Selling a manufacturer that holds government contracts

What actually transfers, and what is a badge?

Contracts: maybe, through novation or a structure counsel designs. Past performance: fact-dependent. Facility clearances: a different regime. Set-aside status — 8(a), SDVOSB, WOSB, HUBZone — is usually not a freely transferable asset. Selling the company can end the set-aside overnight. Price that before the CIM treats those dollars as permanent.

DCAA exposure on cost-type or flexibly priced work is something the buyer inherits. Indirect-rate history belongs in the room. QoE will test whether wrap rates and claimed overtime match the books.

CMMC and DFARS cybersecurity requirements are versioned. List the vehicles and the level those vehicles require. Do not tattoo a podcast’s favorite “Level 2” on a 2026 page as if it were eternal.

ITAR § 122.4(b) requires 60-day DDTC notice when a foreign person will own or control a registrant. A CFIUS filing does not satisfy that notice (Source: DDTC). Domestic buyers still need registration amendments.

How do multiples and financing change on a federal mix?

A certified defense supplier with $3–10 million of adjusted EBITDA can live in a higher synthesized cell than a commodity job shop. That is access and switching cost — if audits are clean. A small shop whose only “federal” work is a set-aside that dies at close is a concentration story. BizBuySell’s 2.75x median SDE (Source: BizBuySell / Iconic) is still the gravity well for owner-operated files.

Stanford’s 2024–25 search median of about $16 million at ~6.2x EBITDA on a ~25% margin company (Source: Stanford GSB) is a buyer profile, not a novation waiver. Searchers still need a book that survives the agency.

SBA 7(a) remains $5 million with a 10% injection under SOP 50 10 8 (Source: SBA). Affiliation and eligibility can block sponsor-flavored “individuals.” Confirm with the lender.

IBBA Q1 2026: 83% of deals over $5 million drew three or more offers (Source: IBBA). Government-heavy files may see fewer parties who can actually close. Quality of the list beats length of the list.

How should the data room and the peg treat government work?

Redact as required. Put vehicles, periods of performance, option years, termination-for-convenience language, and cybersecurity clauses in a restricted folder. Concentration schedules should split commercial versus government and set-aside versus full-and-open.

The working-capital peg must handle progress payments, withholds, and unbilled receivables the way the contracts actually work. A retail-style AR definition will mis-count a cost-plus book.

How it works does not change: teaser, NDA, staged room. The agency is an extra calendar, not a reason to skip the commercial process.

What does an illustrative set-aside miss look like?

Illustrative only.

A WOSB machine shop. Forty-two percent of T12 sales sit on set-aside vehicles. Teaser says “recurring federal.” Buyer is a non-qualifying individual. Counsel says the status dies. Earn-out drafted on the commercial remainder. The seller calls it a bait-and-switch. It was a badge the seller treated as an asset.

A second file: full-and-open production contract, novation mapped in month two, domestic buyer, no set-aside. Diligence is long. The book is still a book. The CIM told the truth.

What belongs in the teaser?

“Federal contract mix; novation and eligibility reviewed under NDA.” Do not print contract numbers that identify the shop. Do not print “sole source to [agency depot]” in a public PDF. Do not print a set-aside as if it were transferable goodwill.

Sell my manufacturing business is the pillar.

How should option years and termination-for-convenience change the CIM sentence?

Option years are not backlog until they are exercised. Termination-for-convenience is not a theoretical clause on federal work; it is the shape of the book. A CIM that adds unexercised options into “recurring revenue” is a CIM QoE will unwind. Show funded periods. Show options as options. Show T4C as a haircut conversation, not as a footnote in eight-point type.

If a vehicle is in protest or in a close-out audit, that belongs in the restricted folder. Buyers who find it in a public PACER-style search after exclusivity will treat the rest of the room as theater.

Facility clearances, if any, are a separate regime from novation. Do not blend them into one “government is fine” paragraph. If you have no clearance and only commercial primes that happen to sell to the government, say that. Over-claiming a clearance is a character finding.

