No. 4: Revving the acquisition engine
Strategy fuels double-digit growth; Anteon buy will put GD in the driver's seat
- By James Schultz
- May 11, 2006
Prosperity loves company. That may be one way to characterize the proposed acquisition of Anteon International Corp. by General Dynamics Corp. Or maybe prosperity just loves more prosperity. Whatever the description, if the Justice Department OKs the $2.2 billion sale, the deal will marry two powerhouses on the Top 100 list.
GD made it to No. 4 with more than $3 billion in prime IT contracting revenue. Anteon ranks No. 12 with $1.3 billion.
Anteon's main customer is the federal government. The company employs more than 9,500 workers worldwide and had 2005 revenue of almost $1.5 billion. The Fairfax, Va., company specializes in building and maintaining large-scale IT systems.
Anteon engineered and manages the Federal Emergency Management Agency's National Emergency Management Information System, as well as NATO's intelligence network. It provides smart-card technologies for secure identification and border-control applications for the Homeland Security Department's Bureau of Citizenship and Immigration Services.
"GD has clearly turned on the acquisition engine. They're preparing themselves to replace the monies coming from Iraq," said Bob Kipps, an analyst with Houlihan Lokey Howard & Zukin in McLean, Va. "It's not just that all the defense primes are buying services. It's because the money isn't in the platforms; it's in the smarts embedded in the platforms."
Anteon stockholders have voted for the sale, but the Justice Department wants a detailed review before it approves the buy. The reason, Kipps said, is organizational conflicts of interest, which occur when a business unit in one company is charged with monitoring contract performance or projects standards held by the other company.
"To get the deal done, GD may have to divest some of the Anteon business," Kipps said. "Anteon and GD are savvy deal-makers. They knew there would be questions."
There is no disputing that the last 12 months have been good to General Dynamics. Three of the company's major operating groups: Aerospace, Combat Systems, and Information Systems and Technology, had double-digit growth in revenue and operating earnings, according to GD. The Information Systems and Technology unit saw revenue balloon to roughly $7.8 billion and operating earnings go to $865 million, an increase from 2004 of 16 percent and 20 percent, respectively.
Over the past three years, acquisitions and organic growth have more than doubled IST sales. General Dynamics' tactical communications business led the 2005 increase, reflecting the growing use of digital, network-centric C4ISR (command, control, communications, computing, intelligence, surveillance and reconnaissance) in national security. Another positive: The contracts backlog for the unit grew in 2005 to around $9.4 billion.
"Our performance speaks for itself," said Jerry DeMuro, executive vice president of the unit. "We've proven ourselves pretty agile. We bring the best of the big and a lot of what is associated with smaller companies."
One significant deal that spread IST's savvy beyond American borders was announced in September. The Australian military selected General Dynamics Canada, along with its Australian partners ADI Ltd. and Tenix Defence Ltd., as the prime integrator for the first phase of Australia's Battlespace Communications System (Land) project, valued at $74 million. The project could be worth $608 million if all options are exercised.
The project aims to provide the Australian Land Force with a deployable, scalable, secure, integrated communications system that will let troops readily exchange information across battlespace combat elements such as command support, intelligence, offensive fire, logistics, ground-based air defense and sensor-linked weapons systems.
Closer to home, another significant win came in November when the Army awarded General Dynamics Network Systems subsidiary Signal Solutions Inc. the Total Engineering and Integration Services contract for IT engineering and technical support. TEIS is for one year and four option years with a ceiling of $800 million.
Signal Solutions, an incumbent provider on the contract, will continue to support the Army's Communications-Electronics Life Cycle Management Command and the Information Systems Engineering Command, as well as other federal agencies.
General Dynamics also is progressing on its Warfighter Information Network-Tactical contract, which could be worth as much as $6 billion. WIN-T is the tactical extension of the Defense Department's Global Information Grid and is interoperable with joint and coalition forces and other government agency networks.
The network is a critical enabler of LandWarNet, the Army's effort to get its forces to conduct joint, network-centric, knowledge-based warfare. WIN-T is meant to provide a clear operations picture for theater combatant commanders by using satellite on-the-move capabilities, robust network management and high-bandwidth radio systems to keep mobile forces connected, communicating and synchronized.
In December, the Army successfully conducted live WIN-T demonstrations across 14 network nodes in Arizona, Massachusetts, New Jersey and Texas. Capabilities demonstrated included on-the-move networking over terrestrial and satellite links; voice-, video- and data-over-IP; and secure cellular communications.
Despite the company's success in defense applications, DeMuro said it takes nothing for granted. General Dynamics' first priority is to conclude the Anteon buy. Beyond that, he said, the company will continue to promote its experience and the fact that "there are very few [companies] out there who can match our breadth and depth."
"It doesn't take a genius to see that growth rates in the federal budget can't continue indefinitely," he said. "It's still a healthy market."Additional 2006 Top 100 ProfilesNo. 1: 12 times the fun for Lockheed No. 2: Northrop takes aim on health ITNo. 3: SAIC prepares for public debutNo. 4: Revving the acquisition engineNo. 5: CSC holds a lure for a buyerNo. 6: Raytheon works the systemNo. 7: L-3 cuts bigger slice of govt pieNo. 8: For EDS, steady as she goesNo. 9: Booz Allen adapts to stay on topNo. 10: Dell solutions get superpoweredNo. 11: BAE keeps acquisition fires burningNo. 12: Despite sale, Anteon's vision lives onNo. 13: Intelligence work fuels CACI's growthNo. 14: Verizon-MCI combination packs a punchNo. 15: Restructured IDS lets Boeing help clientsNo. 16: ITT Industries aims for the sweet spotNo. 17: IBM Corp. steps up as a subcontractorNo. 18: Sprint Nextel goes for convergenceNo. 19: For SRA, the profit is in its peopleNo. 20: It's always mission possible for UnisysOverview: The Billion-Dollar Club