RCI to be acquired by U.K. firm

Long-time federal contractor Resources Consultants Inc. is being acquired for $215 million by a British company that specializes in government outsourcing.

The cash acquisition by Serco Group Plc of Hampshire, U.K., still has to be approved by U.S. regulators, but the company said today it expects to clear that hurdle and close the deal within 90 days.

RCI of Vienna, Va., had been looking for a suitor for two years, said company president George Troendle.

RCI's majority stockholder, CM Equity, "had a commitment to its shareholders that the investment wouldn't go on forever, and they felt now was a good time to take their capital gains," Troendle said.

But it also was important to find the right buyer that would provide opportunities for RCI management and employees, he said.

Troendle and all of RCI's senior management will continue with the company, he said. No layoffs are planned.

RCI of Vienna, Va., had 2003 revenue of about $270 million and counts among its customers the Navy, Army and the Defense Department. About 75 percent of its revenue is defense related. Services include systems engineering, IT support, strategic consulting and human resources outsourcing.

For Serco, finding the right acquisition target that brought new customers and capabilities along with being a good cultural fit was more important than just adding revenue, said Brad King, CEO of Serco Inc., the company's North American subsidiary.

Serco has been looking three years before beginning serious negotiations with RCI about two months ago, he said.

"We were very focused on what it was we wanted. It was a tough shopping expedition," he said.

Serco's North American unit has 2,000 employees and 2003 revenue of $127 million. Work includes air traffic control, fleet management and local government.

With the addition of RCI, the North American market will represent about 12 percent of Serco's revenue, which will be about $2.6 billion, counting RCI.

"This transaction is a significant step forward for us," said Christopher Hyman, CEO of Serco. "North America is one of our chosen markets. Opportunities in the federal market are substantial for companies with proven capabilities and qualifications."

Steve Cuthill, who was chief operating officer of the Serco's global operations, is moving to the United States to oversee the North American operations, King said.

The sale of RCI was not a surprise to analysts who knew CM Equity was looking to cash out. They have owned RCI for six years, "so it is a logical move" for CM Equity, said John Allen, co-CEO of Windsor Group LLC, a Reston, Va., investment banking firm.

"They took a hard look at a public offering, but they decided that wasn't for them," said Jerry Grossman, managing director of Houlihan Lokey Howard and Zukin, an investment bank in McLean, Va.

Legg Mason Wood Walker Inc., a Baltimore investment bank, served as the advisor to RCI and CM Equity on the deal.

Serco is best known in the United Kingdom as an outsourcing company, managing operations such as railroads and military facilities, Grossman said. It is a publicly held company "with a strong growth record and a strong investor following," he said.

Serco officials said they were drawn to RCI because it broadens Serco's base in the U.S. federal government market.

"We needed a strong presence in the U.S. market because it is the largest market for services globally," King said.

The RCI deal is part of a trend of cross-Atlantic acquisitions, Allen and Grossman said. Others include BAE Systems Plc of Farnborough, U.K., acquiring DigitalNet Holdings Inc. and QinetiQ Ltd., also of Farnborough, acquiring Foster Miller.

"There is a tremendous growth opportunity in the U.S. defense market, that's the primary driver behind these deals," Allen said.

King said that other acquisitions by Serco in the U.S. market are not out of the question.

(Posted 10:26 a.m. and updated 2:50 p.m. Dec. 16)