SI acquisition just one step for Serco

Two years ago, when Ed Casey, chairmanand chief executive officer of Serco Inc., wasinterviewed for Washington Technology'sTop 100 issue, he said he was positioningthe company to become a $1 billion playerin the government market by 2010.With its plan to buy SI International Inc.,Serco jumped to $1.3 billion, but that is justthe start for the company.In 2006, Casey and many other executivessaw the $1 billion revenue mark asthe threshold for moving a company fromthe middle tier of government informationtechnology contracting to the top tier.Now, Casey isn't so sure."The table stakes are a lot greater nowthan we imagined," Casey said.Serco's new goal is to hit $5 billion by2015. That's the scale a company needs toreach to be among the top 20 IT players inthe government market, he said."How we define scale has changed,"Casey said. "The scale required is muchlarger than we thought a couple years ago."Driving the need for size is the continuedbundling of smaller contracts intolarger ones and the increasing use of largetask-order awards.As contract values get bigger, they attractlarger companies, which are more competitivebecause they can demonstrate past performanceand have the breadth of capabilitiesand the resources needed to pursue suchlarge contracts, he said.As more work gets set aside for smallbusinesses and larger companies move intothat space by acquiring midtier competitors,companies such as Serco and SI arefeeling the pressure, Casey said. "Not onlydo we feel and see this need for scale, butso does everyone else."The $423 million acquisition of SI willput Serco on par with companies such asCACI International Inc., SRA InternationalInc. and ManTech InternationalCorp., all of which are in the $1.5 billion to$2 billion revenue range."Are they the upper of the middle tier orthe lower of the top tier?" Casey asked. "Iview them as the super midtier. I think therewill be continued pressure to either achievethe necessary scale or become acquisitiontargets of other, larger companies."The acquisition of SI is expected to closeby the end of the year. With the deal, Sercowill add customers, such as the Air Force,intelligence agencies, and the State andHomeland Security departments. Newcapabilities will include IT consulting, programmanagement, applications developmentand business process outsourcing."It is a really good blend," said BradAntle, CEO of SI International. "This ismore a merger of equals. Going forward, itshould be a real force in the marketplace."SI also is joining a global company:Serco PLC of the United Kingdom. UnderU.S. national security laws, Serco Inc.operates as a separate company with itsown board of directors. But being part of a$6 billion-a-year company will give SIaccess to markets it couldn't have tappedbefore, Casey said.Serco will look to make more acquisitionsin the U.S. government market, but itdoesn't expect to be a serial acquirer, he said."We won't launch out into another [acquisition]until we are confident that we havebrought these two together as one companyand are performing well," he added.