What You Need To Know About Mergers And Acquisitions Involving Government Contractors And Their Suppliers

Volume 1 - The Structure of the Deal and Government Consent

With today's posting, we begin a ten-part series on unique issues that arise in connection with the acquisition or disposition of a company that performs government contracts or subcontracts. These issues obviously come into play when the target company fits the bill as an established "government contractor," replete with all of the infrastructure, systems, and processes that one normally associates with that term. They also come into play, however, in connection with companies that sell standard commercial items to the Government under the auspices of the General Services Administration's schedule contracts and companies that operate at all tiers within the Government's supply chain. They apply whether such companies are selling specialized products manufactured to Government specifications or commercial items adopted or adapted for use, ultimately, by the Government.

Over the next ten months, we will examine a number of these issues, including the Government's right to approve or disapprove of the transaction; pre-closing and post-closing notifications; the impact of the transaction on pending bids and proposals; the effect of the transaction on a company's continuing eligibility for procurement preferences, such as small business set-asides; special issues posed by cross border transactions and classified contracts; the trap posed by lurking "organizational conflicts of interest"; the effect of the transaction on the recovery of certain costs; the effect of post-closing changes in cost accounting practices; and the liabilities that may lie in wait for the acquiring entity.

Today's inaugural installment in this series focuses on the government contracts considerations that should be taken into account in deciding on the form that the transaction will take, e.g., a stock purchase, an asset transaction, or a merger. We recognize that there are many considerations that will drive this decision that are wholly unrelated to government contracts, principal among them tax considerations. It is not the purpose of this posting to discuss those other considerations, or to suggest that government contract considerations should be elevated above them in the hierarchy of transactional considerations. Our purpose, rather, is to identify the issues so that they can be taken into account as part of the overall evaluation of the structure and not become an eleventh hour surprise for dealmakers...