Jean Stack and John Song / Baird
On the heels of the 2024 presidential election, the GovCon market is bracing for major change and transformation. Looking ahead to 2025, much is still in the air for the public sector, but there are still clear emerging themes and momentum in the market. Baird Managing Director Jean Stack, a Wash100 Award winner, dove into these market factors as she kicked off Baird’s 2024 Defense and Government Conference on Thursday.
Major GovCon Market Growth
Sharing a snapshot of the GovCon market up until the election, Stack revealed “skyrocketing” year-to-date growth. Some of the highest performing stocks were up 70 percent, especially in the high-growth government services sector.
Parsons has experienced 73 percent stock market growth year-to-date as of early November. Stack said “the market just loves their strategy — the dual national security and infrastructure.”
Leidos has also seen major growth at 71 percent YTD. “Just tremendous operating performance in the business,” Stack commented. “They’re executing on everything they said they’re going to do, and the market’s rewarded them handsomely.”
And CACI saw a 69 percent uptick, which Stack attributed to their “software enabling hardware” and fueling innovation for their customers.
Other government services providers like V2X, Booz Allen, KBR, ICF and SAIC have also seen considerable stock growth this year.
Relatively Stable Government Spending
According to Stack, the outcome of the presidential election won’t sway government budgets too drastically. However, some priorities might be shifting, especially with the establishment of a new agency, dubbed the Department of Government Efficiency, or DOGE.
“Certainly from a national security perspective, no one really expects budgets to go down, just be reprioritized and repositioned in those growing streams where those markets are going.”
Stack noted that prior to the election, the GovCon industry was seeing a heightened regulatory environment, but with DOGE looming closer, that’s changing.
Acquisition ‘Worse Than Ever’
The acquisition environment was a major, consistent theme at the 2024 Baird Defense and Government Conference. The overwhelming consensus among the event’s participants was that government acquisition needs reform. The current system is simply unable to match the speed of the rapidly advancing technology space.
“I think when it comes to acquisition — I don’t know if you all are feeling the same thing — it is as bad, if not worse than it’s ever been,” Stack said, addressing the GovCon executive crowd. “I don’t know why we’re not talking about it as much. I know there are initiatives to fix it, but it is very broken.”
Other GovCon Market Factors
M&A Flattens
“We all had high hopes entering into this year with the M&A landscape, but it would look like the broader market is down,” Stack mentioned. “Not in our space — we’re doing about flat this year, relative prior years — but it’s down overall.”
Stack explained that public companies especially are not doing mergers and acquisitions unless “the press release can write itself” and it’s a very logical move for the company.
Need Public Market ‘Rejuvination’
“The IPO market has not been there. I think folks have been speculating about it opening all year. It has not happened,” Stack shared.
The public markets being closed have also affected venture capital investing, which is down about 18 percent. Stack said the public markets need to open in order to “rejuvenate” the venture capital landscape.
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