Bannister's Last Hurrah

Like an aging baseball star who rounds the bases in slow motion, DynCorp CEO Dan Bannister has just hit a big one and all eyes are following it upward.

This time the question is not whether DynCorp will buy, but instead whether it will sell. At the company's last count there were six players interested in courting the $1 billion integrator.

No matter what the outcome, the talks are proving to be a suspenseful final chapter in the chief executive's 43-year career. Last week, Bannister spoke with Washington Technology Editor Jack Sweeney about his "last big deal," and about letting go of the company he helped create.

WT: So is DynCorp for sale?

BANNISTER: Unfortunately, that's what people are saying. This thing has gotten distorted in the press, and it's our own fault. First of all, I've got one job and that is to increase shareholder value. We're in the black and we're going to have $1.25 earnings per share this year. This offers us alternatives. We could do an [initial public offering]. We could look at large acquisitions, and by large, I mean $100 million companies, or we could spin off part of the business. We could do a reverse merger where we find a publicly held smaller company, a merger where overnight we become public. We could merge the entire company with somebody else or we could do a right-out sale.

WT: Which option is most attractive to DynCorp?

BANNISTER: Our position in the marketplace, the capabilities and resources we have and the direction we are headed will all determine this. We have a very small board. Most of the board members are inside. I only have three outside board members. So, I don't have a large board to bounce things off of. That's why we began speaking with [New York investment banking firm] Bear Stearns. I haven't seen anything that is of interest to me yet.

WT: Are you currently speaking with certain players?

BANNISTER: Let me back up. So far, Bear Stearns has sat down with us and we've told them there are some companies that we would like to acquire. There are some companies we believe would be compatible with us and there are a couple companies that if we put them together with us it might make a lot of sense. They are now going out to those companies to see if they believe it would make sense. But we have not had any of those discussions yet. Bear Stearns has received six expressions of interest, but so far, none are very exciting.

WT: Would Lockheed Martin Corp. be one of the companies expressing interest?

BANNISTER: Well, I'll have to make Lockheed comment on that.

WT: Are there synergies that could be gained by merging with another employee-owned company?

BANNISTER: Well, yes.

WT: Would SAIC be a potential merger partner?

BANNISTER: SAIC is the largest employee-owned company in our business. There are some market niches that we have that SAIC does not. But whatever company we may want to merge with, the judgment call that has to be made first concerns the questions: 'If we trade our stock for the XYZ company's stock, will our stock enjoy greater appreciation than what we already have? Can we continue to build shareholder value as an independent company?

If we think we can double our stock in five years, we would have to be able to match that stock with the XYZ company over five years, and right now most stocks are at a high. For instance, Lockheed is at an all-time high. There has been some talk here that if we had acted before the merger between Lockheed and Martin Marietta and had sold DynCorp to Martin a year ago last January when they were trading at $22 that stock is today worth $88 -- I'd be the biggest hero around for these stockholders.

WT: Is a public offering out of the question?

BANNISTER: An [initial public offering] I think has been taken off the table. This company is not ready for a [public offering]. The market has changed, and we have to get six or eight good quarters behind us with continuous improvement in earnings and some commercial business. It doesn't make any sense for me to go public as a government contractor. Lockheed can do it because they are the biggest in the world.

WT: What portion of your business must be focused on commercial sales?

BANNISTER: We need 25 percent commercial IT business in the next five years, and we are in discussions with a couple of companies that would give us a start. We have employees in every state of the union, so we can use this effectively in certain states.

WT: Do you need to do an acquisition to survive?

BANNISTER: We can survive, but we won't be as successful. Over the next five years, we need to continue growing the company and strengthening our market positions and making sure we perform really well so we've got strength in those markets when recompetition comes along. A good example is the [General Services Administration] where we are sort of a new kid on the block. We have to make sure we perform very well so when it comes up next time in competition, we have the market strength and the past-performance record to carry us through the competition. Past performance has become a major consideration in contract evaluations -- it's as high as 60 percent -- and that's too much. The next thing we have to do is get into commercial business.

WT: Aren't you a late-comer to the commercial business?

BANNISTER: No, not at all. We're going to do it through acquisition using the same formula that we used to build four successful businesses. Acquisitions are one of our core capabilities. We know how to make acquisitions and integrate them into our company.

WT: In the past, did DynCorp have an acquisition formula?

BANNISTER: We've done 43 acquisitions since 1970 and only one was a failure. It [failed] because of fraudulent information given to us by the sellers. We got our money back on that one I might add. There were two others that did not meet our expectations, but they didn't fail. We didn't shut them down. That is an excellent record in acquisitions. The experts will tell you, 50 percent of acquisitions fail.

WT: What is your next move?

BANNISTER: My plan is very clear; if the company was to be merged, sold or if there was a change in control, I would serve at the pleasure of whomever the purchaser is, which I'd expect to be rather short-lived. The new management team here, other than a CFO, is in place and ready to go. We are looking for a CFO. Paul Lombardi is my successor. He's ready, and probably anxious, to take over. If we don't do a deal of any sort, then I will phase out of the company. We don't have a schedule for that, but it's time for me to pass the torch. I don't believe in hanging around. I wouldn't serve on the board. I think this will happen much sooner than the end of the year.