Market Share: Top 100 has space available

Washington Technology's Top 100 has become a benchmark for federal IT prime contractors. Companies that compete in the federal IT market can measure their standing and progress against their peers.

At the individual company level, the data is difficult to reconcile with company information, as both subcontract revenue and non-IT business are excluded.

However, stratification of the data by size (for example, the top 10, the bottom 50) offers insight into the relative growth and market share of prime contractors, midsize companies and rising stars.

As in past years, the list abounds with familiar names. Eighty-four of the Top 100 from 2005 made this year's list. The success of the 16 companies that cracked the list since last year reflects the impressive growth opportunities that are possible. For example, 10 of the top 50 companies since last year grew their prime IT revenue by more than 50 percent.

In the aggregate, the 2006 Top 100 produced $56.3 billion in federal IT prime contract revenue, more than 9 percent greater than the 2005 group's revenue total.
To better understand market dynamics, a year-to-year comparison of federal IT revenue was done for the 84 repeating companies on the list. These businesses, about 98 percent of the Top 100, generated nearly $55 billion in fiscal 2005 federal government IT revenue. Aggregate federal IT revenue for these repeaters grew by 10.8 percent in 2005.

As in the past, growth rates were significantly different at the top and bottom of the size range. The slowest growth occurred among the top 10, while the fastest growth occurred in companies in the bottom half of the list. As a result, the share of aggregate revenue among the repeaters decreased for the top 10 group and increased for companies in the bottom half of the rankings.

The 35 repeaters in the bottom half achieved 31 percent growth in federal IT revenue. A few of these companies completed acquisitions, but most of their growth was organic. Together, the bottom 50 accounted for 8 percent of Top 100 revenue, up from 6.7 percent last year.

The share held by the top 10 companies declined from 57 percent to 54 percent, reflecting their IT revenue growth rate of 3.5 percent, well below the overall rate. Their impact remains large, however. They captured more than $30 billion in prime federal IT business.

Publicly traded companies continue to dominate the list, having captured nearly 82 percent if the aggregate federal IT revenue. Of the 57 public companies on this year's list, 41 are among the top 50 in federal IT prime revenue.

Most changes to the Top 100 occur in the bottom half, where the 16 new names appear. These companies have continued to grow their businesses while competing with larger and stronger competitors. There is still opportunity for emerging companies that succeed in growing their capabilities, management structure, technical certifications and marketing prowess in step with what government buyers are seeking. Growing to Top 100 level is not easy, but 16 companies have proven that it is possible.

Moving up into the top half of the list is an even greater challenge. The stability in the top 25 companies, as shown by the retention of 23 of 25 from last year's rankings, underlines the challenges to other competitors trying to break into the top tier of this federal IT market.

Jerry Grossman is managing director at Houlihan Lokey Howard & Zukin in McLean, Va. He can be reached at jgrossman@hlhz.com.