AMS Eschews Acquisitions As It Seeks New Markets

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AMS Eschews Acquisitions As It Seeks New Markets

Pacific Rim newest target for company's internal growth

By Nick Wakeman

Staff Writer

American Management Systems wants to grab a share of the fast-growing Pacific Rim marketplace for telecommunications and finance-related systems integration work.

"We've done projects there but we haven't set up an infrastructure yet," said AMS CEO Paul Brands. "I can see us going in a year or two," eventually boosting AMS' foreign earnings to 40 percent of its revenue, he said. Total revenues for the company are projected at about $800 million for 1996.

The business model the company will use to open up the market has not been determined. "We are still assessing that," Brands said. "We are not sure if the same model we used in Europe will work."

That model followed a familiar pattern for AMS - concentrating on particular vertical markets and avoiding acquisitions. "A going-it-alone model," Brands called it.

The strategy worked in Europe where AMS saw revenues grow from less than $10 million to about $240 million in 1996. Europe represents about 35 percent of AMS' revenues, he said.

The same two vertical markets that AMS used to increase its European business - telecommunications and finance - will spearhead the push into the Pacific Rim countries, Brands said.

Most of the solutions the company provides deal with billing and customer interface systems, he said. AMS has already done projects in Hong Kong, Singapore, Japan and South Korea. Most have been two or three months long, with employees going over and then returning, Brands said.

AMS has been using the projects to learn about the market and determine what will work best there, he said. A more permanent move is likely in 1998 or 1999.

The Pacific Rim "is a very ripe area," said Mark D'Annolfo, an analyst with Adam, Harkness & Hill, Boston. "There are not a lot of people there now."

If AMS uses acquisitions to move into Asia, it will be a break from tradition. The Fairfax, Va., company does not actively look for purchases and will only pursue them to supplement or add a new capability, Brands said. AMS has made three purchases in 15 years, and all were in the $5 million to $10 million range, he said. The last one was more than three years ago in the banking field.

"The acquisitions we did go forward with were tougher than we thought they should be," Brands said. Merging divergent cultures caused most of the problems. "We are just more comfortable going with internal growth," he said.

That growth has been steady for AMS. The company touts 26 years of growth with most years meeting or exceeding the firm's stated goal of 20 percent, Brands said.

Estimated revenues for 1996 are $800 million, an increase of about 28 percent from 1995, he said.

"We think 20 percent is doable and sustainable with internal growth," Brands said.

"They are in good enough areas in IT to have all the growth they can handle," said William Loomis, an analyst with Ferris Baker Watts, Baltimore. He is projecting revenues of close to $1 billion in 1997.

The company targets eight vertical markets - insurance, health care, telecommunications, state and local governments, federal government, finance industries, colleges and universities, and gas and electric utilities.

"Each sector has a lot of long-term growth," Brands said. About two thirds of AMS revenues come from commercial work, about half of which is in Europe. The remaining third is divided between state and federal work, he said.

Growth in the coming year is being led by commercial revenues, which should rise at between 23 and 28 percent. State work is expected to grow 18 to 24 percent; and federal work between 10 and 15 percent, Brands said.

On the federal side, the company is involved in a "fly-off" with DynCorp,
Reston, Va., for the Defense Department's Standard Procurement System, which will be an online procurement system covering all phases from requirements definition to close-out, said Deb Del Mar, vice president of AMS' defense practice.

The one-year contract is expected to be awarded by spring and should be worth about $3.3 million. The contract should open up more opportunities, she said.

"This contract plays into AMS' strengths," Del Mar said. "Hopefully, DoD will move beyond just this procurement."

AMS' strength, as Brands describes it, is that the company tries to develop a relationship with customers that goes beyond simply providing a technical solution.

Rather than just trying to do individual projects, AMS tries to get customers to think about entire processes, he said. "We try to think ahead to see how they can become more profitable, enhance their competitiveness and revenues," he said.

The first step in doing this is "delivering what you say you can deliver," Brands said. AMS employees also must convey a sense that they are in the project to help the client perform better, he said.

"Without those two you can't develop a good relationship," he said. "We measure AMS' success by our clients' success. That is the foundation for a long-term relationship."

AMS talks with customers about broader issues in the market. "Some we can help with and some we can't," Brands said. The approach has been an integral part of AMS for years, he said.

Consulting is a recognized strength of the company, D'Annolfo said. "They give high value."

This strength is one reason the analyst said AMS should increase its operating margins, which are now between 8 percent and 10 percent when compared to the 12 percent to 15 percent margins of competitors such as Andersen Consulting, Chicago.

"AMS does as premium work as anyone, so they should get as premium margins," D'Annolfo said.


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