot topic among companies in the national capital region. Many executives are aware of social networks like Facebook and LinkedIn, the microblogging platform, Twitter, and social bookmarking sites, like Digg and Reddit. They know these sites are the future, and that their companies should be represented in them, but they’re not always sure how or why.

These social networks have significant value for businesses in the national capital region. They enable companies to share their thought leadership, interact directly with existing customers and even identify and enter prospects into the new business pipeline. They extend the face-to-face networking that is the businessmen’s bread and butter past the happy hour, meet-and-greet or panel discussion and into cyberspace.

It’s this very ability, and their potential for future growth, that has the valuation of social networking companies like Facebook and Twitter so high, regardless of their actual revenue. This is also why the niche social networks in and around the nation’s capital are both acquisition targets, and drivers of M&A activity within the Beltway right now.

Many of our readers may be familiar with GovLoop, a social network launched by former federal government employee, Steve Ressler. GovLoop is essentially a Facebook or LinkedIn for the federal government. A place where federal employees, contractors and other federally-minded individuals could meet, interact and discuss the hot topics and best practices impacting government agencies and employees. The company, which was founded and based in the D.C. metro area, was acquired by GovDelivery, a company based out of Minnesota that is the world’s leading provider of government-to-citizen communication solutions.

The acquisition of GovLoop is just one example of niche social networks within the national capital region being acquired. But there are others.

Deltek, an enterprise applications software and solutions company based in Herndon, Va., added mySBX, an online network for building and managing partners, in December 2009. The acquisition of mySBX led to the launch of govWin, a purpose-driven network that helps contractors drive revenue growth. govWin enables government contractors to work together to collaboratively bid on government contracts and collectively innovate new technologies and solutions to problems facing their industry.

The acquisitions didn’t end there for Deltek, however. Due to unprecedented growth of their govWin platform and increasing demand, the company began looking to add functionality and features to the platform. As a result, Deltek recently acquired INPUT, Inc., for $60 million in an all cash transaction. The addition of INPUT, Inc., which provides market intelligence, analysis and consulting to help companies develop government business, will bring additional content, a vendor verification system and online events to the govWin online community of contractors.

These handful of acquisitions in a relatively short timeframe are evidence that companies are seeing value in social networks. The addition of GovLoop has given GovDelivery increased awareness in the public sector while simultaneously supplementing their core value proposition by providing them yet another channel for distributing government information. The acquisitions of MySBX and INPUT. have significantly increased Deltek’s offerings beyond back office software systems. These aren’t head-scratching acquisitions, they add value to the acquiring companies and there are very clear and obvious advantages to them.

But not only are these social networks acquisition targets. They’re also drivers of corporate growth and M&A activity.

With the federal government looking to rein in spending and the defense agencies, specifically, looking to cut back on expenses, the government contracting space is expected to see a sharp drop in revenue in the near future. This is a stark contrast to the past decade, where 9/11 and simultaneous wars in Iraq and Afghanistan led to unprecedented defense spending.

As we’ve discussed recently in the blog, the end result of this movement to cut government expenditures will be consolidation in the government contracting space. Large contractors will be fighting harder than ever for even smaller contracts and looking to add niche capabilities such as cybersecurity via acquisition. This will lead to small, niche government contracting companies getting acquired by the big defense companies.

But where will they be finding these niche companies? It’s safe to assume that online networks like govWin will play a large part in the large defense contractors identifying acquisition targets. Companies that may have been identified via govWin as a prime or sub on a government contract could very well turn into an acquisition target.

The fact is, social media and social networking are disruptive technologies. Companies that offer niche social networks are becoming hot commodities due to their ability to add capabilities and value to large corporations. But, they’re also capable of driving M&A activity by extending networking to cyberspace and allowing executives to meet and discuss deals outside of the traditional business environment.

Social media is becoming a force for corporate growth in the national capital region. How has your company used social media? Have you looked to acquire a social media company? Used social networks to identify an acquisition target? Drop us a comment and let us know.

Now if you’ll excuse me … an old friend from high school just friended me …

By Jason Rigoli, Principal at The White Oak Group

ACG National Capital is pleased to host Larry Rhue, SVP, Strategic Business Development an Integration at General Dynamics C4 Systems, a business unit of General Dynamics (NYSE: GD), as the speaker for our monthly meeting on Friday, Oct. 15.

Rhue joined General Dynamics in September 1999 when the company acquired GTE Government Systems Corporation where he served as vice president of Strategic Planning and Business Development. 

The GTE business unit became a foundational element of the General Dynamics C4 Systems business. Under Rhue’s leadership the company has experienced impressive growth – from $400 million in revenue in 1999 to more than $4 billion today. 

This type of growth does not happen by chance. Rhue and his team have excelled at establishing strategic growth goals for organic business development efforts and targeted M&A. He brings a wealth of lessons learned and I am confident this breakfast meeting will have a lot to offer other executives who are interested in growing their companies strategically. 

During the ACG National Capital breakfast meeting, Rhue will discuss how General Dynamics C4 Systems developed a vision and executed a strategic plan which has provided extraordinary growth over the past 10 years.  In addition to strategy, he will discuss how M&A and a sound approach to business development contributed to the business unit’s success as a market leader in command, control, communications, computers, intelligence, surveillance and reconnaissance programs.

To register for this event, please click here.