Online extra: To be or not to be -- companies at a crossroads

Wam!Net Government Services Inc. is not for sale, but that hasn't stopped potential suitors from courting the Herndon, Va.-based company.

Over the past year, the company has received about seven unsolicited offers, said Michael Barbee, president of the network integration firm.

"We've gotten everything from phone calls saying, 'Hey, we'd like to talk' to offers coming over the transom," Barbee said.

So far the company has said no, but Wam!Net is weighing its options. Even before the offers came in, Wam!Net executives were eyeing the first quarter of 2004 as decision time for the company, Barbee said.

Its choices: Start making acquisitions, be acquired or rely on organic growth. The company expects to decide its course by March or April, Barbee said.

This corporate crossroads is one that Wesley Teague knows well. As executive vice president of C-Cubed Corp., a Springfield, Va., systems integrator that specializes in command and control systems, Teague helped guide the company through the same process last year.

In October, CACI International Inc., Arlington, Va., acquired C-Cubed for an undisclosed amount. At the time of its acquisition, the company had about $49 million in annual revenue.

For C-Cubed ? an employee-owned company of 400 people ? the decision came down on what was best for the employees, Teague said. But this involved many factors.

First, as an employee-owned company, C-Cubed had to buy back stock whenever an employee left. As the company grew, the stock rose in value, making it more expensive for C-Cube to buy back, placing a growing burden on its cash reserves, he said.

"It's a paradox of success," Teague said.

C-Cubed had been making its own acquisitions, but as the market heated up, demand and prices also went up, making it harder for them to continue on that path. Then the offer came from CACI.

"The premium they were offering was one that made us ask ourselves, 'How long would it take us to reach that same increase in value and at what risk?' he said. "Today's market is fairly high, but you don't know what the market will be in three or five years."

C-Cubed also knew it had to continue growing, because "a lot of contracts require extra capabilities that smaller companies can't provide," he said.

So being part of a larger company would give C-Cubed and its employees the opportunity to win and work on projects it otherwise couldn't pursue, Teague said.

Reaching the decision over several months was a learning process, but also reinforced the philosophy of the four senior executives at C-Cubed, Teague said.

"You really need to start to prepare for an event on day 1," he said. That event can be a sale to another company, an initial public offering or a recapitalization to bring in a new owner.

"We began that preparation several years ago," he said.

One of the most important things C-Cubed did was automate and digitally image its records, everything from contracts to accounting and payroll, he said.

Digital records speed up the due diligence process before the event and makes integration easier afterwards, Teague said.

"One thing we could have done better was organizing our records with better indexes and tabs so a third party could look at them and find their way around better," he said.

Other advice from Teague: When the deal is made, especially an acquisition, communicate quickly with employees. "You don't want them to find out from the newspaper, the radio or a neighbor."

For C-Cubed employees, the news was very good. Except for Teague and three other senior executives, everyone kept their jobs, and all employees reaped financial benefits.

"The ESOP worked exactly as it was supposed to. It brought value and wealth to a lot of employees who wouldn't otherwise have had the opportunity," he said.

At Wam!Net, officials also are weighing how their decision will affect employees, Barbee said. Selling the company to a large contractor, for example, could disrupt the small-company culture that originally attracted many people to the Wam!Net.

But making acquisitions also carries risks because the company is not an experienced buyer, he said. And officials must consider the expectations of both shareholders and customers.

"We are scoring all these factors red, yellow and green and then we'll make an assessment," he said. "We put together a long range plan two years ago, and this process was part of that plan," he said.

Senior Editor Nick Wakeman can be reached at nwakeman@postnewsweektech.com

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