McLean-based investment bank Bluestone Capital Partners is expanding into the private equity business, executives said last week, with the close of a fund aimed at small firms in the defense and government services sector.
Co-founders Bill Strang and John Allen said the investments will complement the firm’s existing business providing merger and acquisition advice, while also filling a void in the financial market for small businesses looking to grow.
“If you look at our marketplaces, we feel there is a lot of private equity and a lot of money out there, but a lot of these guys need to write really big checks to make it worth their while,” Strang said.
Indeed, several local contractors have attracted private equity this year. Providence Equity Partners paid $1.88 billion for SRA International in March, the same month that Ares Management bought GTEC, since renamed Sotera Defense Solutions, for $315 million.
Bluestone plans to focus on companies that generate between $10 and $40 million in revenue. Executives declined to disclose the size of the fund, but said that partners contributed 15 percent of the money.
A Securities and Exchange Commission filing last month shows Bluestone Investment Partners, the name of the fund, was $8 million shy of raising $35 million. Allen said the firm plans to file an update before year’s end.
The focus on government contractors comes at a time of transition for that industry as federal agencies brace for reduced budgets.
“Absolutely you see the trend there is going to be a tighter budgetary environment going forward,” Allen said. But “when you talk about smaller companies, you can’t talk about macro trends in the marketplace.”
Still, budget cuts will shape investment decisions. The co-founders said businesses that provide mission-critical services or help the government do more with less money will move to the front of the queue.
“Now is a good time for businesses that want to grow to be proactive and do things beyond relying on one contract win at a time to grow their business,” Allen said.