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Interview with an Investment Banker: Aaron Sharp of DC Advisory

Interview with an Investment Banker: Aaron Sharp of DC Advisory
May 3, 2021
The “Interview with an Investment Banker” blog series features Chase Stuart, who interviews investment bankers working across a variety of industries, geographies and markets. This is the fourth in that series and summarizes Chase’s interview with Aaron Sharp of DC Advisory.

Aaron is a Managing Director at DC Advisory and has more than 15 years of Aerospace, Defense & Government Services investment banking experience. He has advised on dozens of M&A and financing transactions globally for public and private clients in the industry.

Chase: You have particular expertise in the aerospace, defense and government services industry. What are some of the reasons you enjoy working with these companies?

Aaron: It is a great industry. I am from a military family and a military town, so it is in my blood a bit, and I have been an investment banker in this industry my entire career. You get to work with a lot of great people. People who are focused on service, oftentimes veterans. In some small way you get to support their missions and the missions of their customers. National security and government priorities are enduring, generational priorities that last through market cycles. The government will continue to spend money, so we have a great end customer with whom to work. It is also a space where a variety of buyers have been really interested: strategics, publicly traded companies who have been long-time players in the space, a number of well-known private equity firms who focus on the sector and private equity firms looking to do more in the sector. Having this great end customer makes the space attractive to many buyers; it lends itself to financing and being able to forecast a business.

Chase: How much does the political environment impact these businesses? With the government switching control from the Republicans to the Democrats in 2021, what does that mean for you and your companies?

Aaron: Focus and priorities can evolve every couple of years with the elections, but there tends not to be “snap of your fingers,” overnight, dramatic changes to industry. The budgeting process is a long process with the government. For changes to really impact our customers and the businesses with whom we are working, it often takes more than 12 months for such changes to roll through. In addition, the government does not do zero-dollar budgeting. They look at last year’s budget and build off that, so there may be some shifting of priorities, but the budgets are based on the prior year. Further, if you look at either side of the aisle, I do not think overall government spending is going to decline dramatically. There are very few people really talking about that— it is more about on which priorities people are focused. Within discretionary spending, it tends to stay fairly even over time between defense, on one hand, and civilian priorities, on the other. However, there certainly are newer areas of focus for government spending, such as cyber-security, IT modernization and the cloud. But there is also the blocking and tackling that needs to continue, which you see going on now with our coordinated response to the pandemic, including getting care and treatment to folks. A massive deployment of vaccinations is not as IT-focused. It is more of a giant medical, health care and logistics operation, which is a big part of what the government does and with what some of our clients are involved.

Chase: How would you view the M&A market in the first quarter of 2021, both in terms of general volume and the negotiating leverage between buyers and sellers?

Aaron: It’s as busy as I can remember it ever being over the past couple of decades. I cannot think of a time where things have come together like this for the deal world. There are a number of reasons for that. From a macro perspective, interest rates are low, and valuations are high. Public markets are at all-time highs, so that helps drive valuations of deals, and we see readily available capital looking to be deployed into good investments. This environment creates plenty of buyers and makes a sellers’ market. Sellers also have an eye on potential changes to tax policies: capital gains treatment, income tax rates and even corporate tax rates. I think folks are thinking about how much longer the market is going to be like this with these ripe conditions. They are looking to take advantage of the window.

Chase: How do you advise companies on whether they are a better fit for a financial buyer, such as a private equity fund or family office, compared to a strategic company?

Aaron: DC Advisory has the opportunity to work with both buyers and sellers, so we have the perspective of both sides of the transaction. Each client is different in terms of the outcome for which they are looking, so we often advise clients to keep an open mind. Going into the transaction, a client may have an idea for their ideal counterparty, but that is not always how it works out. It could be true that someone a client has not even thought about could be the best counterparty. It could be someone outside of the United States. DC Advisory is a global firm, so we have tremendous access to buyers and sellers globally, and there are plenty of global players in the aerospace and defense space with a lot of expertise.

Chase: What are the biggest surprises that family-owned / founder-owned businesses experience when they go to sell their company?

Aaron: We have the opportunity to work with a variety of companies when they are selling their business, when they are buying a business and when they are raising capital. Some of our clients are family-owned or founder-owned businesses, and they have spent a career running that business. The company is their life’s work, and they don’t know what they don’t know, because their business is not M&A. That is why there is an opportunity for us to come in and help. Often, the amount of depth and detail that goes into selling a company in an M&A transaction for those who are less familiar with the process can be surprising. A big part of what we do is prepare these companies for that process.

Chase: What has been your experience navigating these transactions in the middle of a global pandemic? Has it had a significant impact when it comes to the actual nature of transacting deals?

Aaron: We have gotten questions about the pandemic and navigating a transaction, including wondering whether now is the best time. With COVID, I think deals have evolved to largely be done virtually. We also have not really seen any demand destruction, so I do not think it is a fundamental issue in the government space, where other sectors saw that during COVID. We try to help our clients keep an open mind throughout the process. We spend a lot of time doing quality of earnings and working with deal counsel, so that when we engage in dialogue with potential counterparties, we are ready to transact. We add a lot of value for our clients by getting them into a position where they are best prepared.

Chase: How do you differentiate yourself in the market, both individually and your company?

Aaron: It is a couple decades of doing deals in this space. From day one, I have been focused on this sector and have been very hands on. If you are genuinely hands on and understand everything about a situation and a project, then “certainty to close” should be very high, which is extremely important. I lead teams now, but at the beginning of my career, I was the guy doing the analyst work. I know what it takes; it is a lifetime of work to build a business and it is months of work through a process, so you want to get it right and be thorough. Any detail can become critical. With that said, I can point to my references as proof that I will be involved rolling up my sleeves to get the right outcome. Also, from a platform perspective, DC Advisory is truly a global firm of 500+ bankers worldwide with office locations and presence across Europe and Asia. Our access and relationships are differentiators that get clients to the right people and decision-makers. This cross-border perspective, combined with the robust variety of products DC Advisory offers, gives us a fully formed perspective that we bring to our clients. It is something really unique amongst our competitors.

Chase: Thank you very much, Aaron.

Aaron: Thank you, Chase.

Click here to view the other “Interview with an Investment Banker” blogs.

Chase Stuart is a partner in Ice Miller’s Business Group. He represents a variety of private equity funds, family offices, independent sponsors, mezzanine funds, and privately held businesses. He provides strategic and legal advice in their investment and general corporate strategies, including leveraged buyouts, mezzanine financings, growth capital transactions, early and late stage private equity investments, and secondary transactions. He represents family, founder, and entrepreneur-owned businesses as general corporate counsel and as a sell-side advisor. He has represented a variety of companies in sectors such as technology, manufacturing, health care, aerospace and defense, gaming, and business services.

Brendan T. Gibson is an associate in Ice Miller’s Business Group. Brendan earned his juris doctor from St. John’s University School of Law and his bachelor’s degree in American Studies from Yale University.

This publication is intended for general informational purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstance.

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