Online extra: ITS, SEA create merger of equals

Science & Engineering Associates Inc. wasn't looking to be acquired when it began exploring how to add acquisitions to its growth strategy.

The New Orleans-based company was doing well on its own, relying on organic growth that in five years took the company from about $13 million in annual revenue to $110 million.

"We knew we were at the top of our game," said Bobby Savoie, SEA's chief executive officer. "But we needed to do mergers and acquisitions, which we knew nothing about."

The company began talking with Arlington Capital Partners, an equity capital group, to see whether it would back SEA's acquisitions. Those talks led SEA to ITS Services Inc., another Arlington Capital-backed company.

As executives for the two companies began to talk, it became clear there was a fit, and the companies announced a merger Jan. 22 with ITS Services, acquiring SEA in a cash and stock deal. The value of the deal was not disclosed and is expected to close within weeks.

"By merging, we knew we could expedite our strategy by two years with just a signature," Savoie said.

Although ITS Services is acquiring SEA, no layoffs are planned, and senior executives from SEA are taking leadership roles at ITS Services.

Savoie will become vice chairman of ITS Services. Dan Oliver, SEA's president and a retired vice admiral, will become sector president of defense, homeland security and intelligence. Doug Chandler, SEA's chief operating officer, will be sector president of federal civilian and advanced technology solutions.

ITS Services CEO Todd Stottlemyer will keep that role. Paul Leslie will continue to be president and chief operating officer, and Tom Weston will stay as chief financial officer. ITS Services Chairman Phillip Odeen will be the chairman of the combined organization.

The company also is looking for a new name, Stottlemyer said. ITS Services will continue using SEA's name for now, but a marketing company and the employees will help name the combined company, he said.

The new company has about $200 million in annual revenue, nearly all of it from the government, Stottlemyer said.

"There is virtually no customer overlap," he said, adding that this will make integrating the companies easier.

ITS Services will get about 50 percent of its revenue from the Defense Department, with most of that business coming from SEA. Thirty percent will come from the Homeland Security Department, which comes from ITS Services. The remaining business is from other civilian agencies such as the Energy Department, Drug Enforcement Administration and ITS.

Executives with the two companies have already identified about 10 opportunities that the combined organization can bid on that alone would have been difficult to pursue, Savoie said. Among these are contracts for the 2010 Census, the E-Payroll project and the DHS Spirit contract, as well as new contracts at the Energy Department and the Navy.

With both ITS Services and SEA bringing strong internal growth, executives with the combined company said reaching $1 billion in annual revenue in the next five years is achievable.

Stottlemyer said acquisitions would remain an important part of the growth strategy, and another deal is expected this year.

Most M&A activity in the government market involves larger companies acquiring smaller companies, but the ITS Services-SEA deal is a merger of equals. Both companies have nearly the same amount of revenue and number of employees.

"To merger two equal-sized companies, you have to take the egos out of it," Savoie said.

But it takes effort to get to where the egos are not a factor, according to Stottlemyer. Senior leaders of the two companies took at least 10 trips visiting SEA's headquarters in New Orleans and ITS Services headquarters in Springfield, Va.

"We spent a lot of time together," Stottlemyer said.

Senior leaders with both companies had to get to know their counterparts and see if their philosophies meshed regarding customers, the business, employees and other factors, he said.

"You have to get to a shared strategy and shared core values," Stottlemyer said.

"We'll have a honeymoon for awhile," Savoie said. "But our success will all boil down to creating opportunities for our employees."