Cash-rich SAIC hits the acquisition trail

Making a big splash in recent weeks, Science Applications International Corp. bought two companies, adding new capabilities in cybersecurity, energy and disaster recovery — areas in which government spending is expected to grow.

In early July, SAIC bought Seattle-based R.W. Beck Group Inc., with its 550 technical business consultants, and Beck Disaster Recovery Inc., an emergency management consulting firm.

Just a week later, SAIC announced it had acquired cybersecurity product testing company Atlan Inc., based in McLean, Va. Atlan tests and certifies cryptographic modules, including software and hardware, to ensure compliance with National Institute of Standards and Technology security standards.

But it was last year’s lack of an aggressive acquisition strategy, rather than the company’s recent burst of activity, that is anomalous, said Ray Bjorklund, senior vice president and chief knowledge officer of government research company Federal Sources Inc. “Things have understandably been quiet in some areas while the company’s been getting over the shock of the [initial public offering], which can be quite a shock — both positively and negatively,” he said.

The defense contractor seems to be well recovered from its October 2006 IPO — SAIC announced June 24 that its quarterly revenue had grown by 12 percent, to $2.7 billion, with net income up 13 percent, to $116 million, thanks in large part to higher government spending on cybersecurity and defense.

The company expects the Atlan acquisition will swell coffers by adding to its cybersecurity offerings and through an anticipated concurrent growth in Atlan’s business. “We’ll be able to extend our work to the Common Criteria market, in addition to enhancing our ability to provide quality [Federal Information Processing Standard] 140-2 and SCAP testing to a larger marketplace,” said Edward Morris, FIPS laboratory director at Atlan.

“I think they had to settle things out in the public marketplace before they went back to their normal mode of operating, which is buying small companies that they lash together and integrate so that they can go after new business,” Bjorklund said.

In June, SAIC won a $357 million task order from the Army Tank-Automative Command's Life Cycle Management Command to support the Joint Program Office, Mine Resistant Ambush Protected Vehicle by providing MRAP Joint Logistics Integrator and Operational Readiness Services.

But even dramatic cuts in Defense Department programs are unlikely to hurt SAIC, Chief Executive Officer Ken Dahlberg said in a June earnings call. “The overall defense budget and the ops and maintenance component are both up about 4 percent,” he said, “so we should have solid funding through at least September 2010.”

For example, SAIC was recently named one of three winners on the Navy’s Net-Enabled Command Capability contract, worth as much as $55.4 million for SAIC.

Additionally, Dahlberg said, “the proposed defense budget increases funding for ISR and military health care, which are good markets for our company.” In one recent award, the company stands to collect $158 million to continue supporting DOD’s health information management system.

SAIC won nine recompetes of more than $50 million in the first quarter, Dahlberg said. “We now have 161 $100 million plus opportunities in our pipeline, compared to 138 one year ago," he added. "Moreover, 118 of those 161 large opportunities have an expected award date within the next four quarters.”

With its core consulting and engineering organization going to SAIC’s energy, environment and infrastructure business unit, the Beck acquisition is expected to boost the company’s wins in upcoming stimulus package energy awards.

Although Dahlberg will be stepping down as CEO in September — to be replaced by Walter Havenstein, former president and CEO of BAE Systems Inc. — SAIC’s acquisition spree will likely continue. The company is cash-rich, Dahlberg said, and plans to spend it. “We are in dialogue with several companies, and I expect we will be able to augment our strong organic growth with some strategic attractive acquisitions in fiscal year 2010,” he told analysts. “Although we look for opportunities across our entire business base, right now we see the most potential in the energy, cyber and intelligence spaces."