Merger Expert Struck Gold Sticking With Government Contractors

If the hundreds of government and defense contractors that dot the suburban Washington landscape formed a spider's web, J. Richard Knop 's office in Reston would be near the center. The least tremor, and the 60-year-old investment banker feels it -- or at least gets a phone call.

Knop has become a go-to middleman in the continuing consolidation of the area's government technology contractors. Of the 47 acquisitions of local contractors that took place last year, Knop's firm was hired as an adviser for one side or the other in 25.

He and his small team of dealmakers at BB&T Capital Markets/Windsor Group hit the jackpot after spending most of the last two decades toiling obscurely in a sleepy corner of the market that was virtually ignored by mainstream merger-and-acquisition advisers such as J.P. Morgan, Citigroup and Goldman Sachs.

While those firms catered to hot tech and telecom companies during the 1990s, Knop persistently courted the former military officers and scientists who started hundreds of small government contracting firms in the past 20 years. When the merger wave began to swell four years ago, Knop was ready to ride it.

"Over the years Rick has developed a lot of close relationships with a lot of owners of small companies," said Ranvir Trehan , former owner of Seta Corp., which Knop helped sell in 2004. "And those relationships are very trusting relationships."

Knop's work is the business equivalent of a matchmaker. His job is to know who wants to sell, who wants to buy and to bring them together.

"He's got a heck of a Rolodex, and he mixes it with a very good understanding of what makes a good deal, " said Chuck Saffell , chief executive of Nortel PEC Solutions , who hired Knop to arrange the acquisition last year of Fairfax-based PEC Solutions Inc. by Ontario-based Nortel Networks Corp .

It's a line of work where relationships build on each other and lead to still more relationships, a viral form of contact-building that has paid big dividends. Knop's firm advised on deals worth a total of $1.6 billion last year. While Knop declined to discuss his revenue or fees from the work, the typical M&A advisory fee is between 0.2 percent and 4 percent of the deal's total value, depending on the size and complexity of the transaction. If Windsor averaged, say, a 2 percent fee, that would amount to more than $30 million in M&A fees for Windsor last year. However one adds it up, the math has made Knop, a former Capitol Hill aide and lawyer, a wealthy man.

"We were well-positioned for when the market woke up, when these investments came into vogue," Knop said.

Most of the dealmaking in the government contracting sector involves small and medium-sized firms being snatched up by other mid-size or larger companies, which is exactly the arena where Windsor Group has played for 10 years. It has done deals involving a host of brand-name contractors, such as SRA International , ManTech International , CACI , Raytheon and PEC . But Windsor's clients for the most part are little-known players with names like C-Cubed , Grey Hawk Systems and Galaxy Scientific .

Handling the owners of these firms -- their fears, aspirations and, sometimes, greed -- is Knop's specialty. He said nearly every deal has twists and turns that reflect the personality of his clients.

One deal, which Knop and other participants described on condition that the companies not be named, required nine months of intense discussions. The buyer was a mid-size technology contractor in the midst of an acquisition drive. Knop's client was the seller, the owner of a family-run company with about $130 million in revenue and 1,200 employees who was torn over selling the business started by his father.