KeyW rides opportunity 'bubble' post Sotera deal

Determining the success of any large merger or acquisition in the government services arena takes time but the newer and larger KeyW Corp. believes it has set the foundation in place to realize long-term gains from its April purchase of Sotera Defense Solutions.

KeyW now has a single business development team in place post-combination to realize one main integration-related item, CEO Bill Weber told Washington Technology. The combined company is on track to bid for nearly $4 billion in contract opportunities for the year, he said.

At $535 million in projected pro forma revenue, that proposal volume is a “huge number” for a company of KeyW’s size, Weber said.

“We won’t sustain that going into 2018 but some of that was just opportunistic,” Weber said. “When we put the companies together, we have an opportunity right now to bid on something that neither company was tracking as a prime bid.

“What it did was create a bubble of bid opportunity that we are responding to right now.

KeyW derives substantially all of its business from intelligence-related work and holds a footprint in 60 percent of intelligence community agencies. The company is a provider of engineering and technology services for national security agencies.

A look at business development metrics for KeyW shows a company that sees more possibilities for larger wins as a bigger entity. As of the second quarter’s end, KeyW has a total qualified bid pipeline of $7 billion and identified pipeline of $18 billion.

The company has $1.7 billion in bids awaiting award and plans to submit another $1.6 billion in proposals this year, according to a KeyW second quarter investor presentation. By comparison, KeyW had $1 billion in bids planned over 12 months at the same time last year.

During Washington Technology’s most recent conversation with Weber, he cited a “couple of opportunities of size and significance” the company was awaiting news of award on. Those were instances where the pre-combination KeyW and Sotera both would have not bid on or pursued as a subcontractor, he said.

Results of that integration on the award front are “a little early” to measure so far, Weber told WT, as bid submissions “take a little time.”

“By the end of this year, several of the awards we are on track to get will be on that bucket of things we would have said that neither company would have bid or we were a stronger play as a combined company,” Weber said.

In recent times, several large government IT contractors have reported some disruption in the market and some have even cited the transition in administration and political vacancies as impacting their financial results. Decisions on large contracts that require a political appointee were cited as facing possible delays by executives during the most recent round of quarter earnings calls.

Weber told WT he also sees that dynamic in procurement cycles playing out but also believes it is also not that different from prior transitions or even disruptions in budget cycles that included continuing resolutions or sequestration.

“There have been a few cycles in my career where the procurement cycle is faster than I expected but those are rare,” Weber said. “Some of this is just natural order. There does appear to be some pent-up demand.

“The good thing though is what we’re seeing this time is it’s not about solicitations waiting to come out, they’re out. We’re seeing a lot of bid activity in the market, it’s the decisions that we’re waiting on and that’s where the bubble is pent up.”

Still pent up on many KeyW buildings is signage from heritage Sotera, which Weber said is in the process of being removed as part of the integration.

KeyW’s next major milestone is the consolidation of back-office and other IT systems, Weber said. The projected closure date for all integration activities remains Dec. 31 of this year to “go forward as one KeyW,” he said.