Five questions a contractor buyer asks first
- Which contracts and vehicles do you hold, and when does each one end or recompete?
- Are you prime or sub on the work that pays the most?
- Which contracts were won as a small business set aside?
- How many staff hold clearances, and are they billable today?
- How much revenue comes from your top two or three agencies or primes?
The contracts are the asset, and they do not move by themselves
In an asset sale, a government contract does not pass to the buyer automatically. The contracting agency has to approve a novation, which moves the contract to the new owner. That takes paperwork and time, and the agency can say no.
This is one reason larger contractors often sell as stock sales. The company that holds the contracts stays the same; only its owners change. Your attorney will tell you which structure fits, and what each one means for the buyer and for you.
Backlog, vehicles and the recompete calendar
Buyers start with a list of every contract and task order, its period of performance and its option years. They want to see how much funded work is left and when each piece goes back out for bid.
A contract that recompetes six months after closing is worth less to a buyer than one with three option years ahead. If a big recompete is coming, expect the buyer to ask about it early, and to price the risk that you lose it.
Contract vehicles matter too. A seat on a vehicle lets the company bid on future task orders. Buyers ask which vehicles you hold, how much work actually flows through them, and whether they depend on your size status.
Size status after the sale
A company sold with small business set aside contracts usually must recertify its size after the deal. If the buyer is large, or the combined company is, the company can lose eligibility for new set aside work.
Existing work often continues, but the growth plan a buyer had in mind may not. Buyers who depend on set asides will look closely at how much of your pipeline needs that status. Your attorney should map this out before you go to market.
Cleared people and the security office
A change of ownership in a cleared company has to be reported to the government's security office and reviewed. Clearances are not something a buyer simply takes over. Plan the timing with your attorney so the review does not stall the closing.
Buyers also count cleared staff by name and role. They ask who is billable, who is on overhead, and who might leave. Key people who hold the customer relationships are part of the value, so think about how you will keep them through the sale.
How the price gets set
Smaller contractors are often priced on owner cash flow; larger ones on EBITDA after a fair salary for every role, including yours.
Many companies in this range trade around 2 to 3 times cash flow, with clean contracts and diverse agencies pushing toward the top.
Concentration hurts. If your top two or three agencies or primes make up more than about 15 to 20% of revenue, buyers often discount for it. The valuation guide walks through how buyers adjust the numbers.
What to gather now
- A contract list with values, end dates, option years and prime or sub role
- Three to five years of financial statements, cleaned of personal and one time items
- An org chart showing cleared and billable staff
- Copies of teaming agreements and subcontracts
If the company files in the District, buyers will also ask for a current Clean Hands certificate. Many contractors here are based in Northern Virginia instead; see the Fairfax page for how that side works.
To find out what your contracts and team might bring, send a short request or call (202) 555-0174.