Last byte | A conversation with Otto Hoernig III
Satellite entrepreneur makes re-entry
"It's an exciting time to be in the space, but if we don't make an acquisition, it's going to be hard to compete." Otto Hoernig III
For more than 10 years, beginning in 1994, Otto Hoernig III was part of SpaceLink International LLC, a Dulles, Va.-based company he co-founded with his father and sister. Hoernig served as executive vice president and chief operating officer.
When the company was sold to Engineered Support Systems Inc. in 2005, Hoernig stayed on as group vice president until DRS Technologies Inc. bought ESSI, a deal announced at the end of that year.
SpaceLink sold for $150.5 million, making it a successful sale by any standard. The company specialized in designing and maintaining satellite networks for agencies, with a big Defense Department component. After years of bringing in $10 million or so in annual revenue, the 2001 terrorist attacks galvanized attention on the need for communications, and vaulted SpaceLink into the $100 million range, Hoernig said. DRS suddenly became a much larger company.
Now Hoernig is back on the scene with a new company, Trace Systems LLC, which is following in SpaceLink's orbit, pursuing a similar market and operating under a similar business strategy. Hoernig is on the lookout for companies to acquire, but he is finding the current mergers and acquisitions market a challenge. In many ways it is a seller's market, he said, with attractive acquisition targets able, to a great extent, to set their own terms. Hoernig recently talked with Washington Technology Associate Editor Michael Hardy about his re-entry into the federal market.Q: What has been different about launching Trace, compared with SpaceLink?Hoernig:
SpaceLink was founded around a solid requirement and a particular contract to provide satellite communications [to the Army] in Bosnia in 1994. It was a little easier to create a company almost overnight. Today it's very different. It's an extensive process.Q: Why are you planning to grow through acquisitions?Hoernig:
Our strategy is first and foremost an organic strategy. We think we offer some unique capabilities. At the end of the day, there's nothing better than having some past performance and backlog [of acquired companies] to help you go after prime contracts.
The reason I'm less interested in spending 11 years to do it organically is that we're focused on a slightly different technology. The technologies we're using are technologies that are here now, where SpaceLink was into integrating older technologies. It's an exciting time to be in the space, but if we don't make an acquisition, it's going to be hard to compete.Q: What types of companies would be attractive acquisitions for you?Hoernig:
We're an engineering firm, so our technology strategy is already activated. The types of companies that feed into that would be in information assurance, systems integrators, wireless communications, data management. We're also interested in geospatial [companies].Q: How have you found the M&A market so far?Hoernig:
We're finding that in the $5 million to $50 million range, the competition is less aggressive than for the ones above $50 million. The culture you find in small acquisitions is a culture I'm very familiar with and very comfortable with. We're still coming off of high valuations. It is trending downward.Q: How will the upcoming rule change requiring small businesses to recertify their size when they are acquired affect M&A?Hoernig:
That doesn't bother us. It doesn't affect us. It does make us happy that maybe the big guys are going to back off the smaller acquisitions. If you're buying a company, you might put a heavier emphasis on customer relationships than you might have in the past.Q: What are your short-term ambitions for Trace Systems?Hoernig:
I'd like to see two M&A transactions close in the next nine months. We're pursuing several actively right now. I'd like to be postured for a prime position on a major government program by the end of the year, and that's only going to happen by acquisition.