Veridian Pulls Acquisitions Into Fold

Veridian Pulls Acquisitions Into Fold<@VM>Veridian Inc.

David Langstaff

By Nick Wakeman, Staff Writer

David Langstaff bristles when he hears the term "roll up" applied to his company, Veridian Inc. of Arlington, Va.

Just because he has pulled off six acquisitions in the past two years, pushing the information technology and engineering services company from $100 million in annual revenue to more than $600 million, acquisitions are not what Veridian is about, he said.

"A roll up suggests that acquiring is an end in itself," Langstaff, Veridian's chief executive officer, told Washington Technology. "But acquisitions are just a means to an end."

The end for Langstaff is the creation of a company that puts forth a single identity to the government market and is known as a premier provider of information assurance, knowledge management, modeling and simulation and high-end applications development services.

The company still is striving toward
that goal. To get there, Langstaff
has stepped back from the torrid
acquisition pace that saw the company close three deals in 1998, and three deals ? in a single day ? in 1999.

"The dominant focus for 2000 is integration," he said.

Even though Veridian had a clear idea of how it wanted to integrate its acquisitions when it made the deals, the process of melding them into a single company is a long and arduous one, Langstaff said.

"We've created three major divisions, but it is going to take us all of 2000 to put it together," he said.

Issues, such as leadership within the divisions, how to structure business sectors, putting support services in place and adjusting contracts and rate structures, all take time to work out, he said.

Finding the right company and buying it for the right price is just half of the battle in making acquisitions, said Richard Knop, a partner in the investment banking firm Boles, Knop & Co. of Middleburg, Va.

"Integrating your acquisitions is 50 percent of the pain. It is a very difficult thing to do," Knop said.

Part of Langstaff's philosophy about integration means that the names and identities of the acquired companies eventually will disappear, leaving behind the single brand name of Veridian.

"It is tough, because it is an emotional issue for people," Langstaff said. "But we sold these people on a vision of what Veridian can be, and what their role as a company or as individuals can be, as part of that vision."

Allowing the acquired companies to keep their old names makes it more difficult for the new employees to embrace and become a part of the vision for Veridian, he said.

"But you don't close the deal on Thursday and, as of Friday, drop the name," he said. Veridian works to get people to take the pride they have in their heritage company and invest that in Veridian.

Usually, after a year or so, Veridian begins dropping the name of the acquired company, Langstaff said.

"We are about halfway through that process now," he said.

Veridian's total integration approach isn't followed by all the active acquirers in the government market. Titan Corp. of San Diego, for example, integrates back-office functions, such as benefits and payroll, and has a unified marketing organization. But the acquired companies continue to operate as individual units. Titan has about 15 operating units, each with distinct names, under its Titan Systems division.

Science Applications International Corp. of San Diego also has been successful in buying companies and leaving them to operate as independent units, said John Allen, with the investment banking firm Quarterdeck Investment Partners Inc. of Los Angeles.

But no matter what the integration philosophy, "at the end of the day, you've got to make what you buy work for you," Allen said.

For a company like Veridian, which has an eye on going public, the integrated acquisition strategy allows it to present a persuasive case to Wall Street when it is ready to make its move, said Jean Stack, senior associate at the investment banking firm Houlihan Lokey Howard & Zukin of McLean, Va.

"Veridian could definitely do an [initial public offering] because they have a very clear message," Stack said.

That kind of integration takes time and discipline, Allen added.

Langstaff said Veridian is at least two to three years away from going public. Being a publicly traded company will help it raise capital more easily and attract and keep employees through the use of stock options, he said.

"Being public, though, is not an end in itself, but it enhances our ability to do our work," he said.

Veridian traces its beginnings to 1993, when Langstaff led a group of investors on a buyout of Calspan, the government IT division of Arvin Industries Inc., a Columbus, Ind.-based auto parts company. In 1997, Veridian was formed when Calspan merged with Veda International, another government IT company.

With financial backing from the Monitor-Clipper Partners of Cambridge, Mass., and Texas Growth Fund of Austin, Veridian's first deal was in February 1998 when it picked up Rail Co. In September and October 1998, the company picked up Datumtech and Pacific-Sierra Research. Terms of those deals were not disclosed, but Veridian's revenue rose from $100 million to $300 million.

In September 1999, Veridian completed a hat trick by closing three deals on one day, buying ERIM International, MRJ Technology Solutions and Trident Data Systems. Those acquisitions pushed the company's revenue to the $600 million level.

"They have very carefully selected companies that fit into a broader vision," Stack said.

Knop estimated that Veridian looked at 15 to 20 target companies for each company it bought. "They have a clearly defined acquisition criteria," he said.

Veridian is integrating its acquisitions around three divisions: Veridian Engineering, which does work such as system engineering, logistics and modeling and simulation; Veridian Systems, which does research and development work in areas such as knowledge management and datamining; and Veridian Information Solutions, which builds trusted networks and does other information assurance work.

Each division has about $200 million in revenue, but Veridian Information Solutions, built from its acquisitions of MRJ and Trident, is the growth driver for the company because of its capabilities in information assurance. Langstaff said that division should grow by 30 percent a year.

"We think we have a leadership position in the federal marketplace in information security," he said.

Veridian Engineering should grow by 5 percent to 10 percent a year, and Veridian Systems at about 10 percent.

The company's customer mix is about 45 percent Defense Department, 35 percent intelligence agencies, 10 percent civilian agencies and 10 percent commercial and international customers.

Among its more important government contracts, Veridian is the prime contractor on the General Services Administration's Program Safeguard, a four-year contract for a variety of information assurance services that could be worth $250 million. The company also provides management and support services for some of the largest secure networks in the government; but because the customers are defense and intelligence agencies, company officials declined to name them.

Focusing on a few niche areas is the best way to build a brand name and "become more valuable to your customers," Stack said. "And that is what Veridian is trying to do."

The drive behind Veridian's acquisition came when Veridian officials looked around the government market in 1995 and concluded that, to survive and be a prime contractor, the company had to have at least $500 million in annual revenue by 2000, Langstaff said.

Technology was changing rapidly, and the government was beginning to buy integrated solutions rather than discrete services, he said.

As it has grown, Veridian now finds itself acting as a prime about 65 percent of the time, and potential partners now ask not if Veridian is going to join a team, but if it will lead a team, Langstaff said.

The company is bidding as a prime contractor on the $1.5 billion Defense Information Assurance Services contract, expected to be awarded this summer. It also leads a team pursuing a $200 million IT and engineering services contract at Eglin Air Force Base in Florida.

As for the future, Veridian does not intend to make more major acquisitions until the integration is complete, Langstaff said. After that, he will look for niche plays where the company can pick up new technology or access to new customers.

Veridian Inc.

Headquarters: Arlington, Va.

Business: Information assurance, knowledge management, systems development and engineering services

Chief Executive Officer: David Langstaff

Employees: 4,000

1999 Revenue: $613.5 million

1999 Net Earnings: $51.8 million

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