Brad Antle on the ups and downs of growing a Top 100 company

We then used the money we’d raised from the equity offering to continue our pursuit of reasonably priced companies that would add scale. We did our next acquisition in early 2004, a $70 million company called Matcom. It was the largest purchase we’d done to that point. We integrated it and continued along the acquisition path to add specific capabilities and to broaden SI as we continued to grow.

There certainly were a lot of acquisitions at the time, but we were disciplined in what we were willing to pay because, as a public company, we were mindful of the return on invested capital necessary to give to our investors.

We didn’t get every acquisition we went after, and we didn’t close every acquisition that we wanted to close either. Some we lost, and some we simply backed away from because some things came to light during due diligence that we didn’t think were in keeping with what we were after. Or there were issues we thought needed to be solved before the acquisition. Of the acquisitions we started, we completed less than half.

We acquired two companies almost simultaneously. One was mainly an NSA contractor called Bridge Technologies. It was relatively small, about $22 million in revenue. The other was Shenandoah Electronics Inc., of Harrisonburg, Va., which was focused principally on the Homeland Security Department, which we early saw as a growth area at the time. It was a good acquisition that was both profitable and gained us entry to DHS.

Culture is key

Whenever we did an acquisition, we approached it from the philosophy of making sure that we did no harm to the employees. We did whatever we could do to keep them. People enjoyed the culture, and they associated with the mission that they supported. Frankly, in the services business, that’s key.

As a result we experienced very little turnover. In the case of SEI, for example, we found that the back office was a fantastic operation and it led us to bring our payroll in house and host it in Harrisonburg.

The work we lost due to the base realignment and closure activities in late 2007 and into 2008 required some significant cuts in staffing and new business development. When you’re in the public market and you’ve got 90-day metrics to meet, you don’t have the luxury to continue to focus on growth if you have some short-term issues that impact your ability to fund them. So the most difficult thing I had to do at SI was to dial back some of that growth and infrastructure in the short term to meet Wall Street expectations and to build it back up again.

When you’re growing it’s amazing how you can fuel that growth, you can continue to put gas to the pedal. But once you have any kind of reduction in that top-line growth, you have to be ready to reduce your speed, that is your spending. Accelerating is much easier than braking.

Exit ahead

We certainly were not looking to be acquired. But clearly the market was getting tougher in terms of the defense budgets. We’ve seen year after year a siphoning of dollars away from systems development to support the ongoing war efforts in Iraq and Afghanistan, and that didn’t look like it was going to be easing anytime soon.

There were a couple of companies that expressed unsolicited interest in SI, and the board had to take those offers seriously because they offered a significant premium over the stock price. Like the rest of the industry, we were down, with only single-digit growth the year before.

We were balanced between DOD and civilian clients, so we were well-positioned to weather any storms, but whether we would achieve significant growth in the next couple of years that would outpace the premium offered is what influenced the board to make its decision.

The sale to Serco also looked like a good fit strategically with no customer set overlaps. It would basically double the size of Serco in the U.S. and was a good deal for SI shareholders. So the board did what a board is supposed to do, which is to be responsible to the shareholders.

I think a sale was inevitable. We knew that at some point SI would be acquired. That’s the nature of the industry. My personal preference would have been a sale three or four years later. Just like we went public before our business plan said we should, at $156 million in revenue instead of the planned $300 million, because the market was ready. You can’t always dictate when you go public, and you can’t always dictate when you get bought. You act based on market dynamics, and I think the sale was good all around.

New contracting era

Right now, there’s still a lot of acrimony, unfortunately, in the federal contracting community. Issues like the Employee Free Choice Act have taken attention away from things that ought to be addressed. But I think the prospects are great.

In terms of funding, there is a tremendous amount of money out there from the stimulus package and from the recently passed omnibus spending bill. And most of that funding will have to come through existing vehicles because the federal government acquisition process is a bit broken. There aren’t enough acquisition professionals.

This whole notion of the government insourcing a tremendous amount of work is an objective they’ve had for a number of years, but I think it’s just not realistic. It’s not as easy to attract people to the federal government as they think. So I am not particularly worried about that. Some functions will get insourced and businesses will have to be nimble enough to adjust. This requires everybody to be a bit agile.