SI acquisition just one step for Serco

Serco Inc., Reston, Va.

Leadership: Ed Casey, chairman and CEO

Parent: Serco PLC, Hampshire, U.K.

2008 revenue: More than $700 million

Employees: 6,000

Top 100 rank: 56


SI International Inc.

Reston, Va.

Leadership: Brad Antle, CEO

Founded: October 1998

2008 revenue: $570 million to $580 million

Employees: 4,500

Ticker: SINT

Top 100 rank: 44


Source: Serco Inc. and SI International

Two years ago, when Ed Casey, chairman
and chief executive officer of Serco Inc., was
interviewed for Washington Technology's
Top 100 issue, he said he was positioning
the company to become a $1 billion player
in the government market by 2010.

With its plan to buy SI International Inc.,
Serco jumped to $1.3 billion, but that is just
the start for the company.

In 2006, Casey and many other executives
saw the $1 billion revenue mark as
the threshold for moving a company from
the middle tier of government information
technology contracting to the top tier.
Now, Casey isn't so sure.

"The table stakes are a lot greater now
than we imagined," Casey said.
Serco's new goal is to hit $5 billion by
2015. That's the scale a company needs to
reach to be among the top 20 IT players in
the government market, he said.

"How we define scale has changed,"
Casey said. "The scale required is much
larger than we thought a couple years ago."

Driving the need for size is the continued
bundling of smaller contracts into
larger ones and the increasing use of large
task-order awards.

As contract values get bigger, they attract
larger companies, which are more competitive
because they can demonstrate past performance
and have the breadth of capabilities
and the resources needed to pursue such
large contracts, he said.

As more work gets set aside for small
businesses and larger companies move into
that space by acquiring midtier competitors,
companies such as Serco and SI are
feeling the pressure, Casey said. "Not only
do we feel and see this need for scale, but
so does everyone else."

The $423 million acquisition of SI will
put Serco on par with companies such as
CACI International Inc., SRA International
Inc. and ManTech International
Corp., all of which are in the $1.5 billion to
$2 billion revenue range.

"Are they the upper of the middle tier or
the lower of the top tier?" Casey asked. "I
view them as the super midtier. I think there
will be continued pressure to either achieve
the necessary scale or become acquisition
targets of other, larger companies."

The acquisition of SI is expected to close
by the end of the year. With the deal, Serco
will add customers, such as the Air Force,
intelligence agencies, and the State and
Homeland Security departments. New
capabilities will include IT consulting, program
management, applications development
and business process outsourcing.

"It is a really good blend," said Brad
Antle, CEO of SI International. "This is
more a merger of equals. Going forward, it
should be a real force in the marketplace."

SI also is joining a global company:
Serco PLC of the United Kingdom. Under
U.S. national security laws, Serco Inc.
operates as a separate company with its
own board of directors. But being part of a
$6 billion-a-year company will give SI
access to markets it couldn't have tapped
before, Casey said.

Serco will look to make more acquisitions
in the U.S. government market, but it
doesn't expect to be a serial acquirer, he said.
"We won't launch out into another [acquisition]
until we are confident that we have
brought these two together as one company
and are performing well," he added.

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