Posted on Mergermarket (subscribers only)
October 9, 2019
Dinocrates Group, a business strategy and technical consultancy, expects to grow quickly with acquisitions, and could tap private equity funding if a large target comes into view, CEO and owner Tom Prokop said.

Dinocrates Group may consider PE backing as it seeks more buys in 2020, CEO says

Dinocrates Group, a business strategy and technical consultancy, expects to grow quickly with acquisitions, and could tap private equity funding if a large target comes into view, CEO and owner Tom Prokop said.

The Rockville, Maryland-based company, which is wholly owned by Prokop, purchased defense-focused consultancy Global Management Systems (GMSI) in early September, expanding its 15-person staff to around 90 employees.

Dinocrates, which was founded in 2014, expects to generate USD 11.5m revenue in 2019, including revenue from GMSI.

Dinocrates’ purchase of GMSI was supported by debt financing from an investment firm that is raising money for a fund targeting government-contracting investments, Prokop said, declining to name the firm.

Once Dinocrates fully integrates GMSI, it plans to make another acquisition in the consulting space, likely within the next six to twelve months, Prokop said. The CEO is keeping tabs on the market, particularly in government services, but Dinocrates is not currently reaching out to potential targets.

Serving public and private entities with a range of management, IT and strategic consulting, Dinocrates aims to scale up to more than 1,000 employees in three years, fuelled largely by acquisitions, Prokop said.

Dinocrates would consider selling a stake to private equity to support a large deal or string of deals that required outside funding, Prokop said. In the consultancy space, PE funds generally become involved with companies when they reach about USD 25m in revenue, he noted.

The CEO prefers to retain 100% ownership as long as possible. “But when you have the opportunity to scale significantly, you put your cards on the table,” he said.

It began seeking acquisitions among military products and IT services companies in January, and it saw multiples as high as 7x EBITDA from small firms as an opening ask, a valuation which Prokop called “unrealistic.”

GMSI’s connections within the US military made it an ideal target, Prokop said. With Dinocrates’ wider offerings, he believes revenue from GMSI, existing as a unit of Dinocrates, could double in the next year.

GMSI was motivated to sell because its leadership was preparing to retire, Prokop said. The government consulting space has many other 20- to 30-year old companies with founders ready to retire, he said. Also, many companies that formed after the financial crisis have stayed in niches and may be stuck there, unable to diversify.

These are among the reasons that M&A for federal government services is “just on fire right now,” the CEO said. Dinocrates has a wide range of strategy and IT consulting services, making it an ideal platform to be a consolidator, Prokop said.
Tech consultancies with high multiples, such as blockchain services, are less attractive to Dinocrates, because the company may be able to grow those business lines organically at a lower cost, Prokop said.

Dinocrates will be careful about growing larger than the government’s small-business designation before it is ready to quickly grow to compete with large-scale competitors for free and open contracts. Government contractors nearing USD 100m in revenue could lose their access to small-business contracts and still be too small to compete with larger corporations, so many seek to divest assets, scale up quickly or sell, this news service previously reported.

Dinocrates used Genaesis for its acquisition of GMSI. It uses Miles & Stockbridge, McMahon Welch and Learned and FisherBroyles for legal advice. The company’s accountant is Hildebrand Limparis & Associates.

By Josh Armstrong in Charlottesville, Virginia