While U.S. M&A activity saw a modest uptick in 2024, dealmaking slowed in early 2025 amid uncertainty around interest rates and global tensions. However, experts anticipate a strong rebound later this year, driven by relaxed antitrust and merger guidelines and increased selling activity from financial sponsors seeking to return capital to investors from previous acquisitions.
Owners who are looking to sell in the near term should take advantage of the current lull in activity to prepare their books and records to best position themselves for when the market shifts.
Conducting thorough sell-side financial due diligence enables sellers to shape the narrative, boost valuation, and accelerate the deal process. For government contractors that operate in a highly regulated industry with unique risks exceeding those encountered by commercial businesses, starting the diligence process early is critical to avoiding major setbacks.
Key focus areas for government contractor sell-side due diligence include:
- Contract Portfolio Review
Understand the mix of contract types (CPFF, FFP, T&M), funding status, and backlog. Buyers want clarity on revenue recognition, contract performance, status of unbilled receivables and contract scalability.
- GAAP Financials & Normalized EBITDA
Prepare and present clean, GAAP based financial statements that are audit ready along with adjustments to EBITDA for unusual and non-recurring items (e.g., owner perks, one-time costs). Normalized EBITDA will be carefully scrutinized as part of a buyer’s financial due diligence and quality of earnings evaluation.
- DCAA Compliance & Audit Readiness
Noncompliance with FAR or CAS can be a dealbreaker. Buyers need assurance that your cost accounting, billing and reporting are compliant and auditable.
- Indirect Rates & Cost Allocations
A consistent indirect rate structure (Fringe, Overhead, G&A) is critical for accurate pricing and profitability analysis. Buyers will closely examine cost allocations, especially labor, for signs of financial risk or control weaknesses.
- Cybersecurity & CMMC Readiness
Many federal contracts contain requirements to comply with cybersecurity standards and controls. A CMMC certification will be required for DOD contracts involving Controlled Unclassified Information (CUI). Buyers will evaluate your compliance with DFARS and NIST standards as a measure of contract eligibility and enterprise value.
- Supply Chain and Teaming Agreements
Robust supply chains and well-established teaming agreements demonstrate a company’s ability to deliver contracts efficiently and pursue larger, more complex opportunities. These capabilities reduce performance risk and enhance operational flexibility—factors highly valued by buyers.
The Chess Consulting team brings decades of deep transaction and industry knowledge along with hands-on experience to help you navigate the complexities of sell-side transaction readiness.