For military operations to be effective and efficient, accurate, actionable and up-to-date intelligence is essential. And one of the companies helping the U.S. military meet its Aerial Intelligence, Surveillance, and Reconnaissance (AISR) requirements is MAG Aerospace, a global situational awareness solutions and services provider based out of Woodbridge, Virginia.
The demand for AISR across the military, federal government, international government and commercial industries has rocketed the company to incredible heights very quickly. In fact, the company has received numerous accolades and awards for its rapid growth, including being named the “Growth Company of the Year ($75M- $250M)” during the 2017 Corporate Growth Awards, sponsored by ACG National Capital.
To get some insight into what’s driving MAG Aerospace’s growth, we recently sat down with France Hoang, the company’s Chief Strategy Officer. During our discussion, we touched on the factors contributing to the company’s impressive organic growth, the principals that guide its M&A activities and the best practices that they’ve identified from previous M&A deals the company has completed.
Here is what France had to say:
Corporate Growth, Capital Style (CGCS): MAG Aerospace is an extremely interesting company in a very exciting marketplace. The company also claims that it “solves the world’s toughest problems.” For the sake of our readers who may not be familiar with the company, can you tell us a bit about how MAG Aerospace got started, what it does, and what those “toughest problems” may be?
Mr. Hoang: In 2004, Joe Fluet, the Founder of MAG deployed to Afghanistan with a mission: to build an Afghan Air Force. While deployed, he saw firsthand the critical role Aerial ISR (Intelligence, Surveillance, and Reconnaissance) played in the success of the mission, providing real-time situational awareness that saved lives, time, and resources. Five years later, Joe recruited Joe Paull, Sam Sblendorio, Matt Bartlett and me to help him build an Aerial ISR company.
MAG partnered with the Clairvest Group in 2013 when they made a minority investment in the company. In seven years, MAG has become the leading independent provider of manned/unmanned full-spectrum outsourced ISR services, with more than 900 employees operating more than 200 platforms with over 75,000 flight hours annually across five continents.
MAG offers its government, international and commercial customers a range of turnkey ISR services, including ISR operations, ISR training, and ISR technical services, as well as other specialty aviation services. MAG serves customers and helps address their ISR needs anywhere in the world – under extreme and austere operating conditions – ranging from the jungles of South America to the mountains of Afghanistan to the coasts of the world’s oceans.
CGCS: MAG Aerospace was named a “Fastest Growing Company” by the WBJ in 2016, and was named a “Growth Company of the Year” by ACG National Capital during their Corporate Growth Awards. To what do you attribute this growth?
Mr. Hoang: The vast majority of MAG’s growth is organic, with acquisitions contributing capabilities that the core business has expanded on. Much of this organic growth has been stimulated by the company’s performance in servicing customer contracts. Since beginning operations in early 2010, MAG has grown into the premier global provider of turnkey ISR services, with positioning on the majority of critical government ISR contracts.
Today, the company has 24/7 operations on five continents for federal, international and commercial customers. This is a result of growing sales by more than 800 percent in the last four years to more than $200 million in 2017, while maintaining industry leading margins. The company’s dedication to flawless execution has driven this growth, as well as the expansion of the company’s international customers and contracts.
MAG’s performance-based culture has attracted some of the most talented and experienced operators, technicians, and innovators in the aerospace field, resulting in a deep bench of personnel dedicated to mission success and company growth.
Finally, MAG’s growth strategy and execution is flexible. MAG Aerospace does not allow itself to become constrained by an inflexible strategy that is no longer relevant. MAG’s leadership collectively decides on the end goals based on customer relationships and requirements. Leaders at every level of MAG then aggressively pursue those goals with creativity and innovation. MAG ruthlessly alters or abandons approaches based on real world results, customer intimacy, and mission understanding.
This process isn’t based on years or quarters, but rather months or sometimes even weeks. Collective buy-in, decentralized execution, and frequent re-evaluation allow MAG to rapidly adjust to change.
CGCS: The company recently announced the acquisition of Discovery Air Fire Services (DAFS). Why was this acquisition in strategy for the company? What does this acquisition bring to the company’s portfolio of service offerings?
Mr. Hoang: DAFS provides MAG Aerospace new capabilities – including aerial fire detection and aerial fire management – that are adjacent to existing capabilities. The acquisition of DAFS provides MAG with access to a new market and customers in the multi-billion dollar global fire services market, while continuing to expand the company’s customer base beyond the US Department of Defense (DoD).
CGCS: How does the company identify acquisition targets? What are the criteria that leadership looks for in a company that could make it an interesting acquisition target?
Mr. Hoang: MAG’s acquisition strategy is focused on acquiring adjacent capabilities and new, valuable customers rather than market consolidation through buying contracts.
MAG has a rigorous M&A structure and screening process designed to identify, qualify, and acquire companies that can increase MAG’s strategically significant position in the market of providing real time situational awareness and add to the company’s enterprise value. This process helps to avoid unnecessary expenditure of time, effort and money, while also reducing management distraction.
Overall, the MAG M&A screening process consists of five phases and four gate reviews.
Because of the company’s strong industry relationships, MAG receives a constant flow of potential deal opportunities in our space. The company works quickly to eliminate non-attractive deals using clearly established disqualifying criteria.
For qualified deals, MAG does additional due diligence and completes a deal screen that analyzes a target’s contracts, capabilities and assets. MAG then scores the opportunity based on six criteria, which include: strategic value, capability fit, customer access, contract value, cultural fit, growth potential. This score – combined with the deal price/risk/investment – is used to prioritize MAG efforts.
CGCS: Regarding the company’s recent acquisitions – were there any unexpected roadblocks or challenges along the way?
Mr. Hoang: Each deal is unique with its own novel challenges, but the biggest recurring challenge is integration. The real work begins when a deal closes.
CGCS: When it comes to integrations, are there any best practices or lessons learned from these acquisitions that you can share with our readers?
Mr. Hoang: MAG has successfully integrated all of its acquisitions, enabling margin expansion and follow-up organic growth based on the resulting synergies between capabilities, customers, and contracts. And there are four things we’ve learned along the way:
- A good acquisition is a good acquisition up to a certain price, but a bad acquisition is a bad acquisition no matter the price.
- Diligence is often a prologue to integration. In other words, if the deal is difficult, don’t be surprised if integration is as well.
- A deal isn’t done until it’s done. In aviation, we talk about flying the plane all the way to the ground. The same thoroughness applies to acquisitions.
- You don’t know everything until the deal is done. Despite good diligence and thorough review of a company you don’t learn everything until the deal is closed and you are running the company. As an acquirer, you need to be ready for those issues during integration.
CGCS: What do you view as growth areas for MAG Aerospace in 2017 and beyond? What overarching trends do you see generating demand and interest in the company’s products and solutions into the future?
Mr. Hoang: The growth strategy for 2017 and beyond includes expanding the depth and breadth of our customers and partners to support organic growth. In order to expand our breadth, MAG focuses on building customer intimacy with well-funded DoD directorates that are more selective in their vendor selection.
In order to support its depth, MAG will continue to focus heavily on on-contract growth to deepen relationships with current customers. MAG will bolster this strategy with inorganic growth that strengthens its position with existing customers, or provides instant customer intimacy with a targeted customer.
We plan to focus International growth strategy efforts on shaping niche requirements with stable funding streams and a strong outlook on continued investment. MAG’s international strategy leverages small, unique technical offerings in the near term to position for larger procurements in the long term.