The firm has been ramping up its investments, announcing late last month it has acquired Point One, an Arlington cybersecurity business. FedCap has also made minority investments in Fairfax-based Global Analytic Information Technology Services, an information technology business focused on the Energy Department, and Fredericksburg-based IntelliWare Systems, which offers national security advisory services. On Friday, it said it had made a minority investment in Global Resource Solutions, a defense contractor with offices in Washington state and Alexandria.
Knop and Belluchie came up with the idea for FedCap during a 2009 Colorado vacation. After selling the Windsor Group, Knop was facing the end of his four-year earn-out period — his window to collect on a portion of the company’s profit — while Belluchie’s company had just been acquired by Serco and she was planning to leave.
“We perceived that there was a real vacuum for private equity focused on smaller government defense contractors and prepared to make minority . . . investments,” said Knop.
Launched on March 1, 2010 with a $30 million fund, FedCap began pursuing companies of about $50 million in revenue or less that offer high-end, technical solutions in growth markets such as intelligence, cybersecurity and counterterrorism. In particular, the firm looks for companies that have a leg up — whether it be a hard-to-win spot on a contract vehicle or a workforce with a large number of security clearances — within their market.
As other industries have slowed in the recession, more private-equity firms have shown an interest in the contracting industry. In recent deals, Providence Equity Partners bought Fairfax-based SRA International while an affiliate of Ares Management bought McLean-based Global Defense Technology & Systems, now renamed as Sotera Defense Solutions.
Belluchie and Knop have tried to differentiate themselves by taking smaller stakes and touting their desire to actively work with companies.
“Many other private-equity funds don’t really have a deep operational understanding of the industry,” said Belluchie. “They don’t have the insider knowledge of the contracts, of the cultures of these companies, and that’s something we uniquely bring.”
FedCap is close to exhausting its original fund — Knop said it could happen within the next six months — and is beginning to weigh starting a second fund.
In its first effort, the firm has already looked at more than 200 government defense-focused companies, the bulk of which have been based in the D.C. area.
“To have closed four transactions in under 18 months . . . is a pretty good pace,” said Knop. “We frankly can see that we will have our initial fund fully invested not too far from now.”
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