What should a novation calendar look like beside the commercial calendar?

Counsel maps the contracting officer, the documents FAR 42.12 actually wants, and whether the buyer is a responsible contractor on paper. You map whether the commercial exclusive can survive that agency clock. If the exclusive is 45 days and novation is not even started, you are signing a hope.

Domestic buyers still take time. Foreign-person facts add DDTC and possibly CFIUS on top. ITAR is the companion. One chart. One owner of the chart.

Illustrative only: full-and-open production contract, 18 months remaining, two option years, domestic buyer, no set-aside. Novation package in month two of exclusivity. Agency questions in month three. Commercial close waits. The CIM had already said “novation required.” Nobody is surprised. That is the standard.

A worse file: 8(a) book, buyer ineligible, teaser silent, earn-out invented in week ten. Standard only as a warning.

How do progress payments change the peg conversation?

Unbilled receivables, withholds, and progress-payment liquidation are not retail AR. If the peg uses a trailing-twelve AR average that ignores contract-type mix, the true-up will be a philosophy class. Define the government AR class separately. Put the definition next to the commercial AR class. Then take the physical of inventory the contracts actually own.

How should past performance and proposals be treated in a sale?

Past-performance citations are facts the buyer may want to reuse. They are not automatically transferable as a narrative the buyer can paste onto a new entity. Proposal pipeline is not backlog. A color team in the drawer is not a booked dollar. QoE will not treat a proposal as revenue. Neither should the CIM.

If you are mid-proposal on a vehicle that requires the current set-aside, disclose that the proposal may die at close. Price the book without it. If you win it during the process, update the room. Do not hide a win because you are afraid of concentration optics.

Small-business size status can change with affiliation to the buyer. Affiliation is a counsel and SBA-size question, not a teaser joke. The 7(a) program’s $5 million cap (Source: SBA) is a different SBA conversation from size status on a set-aside. Do not blend them.

Illustrative only: mid-size precision house, 28% full-and-open federal, no set-aside, two option years disclosed as options. Novation mapped. Process slower than a civilian job shop, still a going-concern sale. Honest CIM.

How should you treat teaming agreements and workshares?

Teaming is not a novated prime. Workshare can die when names change. Put the agreements in the restricted folder with a one-line status: prime, sub, teaming, expired. Buyers who find an expired teaming treated as backlog will unwind the CIM.

Illustrative only: 15% of T12 sits on a teaming letter that expired. CIM excludes it. Remainder novates. Trust holds.

How should you treat classified conversations that cannot enter a commercial data room?

If any work is classified, you need facility-security counsel, not a bigger zip file. This page will not tell you how to move classified material. It will tell you not to. Commercial teasers should say that a restricted program exists without describing it. Buyers who cannot staff that counsel are the wrong exclusive.

If nothing is classified and you only have CUI or export-controlled technical data, still restrict the folder. Over-classifying in conversation and under-protecting in the zip are both mistakes.

How should you treat OCI and organizational-conflict facts a buyer might inherit?

If you have an OCI mitigation plan, put it in the restricted folder. If you do not know the term and you hold multiple related vehicles, ask counsel. Do not invent a mitigation in the CIM.

A last federal habit: keep a one-line vehicle list with end dates and option status in the restricted folder and update it when an option is exercised or dies. Stale vehicle lists are how CIMs over-claim recurring work.

One more federal note: if a contracting officer already knows you personally, that relationship is not transferable goodwill. Do not sell it as such. Novation is institutional. Personal rapport is a stay fact at most.

If a vehicle is in option-year silence, do not count it as backlog. Silence is not an exercise. Update the room when the option letter actually arrives.

Educational information only. Novation, set-aside eligibility, clearances, and export control are counsel and facility-security lanes. No vehicle is guaranteed to transfer.

Food and device plants also need FDA and USDA registration transfer when the badge is a facility number.