Industry Talks

From Investment Banking to Government Contracting Operator

Interview with Robert Dowling, CEO of West 4th Strategy, on M&A insights and growth tactics in government contracting. Behind the scenes of a company rapidly scaling in this complex market.

Luke Nascimento

Co-Founder / CEO

Robert Dowling

This week I sat down with Robert Dowling, the President and CEO of West 4th Strategy, a government services provider.

Robert has a unique story. He first got into government contracting through investment banking. He was doing M&A (mergers and acquisitions) advisory services for businesses in ADG, aerospace, defense and government services. He spent 11 years advising many contractors, both small and large, on the process of acquiring and being acquired. Doing so, he gained a deep understanding of the government contracting industry and what the best companies did.

After his time in investment banking, Robert transitioned to the buy-side, working for a private equity firm. Here, he was involved in executing roll-up strategies, where the private equity firm would acquire multiple smaller contractors to create a larger, more valuable entity.

After spending years on the advisory and finance side of the market, Robert decided he wanted to get his hands dirty. It was time to approach a new set of challenges and become an operator himself. So a little over 1 year ago, Robert acquired West 4th Strategy. He views this transition as a way to utilize his skills in M&A from the perspective of being in the business, dealing with customers, and delivering services.

One thing I took away from Robert was his love for the game and that he is not afraid of losing. He's extremely focused on finding angles and opportunities that others might overlook and capitalizing on them.

Insights into M&A for Contractors

Robert categorizes the government services market as a highly efficient M&A environment. As he explained, the buyer group is well-established, and there are clear roadmaps for businesses due to regulations such as small business participation requirements. These guidelines create a select and rolling pool of acquisition targets along with a set number of buyers, making it easier for deals to get done.

Robert also noted that private equity firms have become increasingly active in the market in recent years. These firms are acquiring smaller companies and combining them into larger entities that are more attractive to larger buyers. This trend, he explained, is driven by the desire of larger companies to acquire scaled businesses rather than smaller individual companies, and by the availability of private capital to finance these roll-ups.

This is due to the valuation multiples in the government contracting industry vary widely depending on factors such as company size, industry, and capabilities. Smaller businesses typically trade at lower multiples (5-6x EBITDA) than larger ones, while high-end cybersecurity or software businesses command higher multiples (sometimes up to the high teens) than lower-end service providers. Robert attributed this to the different growth prospects and risk profiles of different types of government contracting businesses.

One of the most important things I learned from Robert was that successful acquisitions can be a force multiplier for companies in the government contracting space. By expanding their capabilities, entering new markets, and better serving their customers, companies can position themselves for long-term growth and success. However, he said that M&A in this space is highly people-oriented, as the success of service-based businesses depends on their talent. Acquirers need to focus on retaining key employees and integrating them into the combined company to ensure a smooth transition and maintain the quality of service.

The thing that is interesting about private equity in government services versus other industries is that most of the activity is based on revenue synergies as opposed to cost synergies. For example, if a private equity firm were to buy an organization in another market, they may end up firing dozens of people to cut costs and increase profits. The companies acquired may have cost synergies, where they end up spending money on the same things and therefore can be cut together. On the other hand, in the government services market, the value is more heavily weighted on revenue synergies between the businesses. You can roll them up to expand reach across the government and provide complementary capabilities to each other and their clients. With government services roll-ups, there typically isn't much firing as the companies rolled up are often pieces of a puzzle creating a more robust contracting organization.

Finally, we touched on the impact of artificial intelligence (AI) on the government contracting industry. As we all know, AI tools are being used to streamline many processes, making smaller companies more competitive with larger firms. This, he suggested, could lead to more M&A activity in the future, as smaller companies are able to level the playing field on new opportunities and grow their businesses.

Growth Tactics

Since taking over West 4th (18 months ago), Robert has grown the company's revenue from ~$6 million to ~$14 million and is about to close his first bolt-on acquisition as an operator.

Two key insights from Robert stood out: his willingness to bid on contracts others might deem too complex and his constant pursuit of improving his company's proposal writing process. Being more efficient and taking more shots on goal allows his company to increase its chances of winning contracts.

Here are some actionable examples of the approach taken to double West 4th's revenue in less than two years:

  • Templatizing proposals: Develop a system for templatizing proposals, to quickly and easily create high-quality proposals for a variety of contracts. This has helped them to bid on more contracts and increase their win rate. Things to make adaptable and indexed templates for: (1) Quotes and examples from customers (2) Full sections of proposals (3) Internal processes, hiring, and retention practices (4) Past performance.
  • Focusing on relationships: Dowling emphasizes the importance of building relationships with partners/customers and understanding their needs. This has helped his company to develop targeted proposal opportunities that are more likely to be successful.
  • Using systems: Dowling's company is using tools and systems to streamline the proposal writing process and make it more efficient. This has allowed them to bid on more contracts without increasing their workload. Systems include: proposal libraries, AI-enabled drafting, and indexed databases.
  • Celebrating wins: Dowling believes that it is important to celebrate wins, even small ones, to keep morale high and maintain momentum. This has helped his company to stay motivated and focused on its goals regardless of outcomes.

Dowling's approach to government contracting is a unique blend of calculated risk-taking, efficiency, and relationship-building. This approach has allowed him to double the revenue of his company since he acquired it, and drive success in the future.

My conversation with Robert Dowling provided valuable insights into the government contracting industry and the strategies that drive success in this competitive field. West 4th's impressive revenue growth serves as a testament to the effectiveness of Robert's strategy and approach. It was a pleasure speaking with Robert and we wish him and the West 4th team the best of luck in the future.