Part II of “The Coming Ownership Transfer” series, from Patrick Flood (Founder & CEO, Owners In Honor) with Andrea Steinbrenner, CEO of Exit Consulting Group and a Certified Exit Planning Advisor, tackles a problem unique to certified government contractors: a company can transfer in full — employees, equipment, systems, relationships — while the certification that built much of its value does not.
Why a Dollar of EBITDA Isn’t Always a Dollar of Transferable EBITDA
Flood and Steinbrenner walk through a composite example: a certified contractor earning $2 million in EBITDA, where half depends on SDVOSB set-asides, sole-source awards, or certified subcontracting relationships. A qualified veteran buyer can often underwrite close to the full $2 million. An unqualified buyer may only credit a fraction of the certification-dependent half — turning a $12 million valuation (at a 6x multiple) into a $9 million one, without the business losing a single customer or employee before closing.
That’s the Certified Succession Gap: enterprise value follows transferable future cash flow, not historical earnings alone.
The Legal Reality Behind the Gap
Federal procurement rules make this concrete, not theoretical. FAR 52.219-28 requires contractors to re-represent their size and socioeconomic status within 30 days of a merger, acquisition, or novation — meaning the legal entity can survive a sale while its procurement status changes underneath it. A five-year federal contract can look rock-solid on a transaction schedule, but options, task orders, and recompetes all remain exposed to that shift.
The Data Shows This Is Already Happening
New York offers a real example: of 97 reporting agencies pursuing a 6% SDVOB utilization goal, roughly 62% fell short in the latest reporting period. One authority, the Olympic Regional Development Authority, reported just 2.77% utilization and explicitly cited losing two of its largest certified suppliers — with replacements already being sought. New York also recorded 179 certifications revoked for reasons including buyouts, mergers, and retirement — ownership-transition events, happening in the same system simultaneously. Texas, with over 1,075 active VetHUB-certified businesses, faces a parallel supplier-capacity dynamic through its subcontracting-plan enforcement.
The Transferability Ratio
The authors introduce a practical metric: Transferability Ratio = EBITDA expected to survive a change to an unqualified owner ÷ total normalized EBITDA. A company with an 85% ratio has far more buyer optionality than one sitting at 45% — and the ratio is something an owner can actively improve well before a sale, by diversifying into unrestricted federal work, commercial customers, and relationships that don’t depend on certification.
In their illustrative case, a company starts with a ~55% ratio. Three years of deliberate diversification — new commercial accounts, additional agencies, a deeper management bench — pushes it to roughly 80%, meaningfully widening the pool of buyers who can pay full value, without EBITDA itself changing much at all.
The Qualified Buyer May Be the Highest-Value Buyer
Counterintuitively, the buyer with the most capital isn’t necessarily the one who can pay the most. A large strategic acquirer may have deep pockets but lose access to a meaningful share of future certified revenue. A qualified veteran successor, by contrast, may be able to preserve SDVOSB eligibility, prime relationships, and set-aside access — meaning they can underwrite (and justify paying for) more of the company’s earnings than an unqualified buyer ever could.
The Opportunity Runs Both Directions
The piece also flags something less obvious: civilian-owned contractors without Veteran certification should consider qualified veterans as potential buyers, not just the reverse. A qualified SDV successor acquiring a non-certified contractor can, after proper certification, open up future procurement opportunities the business never had access to before — turning an ordinary acquisition into one that expands the company’s addressable market.
Starting the Work Early
Flood and Steinbrenner point owners toward existing infrastructure rather than reinventing it — NVSBC for federal contracting education and relationships, NaVOBA for corporate-sector Veteran certification and diversification. The throughline: three to five years before an exit, an owner should know exactly how much of their earnings are certification-dependent, and start building the kind of revenue that survives a change in ownership regardless of who buys the company.
Read Part II of “The Coming Ownership Transfer” in full on LinkedIn →
https://www.linkedin.com/pulse/coming-ownership-transfer-intelligence-succession-capital-flood-eaftc/
