Veteran Owned Business VS Service-Disabled Veteran-Owned and Private Equity

August 23, 2024

by a searcher from Pepperdine University - Graziadio School of Business and Management in Denver, CO, USA

I've come across several Service-Disabled Veteran-Owned Businesses (SDVOBs) that have significant contracts with the military or government services, some generating upwards of $30 million in revenue.

I served a few years in uniform and spent some time on the civilian side of the government, so while I'm not an expert, I'm familiar with the landscape and some of the key acronyms.

One of the companies I'm looking at is a SDVOB with deep military contracts. The owner is considering taking some equity off the table. I've been in contact with several private equity (PE) firms. Still, many are hesitant because they fear the business might lose some contracts if the owner no longer maintains the 51% ownership required for SDVOB status. However, in this case, The owner has said only 5% of the contracts are awarded specifically because of the SDVOB status. I know the market space, the product, and the customer base well, which makes me confident in this assessment.

I'm a veteran-owned business, but not an SDVOB, which is at a higher level than veteran-owned. Does anyone know of any PE firms that are well-versed in the specifics of SDVOBs and the challenges related to PE ownership?

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

^redacted‌ thank you for the tag. I can tell you from a financing perspective you may run into the same concern with the SDVOB status. Lenders are going to be concerned of what contracts may go away. I am not sure how you can verify what contracts you might lose, but you would need to adjust the value for what you will lose. Even losing 5% of contracts can be quite large and have a substantial impact on value, which is likely why firms are concerned about it.

Reply by a searcher
from The University of Chicago in Chicago, IL, USA

Hi former contracting officer here. There are specific rules outlined by the SBA on who can and cannot invest in FAR Pt 8 SB concerns (SDVOSB, VOSB, WOSB, etc...) and whether that will negatively affect the designation. ^redacted‌ hit it on the head where there are restrictions to growth if the work depends on these set asides. Feel free to PM me and we can chat further.

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