In search of greener pastures

For more than 40 years, Emtec Inc. has been asuccessful, if low-profile, vendor to the governmentof information technology products andservices, including hardware and software frommanufacturers such as Cisco Systems Inc., DellCorp., Hewlett-Packard Co., Microsoft Corp. andSun Microsystems Inc.Much of the company's reseller work hasinvolved configuring hardware, integrating harddrives, adding components and preparing shipmentsfor delivery. "It's what some people called'services around the box,'" said David Singer, vicepresident of marketing and public sector atEmtec.The company, based in Marlton, N.J., is thetenth-largest vendor on the General ServicesAdministration's Schedule 70 contract with nearly$95 million in sales.But having made severalacquisitions in the past fewyears, Emtec is aggressively seeking to complementits hardware and software sales in the federalmarket, including the Defense andHomeland Security departments, by offering arange of IT services through its offices inChantilly, Va.Emtec acquired Westwood Computer Corp., areseller of HP printers and solutions, through areverse merger in 2004 that allowed it to becomea publicly traded company. Westwood had been aTop-20 GSA vendor for the previous eight years.The merger created Emtec Federal, whichexpanded the company's servers and storageservices, Singer said. In 2005, Emtec acquiredDARR Westwood Technology Corp., the parentcompany of Westwood Computer.In March, Emtec acquired Luceo, a staff augmentationcompany in Chicago with about 100employees. As a result,Singer said, Emtec hasalmost 300 employees and$224 million in annual revenue.Now, as an Over the Counter Bulletion Board company, "we really focuson core industry verticals ? commercial, education,federal, and state and local government,"said Frank Blaul, executive vice president of salesand marketing at Emtec.The Luceo acquisition expanded Emtec Federal's business re-engineering services, Blaul said.Emtec's goal is to expand its federal consultingand integration services as it increases productsales, he said. "We now are moving more into theconsulting and integration services world andalso into the software consulting services world."To strengthen its federal marketing strategy,Emtec Federal is partnering with three main ITproviders ? SAP Inc., Sun Microsystems andMicrosoft. And its strategic alliances with firmssuch as HP, IBM Corp., Dell and VMware Inc.will help Emtec Federal expand its services in thegovernment market, Blaul added. "They'reincreasing our momentum to expand our footprintinto this sector."The company is also integratingLuceo into the corporate culture, Blaulsaid. "We believe within the next 45days you're going to see markedimprovement with respect to theirofferings and capabilities. They aregoing to round out our end-to-end-solutionsportfolio inside government."But problems securing H-1B work visas forsome Luceo employees has slowed integrationand delayed staffing current governmentcontracts and pursuing new ones, Blaul said.For the moment, "we have to pick nimbly withrespect to where we do business inside thefederal government."With federal dollars going largely to the militaryto support the wars in Iraq and Afghanistan,many federal IT modernization efforts have beendelayed during the past several years, Blaul said.But, he added, the federal IT services climate isimproving. "We're starting to see some of that[funding] come back in a lot of the highly visiblecivilian agencies," including DHS and the StateDepartment.Despite a sluggish federal market, Emtec remains committed ? albeit cautiously so ? tofuture acquisitions, primarily in the area of professionalservices to complement its organicgrowth plans, Blaul said. "We're looking for companiestoday in the services world that have goodpast performance, good qualifications aroundapplication development and software engineeringservices, or even high-end white-collar consultingservices."At the same time, the company is approachingGSA's ceiling of 500 employees to qualify as asmall business. "We realize that our landscape isgoing to change as we move more into the servicesspace because we're already at 300," Blaul said."And once we reach that 500 threshold onemployee headcount, our position in the marketchanges," he added, in which case Emtec Federalwould have to pursue many contracts either as aprime or subcontractor.Nevertheless, Blaul said he believes Emtec isin an advantageous position as a publicly tradedcompany with revenue hovering at the quarter-billion-dollar mark. "When you take a look atcompanies that fall within that $250 million to$500 million range, you find that there are lessthan 20 of us," he said. "We see ourselves as beingunique because we're not a large firm. However,we're not a small firm.""Whether they're integrators, value-addedresellers or a combination of both, such as aGTSI, they're all trying to sell more solutions,"said Bruce Klein, vice president of the publicsectororganization at Cisco.Klein said resellers are developing servicescapabilities and offering a variety of systems solutions."I do see that happening, and I do see themlooking at the public sector because it's a naturalextension of someone who is focused on federaland is looking to expand the business.""If you're selling Cisco [products], theoreticallyyou know the customer. Why wouldn't you alsoprovide services?" asked Mark Zelinger, presidentof Zelinger Associates Inc., a federal businessconsulting company. "So a reseller goinginto the services business intuitively makessense."However, he added, selling services requiresemployees who understand what services areavailable, are continually being trained on newtechniques and might even be able to design specificsolutions. "Resellers don't have that psychology,"he added, because they are used to doingtransactions."When you start to sell services, and you do itwell, product sales suffer," Zelinger said. "I thinkyou mostly can do one or the other, but there arerare exceptions."Emtec Federal is looking at the intelligenceagencies, Veterans Affairs Department and especiallyEnergy Department as the civilian sectorsmost likely to contract for its services.With that in mind, Blaul said, Emtec businessdevelopment professionals are familiarizingthemselves with contracts for which DOE hasbudgeted and issued requirements so "we may beable to position ourselves either as a prime contractoror subcontractor."