The hidden trends behind the DMV’s busy summer of mergers and acquisitions

From the outside looking in, the DC metro area’s recent record of corporate acquisitions, including at least a dozen involving local tech firms, might look unusual.

That’s not quite how Dennis Kelly sees it. In his 35-year career, he led the closing of about 20 acquisitions all over the country. Soon after he became its CEO, the Herndon-based IT firm and defense contractor Tyto Athene acquired two companies in less than two months this spring and summer. 

While simple explanations remain elusive, for Kelly and other regional experts, the past season of companies absorbing others says less about this specific moment than it does about much broader trends.

Besides the transactions Tyto Athene made under Kelly, other examples include the Charlotte, North Carolina defense technology company Honeywell acquiring Arlington’s CAES Systems Holdings LLC — the aerospace giant’s third such move of the year. Also, as reported by the Washington Business Journal, cybersecurity-focused Arlington company Clango merged with Chicago firm MajorKey Technologies and Reston’s Hubble Technology Inc. was absorbed by Minneapolis-based NetSPI. 

During his career, Kelly noted different acquisitions have served different purposes. But these moves by Tyto in recent months aim to expand the firm’s customer base and broaden its technological capabilities and services, Kelly told Technical.ly. This is the case with the majority of acquisitions in his experience. 

Mergers and acquisitions have not necessarily ramped up this season, per Kelly. Rather, he’s seen the merger and acquisition market remain steady for the last five years or so, despite higher interest rates that would typically slow down activity. 

“If money is more expensive, it gets harder,” Kelly said. “And I think while that’s put some pressure on the market, I don’t think it’s slowed it down. … Deals getting done.”

From a national view, the reasoning behind the acquisitions happening right now is intriguing, said Tommy White, a senior lecturer at American University’s Kogod School of Business. He’s noticed interesting dynamics, even while it’s unclear if acquisitions increased over the summer. 

At the moment, venture capital firms would rather not engage in acquisitions to exit existing investments, per White, because valuations are low. But a firm’s limited partners might coerce it to generate cash through deals. 

“There’s pressure right now from their investors to do something,” White told Technical.ly. “For a simple wording here: to actually do some stuff here.”

Investors on the acquirer side typically like these lower valuations, White explained, because deals cost less money. Companies still have to show investors that the merger would serve the company in some way, but the lower price makes that ask more doable. 

This plays into a supply and demand trend Kelly sees in mergers and acquisitions, too. 

“There is a decent supply of sellers out there,” Kelly said. “There’s certainly a good supply of buyers who are looking to add capabilities, add customer sets … to their portfolio.” 

The merger and acquisition realm is cyclical, White noted, and these trends are bound to change next year. Many are hopeful that valuations will bounce back up, per White. 

“This is just where we are right now,” he said. 

Playing out acquisitions in a candid way

Throughout Kelly’s work in acquisitions, he’s made it a priority to focus on transparency and communication during the integration process, he said. 

He hosted a town hall with staff at one of the recently acquired companies, MindPoint, to talk through the process of merging. 

“What I say to people is, ‘We’re going to give it our level best to make sure that this comes off really, really well, and we all come out the other side better than we went in,’” Kelly said. 

White said the 2008 acquisition of his trade firm Institute for Public-Private Partnerships by the infrastructure services provider Tetra Tech was ultimately a positive experience. There were no “culture clashes” as White and his team were able to integrate at their own pace, he said. 

Tetra Tech leadership assured White that most processes in his role would stay the same — what White referred to as the 90/10 rule. He was instructed to keep doing 90% of what he was doing before the acquisition, and the other 10% involved adjusting to the new business model. 

“They said, ‘We want business to go as usual because that’s why we’re acquiring,’” White said. “‘We’re acquiring you because what you’ve done so far is successful.’ And that was a great relief to hear it that way, and they lived up to it.”