High-Flying BTG Aims for Even Higher Orbit
The systems integrator is tapping new Internet business even while consolidating traditional markets
P> Though many companies struggle in a government integration market that becomes more competitive by the day, one top-flight integrator has used acquisitions, big contract wins, a surge in product sales and strong market positioning to soar as a $205 million company. But like its competitors, BTG Inc. now must deal with a temporary downturn in business that has clipped its wings as a result of the government shutdown.
"They're a very good company -- one of the fastest-growing companies in the industry at providing information technology and services," said Bill Loomis, analyst with Ferris, Baker, Watts in Baltimore.
The Vienna, Va., company owes much of its success to Ed Bersoff, founder, president and CEO. From the company's start in 1982, he has gained the respect of his colleagues in the government contracting world.
He has built a company with a strong customer base in the Department of Defense and has expanded beyond that, primarily through acquisitions. When Bersoff needed money to fund further acquisitions and internal growth, he authorized an initial public offering in December 1994, which raised nearly $9 million.
Like a gold miner in the Old West, Bersoff in the last few years painstakingly panned the infotech landscape for high-tech acquisition targets and unearthed four gems. BTG bought BDS Inc., a Sterling, Va., systems integrator specializing in UNIX solutions, in March 1992; Advanced Computer Technology Inc., a Merrifield, Va., $15 million reseller and manufacturer of computer equipment, in July 1994; Delta Research Corp., an Arlington, Va., $10 million software developer and systems integrator specializing in environmental engineering and cost management, in November 1994; and Concept Automation Inc., an integrator and reseller in Sterling, Va., in October 1995.
Bersoff does not have a uniform management strategy for acquired companies, which may, in part, explain his success. "If you start out by saying 'here's our acquisition strategy,' it won't work if it can't fit individual circumstances," he said. "Some deal with acquired companies with too firm a hand or too soft a hand -- beating an acquired company into submission or being too soft and letting everyone run loose. We left BDS as a stand-alone [company] for a couple of years and retained its management. With ACTech, we dismantled it fairly quickly and absorbed it because the owners moved away. With Delta, we've left it as a stand-alone business." Concept Automation also continues to exist as a stand-alone business.
While some observers might attribute BTG's growth primarily to the acquisitions, Bersoff does not think he spends inordinate resources -- or sacrifices internal growth -- in acquiring companies. In BTG's fiscal year 1995, which ended March 31, more than 67 percent, or $35.3 million, of revenue growth came from the company's core systems development and value-added reselling business. Nonetheless, he said BTG is "in an acquiring mode," so don't be surprised if BTG acquires another integrator or two this year.
Through the acquisitions, BTG has become a more complete business, serving as a manufacturer, product reseller and systems integrator. But the acquisitions also have allowed the company to broaden its client base beyond the Defense Department, even though some don't think it's a bad thing to base an infotech business on defense customers. "Some of this is mythical," said Harry Heisler, a Chantilly, Va., consultant who previously served as vice president of marketing at Government Technology Services Inc., the Chantilly, Va., reseller.
"The DoD is the biggest single user of information technology in the government. It has the most coherent strategy, with aggressive future plans, which other agencies don't have. Analysts and followers tend to make it more of an issue than it has to be. You probably don't want to be 100 percent DoD, but for that matter, you probably don't want to be 90 percent government, either. There was a golden age for pure government contractors, but that day may be over," noted Heisler.
Even investment analyst Loomis commented, "It's not necessarily a big concern that they're heavily dependent on DoD business."
Bersoff wants his company to diversify, but "I'm not going to turn down DoD business to keep up a [certain business] mix. Our defense business is growing. We continue to win new contracts." He wants BTG to derive 40 percent of its revenues from DoD, 30 percent from civilian agencies and 30 percent from commercial customers. Currently, less than 10 percent of BTG's business comes from the commercial market.
Even though Bersoff wants to increase commercial business, BTG still gets some lucrative defense deals. BTG and Cordant Inc. of Reston, Va., scored big in early December when the Air Force awarded them a $929 million indefinite-delivery, indefinite-quantity contract -- their biggest contract to date. "This is a major step in our overall strategic plan. We spent a lot of time trying to win a larger contract," said Jack Littley, vice president of business development at BTG. "It's very expensive to bid, but the payoff is also very high," he said. BTG's previous big win was the $195 million Systems Acquisition Support Services contract with the Defense Intelligence Agency.
But the two companies may be headed in separate directions. While BTG assembles a project team for the Air Force's five-year contract, Cordant faces protests filed by rival vendors. The Small Business Administration and General Accounting Office have received protests by rival companies who charge that 205-employee Cordant can not perform at least 50 percent of the labor hours during the first two years of the small business set-aside contract.
Although BTG continues to flourish through its defense business, the company has new things in mind. Not to be left behind, BTG, like many other companies, has found the Internet ripe with opportunities. It helps, of course, that BTG has long provided sophisticated network technologies to the intelligence community. The trick is translating that technical expertise to revenue opportunities in unfamiliar markets.
BTG wants to use the Internet to process orders for more contracts and has set up a World Wide Web home page with ordering capabilities for the Air Force contract, which will support defense intelligence organizations. According to Littley, BTG increasingly uses the Internet to fulfill indefinite-delivery, indefinite-quantity contracts and General Services Administration Schedule business. "It makes the process go a lot quicker than paper-based" procurement, said Littley.
Providing Internet services for businesses also has allowed BTG to increase its revenue from corporate customers. BTG is the exclusive GSA Schedule reseller for the hot World Wide Web browser, Navigator, from Netscape Communications Corp., Mountain View, Calif. So far, customers for Web home pages and other services have included The World Bank in Washington, D.C., a local automobile dealership, a mutual fund company in Wisconsin and a retail chain in New Jersey.
BTG has expanded internationally into Europe by leveraging its military and intelligence expertise. In 1994, after all, nearly half the company's 650 employees had secret or top secret security clearances with the U.S. government. The integrator has opened an office in Brussels, Belgium, and has a contract with the Ministry of Defense for Norway and England. Russia also is a potential market for BTG's services.
The company's expansion into international markets, the Internet services business and commercial sector has done well for its stock -- except for a recent downturn. BTG's stock dropped 10 percent Jan. 3 to approximately $10.44 after the company announced that its quarterly earnings would be down because of the partial government shutdown. Stock analyst Loomis considers BTG an undervalued stock and noted its 52-week high was $15, and the low was approximately $6.12.
Bersoff continues to push BTG to new heights and has set a revenue goal of $500 million for fiscal year 2000 and $1 billion for 2002. "It seems like a very reasonable goal to become a $1 billion company in that time frame," said analyst Loomis.
Keeping Track of the Acquisitions
1992BDS Inc.UNIX systems integration
1995ACTech Inc.Reseller and manufacturer
Delta Research Corp. Software developer and systems integrator
Concept Automation Inc.Reseller
Big Wins: BTG's Five Largest Active Contracts
Name of ContractGovernment AgencyPotential Value of Contract
IC4IAir Force$929 million/five years
SASSDefense Intelligence Agency$195 million/two years
TDA2Treasury$109 million/two years
Bureau of Prisons$50 million/three years
EPAWorkstations, LAN, Integration$33 million/2-4 years