Eye on M&A

STRATEGY AT HOME AND ABROAD

Though December is historically a slow month for mergers and acquisitions, Computer Sciences Corp. strategically double-dipped to capture Defense Department business locally and in Europe.

The Falls Church, Va., company scooped up logistics engineering firm Log. Sec Corp., the largest information technology services provider at Aberdeen Proving Ground in Maryland. The acquisition was in anticipation of DOD’s Base Closure and Realignment Commission shuttering Fort Monmouth, N.J., and moving its activities to APG.

APG continues its conversion into a business research center for the Army. Last month, CACI International Inc. completed a 60,000-square-foot office building to house its research and development labs. CACI provides IT support to the Army’s communications and intelligence operations and is set to move from Monmouth in 2011.

Mitre Corp. also is reportedly looking for 50,000 square feet in the area to house operations it will move from Monmouth.

A NEW OLD EUROPE

With its purchase of Bulgarian software developer Object Builder Software Bg, CSC joins a handful of U.S. IT companies in staking out business territory in the technologically emergent Balkan state.

Bulgaria is “strategically positioned [straddling Greece and Turkey] to serve both Western and Eastern Europe,” said Mary Jo Morris, president of CSC’s World Sourcing Services organization, in a statement.

CSC has a history with OBS, having partnered for more than 10 years, she said. The purchase complements CSC’s European sourcing capabilities in Spain, Lithuania and the Czech Republic, Morris said. It also “adds substantial capability in three key industry sectors: insurance, health care and high technology.” OBS has about 350 developers in its headquarters in the capital, Sofia, and offices in Varna, near the Black Sea.

The low costs of doing business in Bulgaria, which entered the European Union in 2007, are attractive. In 2004, according to investment consulting firm Invest Bulgaria, the average monthly salary in the EU was 2,306 euros; the average in Bulgaria was 250 euros. Real estate is similarly underpriced, the company said.

U.S. companies have taken note.

Microsoft Corp. partnered with the State Agency for Information Technology and Communications (SAITC) for an innovation center in Sofia to guide businesses in strategic use of IT.

Hewlett-Packard Co.’s global delivery service center in Sofia provides remote infrastructure management to its clients in Europe, the Middle East and Africa.

IBM Corp.’s Managed Business Process Services Centre in Sofia offers business consulting services. In September 2008, IBM installed its Blue Gene/P supercomputer in SAITC’s National Supercomputing Centre. In November 2008, it put the country on the list of the world’s Top 500 supercomputers at No. 126.

Barriers remain, however, said John Beyrle, former U.S. ambassador to Bulgaria.

In 2006, the country attracted the most foreign direct investment of any Eastern European EU members, but the World Economic Forum also ranked it last in competitiveness in the EU, he said in a 2007 speech. Skilled labor shortages and “spotty enforcement of intellectual property laws” and “a climate of corruption” are further challenges, he said.

The World Bank ranks Bulgaria’s educational system fifth in the world, 11th in mathematics and puts the percentage per capita of IT workers at among the highest in the world. Both Cisco Systems Inc. and Microsoft offer certification programs through training institutes in the country.

Companies such as Invest Bulgaria — in addition to consulting firm KPMG’s Sofia branch — exist to help guide foreign businesses.

One key indicator of the seriousness of Bulgaria’s drive to become a major IT center came Nov. 26: Starbucks announced the opening of its first coffee shop in the country, in downtown Sofia.

— Sami Lais

FLAWS RISE TO SURFACE ON CUTTER ACQUISITION

Despite improvements in its Deepwater acquisition structure in the past two years, the Coast Guard has had mixed results with its National Security Cutter program, according to a new report from the IBM Center for the Business of Government.

“Several issues associated with the National Security Cutter acquisition lead to classification of this asset acquisition as a mixed outcome,” states the center’s report on problems in government contracting for complex projects, published online Dec. 23.

The Coast Guard started the $24 billion Integrated Deepwater Systems acquisition program in 2002 to replace boats, aircraft and other assets. It hired a joint venture of Lockheed Martin Corp. and Northrop Grumman Corp. as prime contractor and lead systems integrator. In 2007, government auditors criticized the program’s 123-foot patrol boats, which the Coast Guard rejected as structurally unsound, and the service took on the role of lead systems integrator and made other changes to its approach.

The Coast Guard commissioned Deepwater’s first national security cutter, named Bertholf, in August 2008 and is conducting final testing on the ship’s systems for two years, which is standard procedure. The center’s assessment of Deepwater is one of the first to examine the national security cutter acquisition in greater detail.

According to IBM’s report, there were problems with the requirements process and task order, including indeterminate performance requirements. Also, “the task order also did not identify the decision-making rights and obligations of either Integrated Coast Guard Systems (the contractor) or the Coast Guard over these unspecified elements,” the report states.

As a result, it was not clear who had authority over structural design specifications, conditions for third-party design assessments and corrective actions, the center concluded.

The report makes several recommendations for improved handling of complex government acquisitions, including a more highly skilled government acquisition workforce, more investments in learning and an improved assessment of risk in such projects.

— Alice Lipowicz

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