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 …