Mergers and Acquisitions Fine Print: Contract Novation
Resources and Insight | 1 Min Read
In the high-financed, fast-paced world of Mergers and Acquisitions, one aspect of the deal that is often over-looked, or misunderstood, is the contract Novation. Many people unfamiliar with the federal market don’t realize that if you buy a government contractor, their federal contracts may not transfer to the acquirer or new entity. And this can represent a BIG problem if the valuation formula was based on the revenue from those federal contracts.
If a contractor wishes the U.S. Government to recognize a successor in interest to its contracts, the federal contractor must submit a written request to the responsible contracting officer, and attached a number of documents. This can be a very technical disclosure, so we first work with our clients to address a number of questions. Such as:
- Will it be a Stock or Asset purchase?
- Will the company name, office location, and DUNS number remain the same?
- Will the contractor’s management team and capabilities remain?
- What changes will occur to the commercial pricing and commercial sales policies?
- Are there any open federal contracts / task orders and what contractual requirements exist? IE. Are security clearance requirements being met?
- What will be the resultant business size and type for the new entity? IE. What is the new combined employees count and average annual revenue, including “affiliates”?
Depending on the answer to these questions, we’ll compile a list of documents that the government will need in order to approve the Novation, and officially transfer of the contract asset to the new entity. In some cases, we’re able to circumvent the Novation requirements and make life a lot easier on all parties. Anyway you approach it, just make sure to not ignore this part of an M&A deal. Winvale has facilitated a significant number of Novation and Change of Name requests, so our experts are here to help!
About Kevin Lancaster
Kevin Lancaster leads Winvale’s corporate growth strategies in both the commercial and government markets. He develops and drives solutions to meet Winvale’s business goals while enabling an operating model to help staff identify and respond to emerging trends that affect both Winvale and the clients it serves. He is integrally involved in all aspects of managing the firm’s operations and workforce, leading efforts to improve productivity, profitability, and customer satisfaction.