Nichols Hitches Wagon to German Software Giant

By Nick Wakeman, Staff WriterNichols Research Corp. plans to seal the first of several deals later this month that will build a software consulting practice around enterprise resource planning software offerings from the German company SAP AG. The Huntsville, Ala.-based systems integrator will close a deal to buy Murray and West Inc. of Austin, Texas, a company that specializes in implementing software developed by SAP of Waldorf, Germany, by the end of the month, company officials said. The pending acquisition of that company and its recently acquired subsidiary, Trans-Link USA Inc. of Chadds Ford, Pa., will add about $29 million in revenue to Nichols. Terms of the deal have not been disclosed. Nichols also plans to sign a letter of intent to acquire a second SAP consulting practice during this same period, but company officials would not identify it. A third SAP-related acquisition should close by the end of the year, company officials said."We should become a top 5 national partner with SAP [by the end of the year]," said Charles Leader, Nichols president and chief operating officer. The new software consulting division, based in Baton Rouge, La., will target federal, state and local and commercial customers. It is called Nichols Holland Corp. and was formed in January from a joint venture Nichols had with DSM Copolymer, a Dutch chemical company.Nichols executives predict the company's government and commercial SAP software consulting business will reach $22 million in 1999, and jump to $60 million in 2000.While those companies mostly do commercial work, Nichols executives foresee significant government opportunities, said Bruce McIndoe, Nichols vice president of marketing. "We plan to work side-by-side with SAP in going after [the government] market," he said.The government market could be SAP's largest U.S. sector within several years, said Robert Salvucci, president of SAP Public Sector Inc. Partners like Nichols are important, Salvucci said, because SAP only does about 15 percent of its own consulting work. The use of enterprise resource planning software will grow throughout the government market, McIndoe said, especially as the Defense Department implements logistics and large program management systems. The state and local market for enterprise resource planning also presents opportunities for Nichols. The company won a $10 million contract in February to implement SAP human resources and payroll system in Louisiana, McIndoe said.In the government market, Nichols will be facing competitors with SAP consulting business such as Big 5 accounting firms as well as traditional systems integrators like Science Applications International Corp., Litton-PRC Inc. and IBM Global Services.Nichols is positioning itself well for when the enterprise resource planning software demand in the federal market picks up, said Bill Loomis, managing director of the technology research group at Legg Mason Inc. in Baltimore. "They are definitely building a platform," he said.Nichols has experienced steady growth in its overall business during the last five years. The company has shifted its business base from a heavy emphasis on defense and intelligence work toward more civilian government work. It has also pursued commercial work in areas such as health care information technology services.Overall revenue has swelled from $144 million in 1994 to $427 million in 1998. In 1998, Defense Department and intelligence work represented about 55 percent of Nichols' revenue, down from 85 percent in 1994.Federal civilian government work accounted for 25 percent of the company's overall revenue in 1998, up from 14 percent five years ago. Commercial IT work, which includes state and local governments, brought in 10 percent in 1998 vs. 1 percent in 1994."It's an exciting and dynamic place," said Leader, who became president and chief operating officer of Nichols Nov. 1. Leader, a former Hughes Aircraft Co. executive, will oversee the integration of several acquisitions made by Nichols in the last four years from a new office in Arlington, Va. This office will consolidate nearly 1,000 employees Nichols has in the Washington area. Overall, the company has 3,000 employees at 31 locations around the United States.But even as Nichols shops for other SAP-related acquisitions, it has not lost its focus on its core defense and federal civilian businesses, which comprise about 80 percent of its revenue, analysts and company officials said. Nichols' government works includes modeling and simulation, high-tech training, network development and high-performance computing."They've added a lot of management experience" in the last two years, so the company's diversification has not raised concerns, Loomis said. "Their federal business is still getting a strong amount of attention."In early February, Nichols was on the team that won the Army's Logistics Joint Administrative Support Services contract, worth $325 million over five years. Nichols is the major teammate of Stanley Associates Inc. of Alexandria, Va. Under that contract, Nichols will be providing services such as business process re-engineering, systems network support and project management.In January, the company won the prime role on a $13.5 million contract that will last four years to provide testing and evaluation services at the Naval Air Station in Patuxent River, Md.According to Leader, the company wants to keep growing its high-level business, such as systems engineering and design work. "That is where we have gained our critical mass," he said.