The new year has only just begun, but already 2017 has produced a blockbuster sale among U.S. aid implementers.
On Monday RTI International, a nonprofit development group based in North Carolina, announced its acquisition of IRG, formerly the international development branch of Engility Holdings, a major U.S. government contractor. The value of the deal was not disclosed.
Devex spoke with RTI President and CEO Wayne Holden about how the sale came together, why it made sense for the nonprofit he leads to acquire a large, for-profit competitor, and what the acquisition could mean for RTI’s work in countries around the world.
Here’s the transcript of our conversation, lightly edited for clarity and length.
Can you share any more of the backstory to this acquisition? How long has this been in the works, and how did the possibility of acquiring IRG come to your attention?
This is something we’ve been working on for the last four to six months. We, over the course of the last few years, have become much more interested in potential acquisitions as an opportunity for doing a couple different things: one, bringing in capabilities and skills that would supplement the skill sets that we have currently and help us to expand our footprint in different environments, geographies, and with different funders — and also help us with growing our general portfolio. This was just part of that general process in terms of identifying areas that we feel are important for us to target, for expanding our capabilities and growing into the future and generally scanning the environment to see what possibilities are out there that could synch with the needs that we see as we move towards the future.
When you were thinking about this were you always thinking about an acquisition at this scale? In the ranking we published last year RTI and IRG were the eighth and ninth largest USAID contractors, respectively. Were you always thinking about something that big?
Over the last several years we’ve been looking for larger acquisitions, rather than smaller, niche, kinds of “tuck-in” acquisition to expand across our portfolio both domestic and international work.
At the scale that we’re at — as an organization we finished FY16 at just shy of $900 million in revenue and just short of 5,000 staff members. In fact with the IRG acquisition as well as another acquisition that we did recently, that puts us over 5,000 staff members globally. What we’re interested in is trying to expand our opportunities and bring in bigger pieces of organizations. We feel that we at this point in time, given our size and our footprint, have the capability to integrate those very successfully. … It takes just as much time to look at small pieces as it does to look at big pieces these days, in terms of being able to go through the process and prepare organizations for these types of organizations.
Do you think that the decision to look at larger organizations was specific to RTI and where you are today, or was it also informed by broader signals in the development marketplace that you’re seeing that informed this acquisition as well?
Do I think there are signals in the larger development marketplace around consolidation? I think there are some people who have pointed that out and talked about that with respect to how funding is moving and the shifts in funding across time, that we’re likely entering a period where there will be opportunities for further consolidation across organizations, rather than continued proliferation of smaller organizations.
RTI is a nonprofit organization. IRG was a for-profit contractor. Does that create any complications — or could you just say a bit about how those two organizational structures will come together in this case?
In this case what we’ll do is we will hold them as a subsidiary for a period of time while we’re working on integration. But they’ll be fully integrated into our organization, so essentially they’ll become a not-for-profit. But there’s a process that one has to go through to be able to have that happen officially … and that will take a few months to do that. They’ll be fully integrated into our structure and be part of our 501(c)3.
If it’s a smaller organization — say it’s an organization with 30 people — that’s certainly different than an organization with several hundred people, and there’s a period of time where you hold the structure intact for a while while you’re sorting the various ramifications of the integration out.
Can you say anything at this point about how staffing levels might change as a result of this acquisition?
It’s premature to make any statements about whether staffing is going to grow, whether staffing will stay at the level it’s at, whether staffing will alter in any other ways. We’ve done our preliminary due diligence regarding staffing and staffing structure, but we’re in the process of working out all the other components now.
What this does for us in terms of our international development portfolio is it actually brings in and supplements areas where we are trying to grow our presence but are not as strong. Historically we’ve been very strong in education, we’ve been very strong in health, we’ve been very strong in governance and economic development. With IRG what we do is we bring in food and agriculture. We bring in economic work, and we bring in work in the area of energy as well as training. That really supplements as well as adding to existing capabilities. We’re very excited about the synergistic approach of bringing in these new content areas and being able to focus even more on very important problems out in the world as a result of having a broader range of content capabilities.
Why does it make sense to broaden your capabilities into new areas, as opposed to perhaps deepening expertise in things you’re already doing? How do you expect this might play out on the ground in communities where RTI is working?
What will happen is it will allow us to be involved in multidimensional programs that focus on a variety of different things happening in different countries around the world, and be able to address different issues simultaneously. We’ve been able to do some of that when we’ve worked on governance projects that have health system components or education projects that have health systems components — but being able to plug in other types of expertise in other areas will certainly help us to do that. It will also help us to continue to expand our partnerships and relationships with partners around the world, beyond what we do currently. In the donor world we’re primarily supported by USAID, but also with some funding from DFAT in Australia and from DfID in the U.K.. But continuing to work with other potential partners in a very broad way is really important to us.
Are you seeing increased demand for multidimensional programming across the development space?
I think that people have become convinced of that, in terms of the importance of it for sustainability of change — that when we just work in one sector in a siloed way, there are a lot of other variables that are involved in helping to sustain changes across time. Too often what happens is once the funding disappears in the initial initiative, the programs disappear. Being able to deal with the broader complexity of the environment you’re in is really very critical to be able to promote broad-based development.
Michael Igoe is a senior correspondent for Devex. Based in Washington, D.C., he covers U.S. foreign aid and emerging trends in international development and humanitarian policy. Michael draws on his experience as both a journalist and international development practitioner in Central Asia to develop stories from an insider's perspective.
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