In the race to curry favor and acquire ManTech, Carlyle Group’s most direct competitor was another private equity firm like it that invests in the government technology and professional services market.
The financial side of that race ended in an exact tie: the suitors’ best and final bids were exactly the same at about $3.9 billion, or $96 per share.
If the rival private equity firm had won the competition, then one of its portfolio companies would have absorbed ManTech to become a larger government contractor.
But ManTech’s board of directors chose to settle with Carlyle in May because that offer provided more certainty on the antitrust approval front and a perceived speed to sign off on all the necessary documents, according to regulatory filings filed Friday.
The board’s hesitancy to sell this other private equity firm comes amid growing discussion and scrutiny of antitrust issues at GovCon, whether it’s about companies making acquisitions or doing business with each other.
Lockheed Martin canceled its acquisition of Aerojet Rocketdyne after running into antitrust regulatory opposition, while Booz Allen Hamilton will defend its planned purchase of EverWatch against a Justice Department lawsuit.
Given that it is a publicly traded company, ManTech is required to describe in detail how its upcoming sale went and why it ultimately chose Carlyle’s offer.
We’ve cut the relevant 15 pages here, which detail the full three-round process and board thinking after ManTech founder and longtime leader George Pedersen changed his mind about a potential sale of the company.
Pedersen has effectively controlled ManTech for many years through his long tenures as chairman and chief executive officer, as well as ownership of a majority of the voting stock.
He and the family reversed their long-held position against selling ManTech in the fall of 2021, telling the board they were open to it.
Although not detailed in the proxy filing Friday, it’s worth noting that the transfer of ownership of some of those voting shares from Pedersen to the extended family sometime earlier this year changed the picture of control of the voting.
After receiving this announcement, ManTech’s board began discussions with its legal advisor, King & Spalding, and financial advisor, Goldman Sachs, regarding transaction options, including a sale.
ManTech’s board also drew up a list of 19 potential acquirers and told Goldman Sachs to contact them based on what the filing called a “confidential base of no names.”
Fourteen of those 19 we contacted signed non-disclosure agreements with ManTech, including two that reached out to Goldman Sachs after Reuters published this story on Feb. 3 saying Pedersen was exploring options for his stake in the company , including sale.
That field of 14 then became six, the last of which represented the number of first-round indications of interest received by ManTech by the March 28 deadline.
ManTech also got a sense of what others were valuing the company at, as those bids ranged from $2.9 billion to $3.7 billion, or $71 to $90 a share, amid a period in which the stock traded above $80 a share. action.
Four of those six bids came from private investors, including Carlyle, while the other two that showed initial interest were government contractors.
Carlyle advanced to the second round along with two other private equity firms that already own government contractors, plus the company GovCon offered the combination of cash and stock.
PE Party A, PE Party B and Strategic Party A are how the proxy identifies Carlyle’s competitors for the ManTech acquisition.
Discussions between ManTech’s legal advisors and PE Party B in late April to early May concluded that one of the private equity firm’s portfolio companies in the same market would be the acquirer in their proposal.
This discussion focused on analyzing how antitrust approvals would be obtained given the potential for overlapping capabilities and the level of competition with respect to current, past and future government contracts.
From there, ManTech’s senior management team and the company’s legal counsel agreed that the antitrust risk was there for PE Party B, but not so much for Carlyle or Strategic Party A.
ManTech’s big decision about its future got a little easier after PE Party A pulled out of the process the week of May 2, narrowing the field of potential acquirers to two private equity firms, including Carlyle and the GovCon company.
The remaining three submitted their second-round bids on May 9, with Carlyle’s at $3.8 billion or $92.25 per share in all cash, PE Party B at $3.5 billion or $87.00 per per share in cash, and Strategic Party A at $3 billion, or $75.00 per share in cash and stock.
Carlyle and PE Party B were then given a May 11 deadline to receive their best and final offers with an increase in price and improved terms, strongly encouraged by ManTech’s financial advisors.
By this point, the latter two had already submitted estimates of a draft merger agreement, but Carlyle included this term in his version: an agreement for Pedersen and his family to vote in favor of that firm’s proposal.
The filing describes how the process became particularly busy on May 11, which is the same date that members of ManTech’s senior management team briefed Pederson on the transaction process and told him about the voting agreement requested by Carlyle.
Also on this date: Carlyle indicated it would submit an offer to acquire ManTech for $3.88 billion in cash, or $95 per share, while PE Party B would do the same for $3.93 billion, or $96 per share.
Later that day, however, Carlyle updated its offer to a final and accepted price of $3.93 billion, or $96 per share.
May 13 turned out to be a decision day for ManTech’s board, and their final assessment of PE Party B’s proposal reverted to the prospect of not receiving antitrust approval on the proposed transaction.
The overlap between ManTech and PE Party B’s portfolio company, which would be the surviving entity, would result in prolonged regulatory review in the eyes of the board, which then risks funding becoming unavailable in the event of an antitrust foreclosure.
Carlyle on the other hand was going to acquire ManTech and run it as is, which is why they went ahead with the transaction we heard about on May 16th.