GlobalNet Federal Sees Value in Buying Small

By Nick Wakeman, Staff WriterWith one acquisition already under its belt, GlobalNet Federal Inc. of Herndon, Va., is moving quickly to close other deals and build itself into a player in the electronic government and systems integration market.Founded in April as the government offspring of GlobalNet Technologies Inc. of McLean, Va., GlobalNet Federal officials see their acquisition of Applitech Inc. of Herndon in early July as just the beginning."We have eight more acquisitions we are working on," said George Filippides, chairman and chief executive of GlobalNet Federal. Filippides also is chairman and chief executive of GlobalNet Technologies, but the two companies are separate business entities.With the acquisition of Applitech, GlobalNet Federal grabbed its first significant revenue stream and should hit $2 million in 2000. Not counting potential acquisitions, revenue is expected to double by the end of 2001, company officials said. Applitech brings GlobalNet Federal capabilities in online training, documentation, logistics and technical publishing such as manuals. Applitech typically is a subcontractor to large defense companies such as Boeing Co., Lockheed Martin Corp. and Northrop Grumman Corp., said Tom Shea, who was CEO of Applitech and is staying on to be president of GlobalNet Federal.For example, Applitech provided online training and maintenance support for Boeing's Delta IV rocket program. The company also developed an interactive maintenance manual for the Abrams tank."We've been focused on the tier one systems integrators. They have been our marketplace," Shea said.The Applitech acquisition is typical of the ones GlobalNet Federal is planning, Filippides said."There are a lot of other Applitech's out there," he said. He is looking at small companies with as few as eight employees and not more than 40 or 50. Revenue may only reach $2 million a year."In this new economy, it is difficult to deliver if you are a small outfit, so there is a natural pull to us," he said.The small companies also are a good acquisition target because they often are overlooked by larger buyers, Filippides said."It is just not worth it for them to do an $800,000 acquisition," he said.The typical low end of the acquisition range is $10 million to $15 million, said William Loomis, an analyst with the investment-banking firm Legg Mason Wood Walker Inc. of Baltimore."There are a lot of smaller companies out there that could be looking for an exit strategy," he said.Filippides said he is eyeing companies with skills such as database management, networking, distance learning and logistics. These types of skills are the necessary components for electronic government applications, he said.GlobalNet is working with investment firms Royall, Clines & Mier LLC of Fairfax, Va., and Synergy Worldwide Inc. of Atlanta to fund future acquisitions. But acquisitions will not be the only source of growth for the company, Filippides said.While GlobalNet Federal and GlobalNet Technologies are separate companies, GlobalNet Federal is taking to the government market GlobalNet Technologies' capabilities such as tools and products for sharing data among different information systems, he said.GlobalNet Technologies has brought information sharing tools and capabilities to such commercial concerns as WorldCom Inc. and AT&T Corp., Filippides said. GlobalNet Technologies has about $1.1 million in annual revenue and 50 employees.GlobalNet Technologies is developing what Filippides described as a "universal translator" that allows different information systems to share data.That technology should be ready for market in September, he said. GlobalNet Federal will be selling it to government agencies.This kind of technology, often called middleware, allows organizations to keep their older information systems while implementing new applications such as electronic commerce, Filippides said."The central systems aren't the problem. The problem is that the data is in different formats," he said.Over the next few months, GlobalNet Federal also will be bringing online an electronic procurement site called eDominus.net, which will be a portal for companies that want to do business with the government, Filippides said.The universal translator will be a good differentiator for GlobalNet Federal, Loomis said. "That is going to be their value-add," he said.But until the product is available and a customer base is built, GlobalNet Federal will be relying on more general IT work, and "there certainly are a lot of companies doing that," Loomis said.