Why are Federal Pipelines Important?

Thursday, March 11, 2021

Federal pipelines are the life-blood of Government Contracting firms. If utilized correctly, this tool helps position an organization by:

and…communicating value to potential buyers interested in acquiring your organization!

That’s right. Potential buyers and strategic partners use this key information to evaluate your organization. 

Why?

Because this critical tool not only signifies an organization’s plan for strategic development – thus representing a firm’s potential for future growth – but also demonstrates how effectively and efficiently client portfolios are maintained and managed.

Pipelines in Government Contracting: A Crucial Component of Diligence

When analyzing and evaluating any company in the sector – the first two (2) items requested by corporate development specialists and/or Mergers and Acquisitions (M&A) professionals are: 

  1. A detailed contract waterfall
  2. A well-articulated, detailed pipeline

That being said, most professionals find most Government Contractors are: 

  • Not Ready: Few companies have these items ready to go. It can make a very big difference and a good first impression. Without it, a buyer may conclude diligence will be very difficult and may lead to doubt regarding the level of corporate sophistication.
  • Contradictory Narratives: Sometimes makeshift pipelines are presented swiftly cobbled together with very little thinking. Very often it contradicts the strategic story we hear from management and the company’s proposed value proposition and collateral materials. These inconsistencies bring up new concerns and diligence questions.
  • Kitchen Sink: From a well-constructed pipeline, a reader should be able to distill a growth strategy. Often, a  ‘kitchen sink’ approach is presented where the pipeline is just listing as many opportunities as possible haphazardly with no eye to strategy or development vision of the company.

In summary, a disorganized or poorly done federal pipeline is a red flag to potential buyers as it potentially signals that the organization is a “lifestyle company”. Lifestyle companies are typically not as attractive to potential buyers whereas organizations that demonstrate attributes of a more institutional or “corporate-minded” firm will garner greater interest and yield higher valuations.

Key Components and Attributes of a Well-Articulated Federal Opportunity Pipeline

So how can you strategically optimize your federal opportunity pipeline to pass the test? Richard Phillips, a Senior Partner of Crossroads Capital LLC, provides us with four (4) key components and attributes that organizations should strive for:

  1. Demonstrate a Coherent Strategy: A well-articulated federal pipeline should reflect management’s growth strategy and a coherent company narrative that gels with company collateral, messaging, and management’s vision.
  2. Make it Easily Understood: A federal pipeline should be shared, understood, and used by a wider audience than its author both for internal and external purposes.
  3. Be Cost-Conscious: A good federal pipeline understands the costs (both opportunity and accounting costs) associated with pursuing work and provides a realistic assessment of how resources can be deployed subject to existing bandwidth constraints.
  4. Present Defensible P(w) Rates: To project revenues we need to ascertain the probability of bringing this work in – it also needs to detail when and how much this revenue is expected to be. These P(w) win rates should reflect things like recent CPARs, past performance, bench strength, HR needs, and capabilities.

Benefits of a Well-Articulated, Detailed Pipeline

At the end of the day, a well-articulated and detailed federal pipeline highlights the value and informs existing and future stakeholders on the strategic direction and growth potential of an organization. It also will help you:

  • Rationalize business development efforts
  • Chart future growth, monitor progress, evaluate re-compete risk and brainstorm new strategic initiatives
  • Sustain employee retention and culture
  • Increase voracity to earnings projections for internal and external audiences
  • De-risk potential transactions and justify increased exit valuations

… and it will help ensure your organization is always bidding with intent!

Watch the Webinar (Presented March 4, 2021)

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