Inside the dot-gov boom

Government contracting entrepreneurs are selling out to bigger firms, quietly raking in the millions.
Written by ZDNet UK, Contributor

If you haven't noticed, big fish are gobbling up smaller fish in the government contracting biz these days. The Washington Post profiles some contractors who have cashed out, and they're not exactly cut from the same cloth as the dot-com crowd.  

Harry M. "Pete" Howton, the son of an Air Force officer who grew up to be a Navy man and a basement entrepreneur, banked about $50 million last year when he sold his 10-year-old government technology company. There were no opulent parties. He didn't buy a new house or start a yacht collection. Every morning Howton wakes up and goes to work. He's not even sure his neighbors know he is a wealthy man.

Government contracting has been booming since 911. Contractors in the Washington area - by far the greatest concentration of the industry - made $52.5 billion from federal contracts in 2004, a 55% hike over 2001. And so the big guys have been doling out big bucks to acquire mid-size companies with lucrative niches.

"There has been a lot of trapped, passive equity released -- released to the owners and to the local economy. Without a doubt it's billions of dollars," said Rick Knop, managing director of BB&T Capital Markets/Windsor Group, a company that helped negotiate the sale of 20 local government contractors in 2005.

Exactly how many billions is hard to estimate. Many of the 70 or so local government contracting mergers last year involved private companies that are not obliged to disclose their finances. The 20 deals Knop handled put $900 million in the pockets of 25 local residents.

All that money is going into real estate and private school, of course, but it's also funding new start-ups and philanthropic efforts. NCAA whiz school George Mason just landed a $10m grant from contractor Ernst Volgenau and his wife, Sara. And Kathryn B. Freeland, who sold her RGII Technologies Inc. to Computer Horizons for $21m set up a $250,000 endowment for University of Maryland Baltimore County.

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