Most founders of government contracting and defense companies will only sell a business once. This becomes one of the biggest financial decision of their careers. Choosing the right advisor is one of the first calls you’ll make in that process, and it shapes most of what follows.
The value of your government and defense business depends on contract vehicles, clearances, set-aside status, recompete timing, and compliance posture. A buyer’s diligence team will look at all of it. An advisor who doesn’t understand these issues can cost you value, time, or the deal itself.
These are the questions I’d ask any banker, including us, before signing an engagement letter.
“Government contracting” covers a lot of ground. Selling an IT services and cybersecurity firm that primes with civilian agencies is different from selling a defense electronics manufacturer or a mission-support contractor working with the intelligence community.
Ask for specific examples in your segment and ask who on the team worked on them. You want to know whether the people pitching you will be the people running your deal.
If your revenue depends on 8(a), SDVOSB, WOSB, HUBZone, or small business set-aside work, a change in ownership can affect your eligibility for future awards. It can also trigger size recertification requirements that affect options and future task orders on existing vehicles.
A good advisor will know what share of your backlog is at risk after a sale. They should also know which buyers can keep that work, such as Alaska Native Corporations and other entities with their own set-aside status. They should explain how the sale might be structured around those issues. Ask your advisor to walk you through this before going to market, not during diligence.
Sophisticated buyers do not take backlog at face value. They separate funded from unfunded work, firm from optional periods, and prime from subcontract positions. They pay close attention to recompetes coming up in the next 12 to 24 months.
Ask how the banker will break down and support your backlog. Ask how they’ll handle a big recompete that lands in the middle of a sale process. An advisor who can explain your win rates, incumbency position, and capture pipeline credibly will support value better than one who just repeats a top-line number.
If your company holds a facility clearance or supports classified programs, the buyer universe and deal timeline both change. Foreign-owned buyers may face FOCI mitigation requirements. Some deals may need CFIUS review. Cleared staff and key personnel named in contracts become central to valuation and retention planning.
Ask how the banker has handled these issues before, and whether they plan for them early. These problems are much easier to solve when they’re anticipated.
Buyers will look closely at your accounting system and indirect rates, your DCAA audit history if it applies, and your cybersecurity compliance. For companies handling Controlled Unclassified Information in the defense supply chain, CMMC readiness has become a direct diligence item and can affect both value and deal terms.
Your advisor doesn’t need to be your compliance consultant. They should know which questions buyers will ask, help you find gaps before launch, and bring in the right specialists when needed. Surprises in diligence give leverage to the buyer.
Ask the banker to describe the buyer universe for your company specifically: strategic acquirers, private equity firms with GovCon platforms, and ANCs or other set-aside-eligible acquirers. Ask why each group would see value in your contract vehicles, customer relationships, capabilities, or cleared workforce.
A generic list of big names isn’t enough. You want an advisor who knows which buyers are actively looking for your capabilities and agency relationships, and who has relationships with the people who make those decisions.
Word travels fast in government contracting. Customers, teaming partners, competitors, and employees all watch for signs of a sale. A leak can unsettle key staff or create doubt with a contracting officer.
Ask how the banker controls information flow. How are NDAs managed? How is buyer outreach staged? When are sensitive details about customers, contracts, or cleared staff shared? Discretion should be built into the process, not added later.
Whether a deal is a stock purchase or an asset purchase affects how your contracts transfer. Asset deals usually require novation of prime government contracts, which can take a long time and adds execution risk. Stock deals avoid novation but come with other considerations. If an advisor doesn’t understand this distinction and won’t require buyers of prime government contractors to use a stock transaction, then they are not the right advisor for you.
Ask how the banker will think about structure, timing, and closing conditions around your specific contracts. Ask how they’ll coordinate with your M&A counsel. This is an area where government and defense experience clearly matters.
Senior bankers win engagements, but you should know who will run the process. Ask who will build the marketing materials, manage the data room, handle buyer calls, and lead negotiations. Ask how much time senior team members will spend on your deal once it’s signed. Most banks have a leverage model, where young bankers do most of the execution work. This brings significant risk that the strategy defined by the senior bankers will accurately be executed by inexperienced bankers. A firm that marries strategy and execution with a dedicated senior banking team is best positioned to service you well.
Ask for a clear explanation of any retainer, the success fee structure, and how “transaction value” is defined. Also ask about the length of exclusivity, termination rights, and the “tail” period during which a fee may be owed if a deal closes after the engagement ends.
A reputable advisor will be open about these terms and willing to explain them. Have your attorney review the engagement letter before you sign.
Continuing resolutions, shifts in budget priorities, protests, and recompete outcomes can all affect a deal while it’s underway. Ask how the banker has adapted processes in the past when conditions changed. Ask how they’ll tell you when to push forward, pause, or change direction. You want candid advice, even if it’s not what you hoped to hear.
The right M&A advisor should know your market, your contracts, and your likely buyers before the first meeting ends. They should raise the hard issues early, including set-aside eligibility, recompetes, clearances, and compliance, and have a plan for each.
Ask these questions, compare the answers, and choose the advisor who shows real knowledge of your sector, not just general deal experience.
If you’re considering a sale, acquisition, or capital raise for your government or defense business, the FOCUS Government & Defense team would be glad to talk about your goals.
Whether you’re exploring a sale, raising capital, or simply want an outside perspective on where your business stands, our bankers are ready to listen. Reach out to start a confidential conversation with the FOCUS team.
