L-3 finishes spin out of Engility

Engility Holdings Inc. emerged from the shadows of L-3 Communications today and its CEO sees a company unencumbered by its former parent.

Engility will be targeting professional and technical services in the government market and CEO Tony Smeraglinolo said that growth of the seven business units that make up the new company was often curtailed when it was part of L-3.

It was a desire to unlock growth opportunities that led L-3 to the decision to spin-out Engility as an independent, publicly traded company, Smeraglinolo said. It’s stock is trading on the New York Stock Exchange under the EGL ticker symbol.

“We looked at the services portfolio and a decision had to be made on where are you going to focus your efforts and where are the inhibitors to growth,” he said.

The biggest inhibitor to growth for the systems engineering and acquisition support business, which is the bulk of what Engility’s units do, was organizational conflicts of interest, Smeraglinolo said.

“The government was saying, you can be a partner and advisor or you can be a producer, but you can’t be both,” he said. “So if we were going to grow this business, it had to be outside of L-3.”

L-3 hung on the services business that consisted of delivering solutions such as cybersecurity, information assurance, cloud computing and big data. Engility was created around the businesses that deliver what Smeraglinolo calls pure services.

“This is where the government has a problem, knows the solutions and needs a partner to help implement that solution,” he said. “You compete on a unit of labor and your efficiency for delivering that unit of labor.”

Among its services are system engineering and technical assistance, professional services, education and training, logistics, linguistics, operational support and international capacity development.

Engility will be going up against companies such as TASC – itself an OCI spinoff from Northrop Grumman -- Booz Allen Hamilton, Science Applications International Corp., and CACI International on the SETA and professional services side of the business. In areas such as mission support, the company will battle SAIC, DynCorp and AECOM, Smeraglinolo said.

The spin-out also created an opportunity to build a services company from scratch, he said.

“We got to ask, if you are going to be successful in this market what would your company look like? What would your management structure be? What would your policy and procedures be? And it is different than what a product or solutions company looks like,” he said.

The decision to spin-out Engility was made 19 months ago and was announced a year ago. Over the past year, Smeraglinolo has been building the corporate infrastructure needed to be an independent company.

That has included several executives to fill out the corporate team:

• Michael Alber, senior vice president and chief financial officer
• John Heller, president, professional services group
• John Craddock, president, mission support services
• Thomas Miiller, senior vice president, general counsel and corporate secretary
• Craig Reed, senior vice president, strategy and corporate development
• Randall Redlinger, vice president, business operations
• Michael Dallara, vice president, administration
• Thomas Murray, vice president, human resources

Unlike its former parent, Engility plans to go to market as a single entity, not a collection of businesses. Nearly 70 legacy companies have been pulled into Engility.

“L-3 had a tendency to be very decentralized, but we are going to be one company. We are going to say, we are Engility, we have highly specialized people, and we can deploy them wherever and whenever and do it cost effectively,” he said.

Smeraglinolo said the growth strategy going forward has two parts. First is to keep the current business base. Some have been customers of Engility legacy companies for 40 years. “You do that through excellent past performance, customer satisfaction and remaining cost effective,” he said.

Engility has 1,300 contracts, none of which bring in more than 7 percent of revenue.

“We have a solid base,” he said.

The second part is to expand the base and move into adjacent markets.

“We are now unconstrained so we can address the SETA market that we haven’t be able to for three or four years because of OCI,” he said.

His senior leaders also have identified 25 opportunities worth $3 billion that the company would not have pursued if it was part of L-3, because of OCI concerns or because L-3 wasn’t interested in a particular market, Smeraglinolo said.

“We are going to be customer-focused,” he said. “Every decision we make, we ask what value are we bringing our customer? That’s our guiding principle.”