DynCorp Fishes for Commercial Firms

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DynCorp Fishes for Commercial Firms

By Nick Wakeman

Staff Writer

DynCorp, Reston, Va., is once again casting for acquisitions as a way to build its infotech business - a strategy that will be led by the system integrator's new CEO Paul Lombardi.

Lombardi's appointment late last month by DynCorp's board of directors and the move of former president and CEO Dan Bannister to the position of chairman of the board, culminates a transition started six months ago, Lombardi said last week.

With Lombardi at the helm, DynCorp will pursue a two-prong acquisition strategy to boost its commercial infotech business and continue to grow its government infotech business, Lombardi said.

First, the company is looking to acquire broad-based solution providers with $30 to $70 million in annual revenues, he said. DynCorp has $200 million in financing for acquisitions, company officials said. Then the company will focus on vertical markets such as health care, he said.

With Paul Lombardi at the helm, DynCorp will pursue a two-pronged acquisition strategy to boost its commercial infotech business. Phase one should end this spring.
Rather than looking to break into a specific vertical market, DynCorp first wants to add companies that have high-tech talent and an understanding of its customers, Lombardi said.

Round one should be over by the end of spring, although the search for round two companies is already under way. "These deals don't just fall out of the sky," he said.

Infotech represents about $271 million of DynCorp's $1 billion in revenues, company officials said. The rest of its revenue comes from its enterprise management unit, which provides facility management services, and an aerospace technology unit, which provides aviation-related services.

From this base, Lombardi plans to push the company to $2.5 billion by 2001, about $500 million of which will be commercial infotech work. Currently, only about 5 percent of DynCorp's business is commercial.

DynCorp will not turn its back on the federal market, Lombardi said. The company's business mix will always be 60 percent to 70 percent federal work, he noted.

The replacement of Bannister with Lombardi and the company's prospects for future growth drew a mixed reaction from industry officials.

One source questioned whether DynCorp has the same entrepreneurial spirit that it once had. Many of the people who had that drive left when the company was on the block, one source said.

"I don't know if they have the [moxie] to do a deal now," he said.

But Douglas M. Schmidt, senior vice president with Ferris Baker Watts, a Baltimore market research firm, begged to differ.

"Perhaps the most important legacy Dan Bannister leaves is putting in place a strong team to follow behind him," Schmidt said.

Besides Lombardi, DynCorp has a strong chief financial officer in Patrick FitzPatrick. "He was a tremendous coup for DynCorp," Schmidt said.

FitzPatrick, who joined the company in February, is a former CFO for American Mobile Satellite Corp., Reston, Va., and PRC, McLean, Va.

"They certainly have the management team in place to make acquisitions and to make them work," Schmidt said.

DynCorp's current strategy is similar to one it used in the late 1980s and early 1990s when it first broke into the information technology market, said a former DynCorp employee, who asked not to be identified. The company bought smaller firms that had a niche in the government infotech business. DynCorp then grew those businesses, he said.

Last August, Bannister said the company was shopping itself and exploring potential acquisitions. About four months later, DynCorp stopped working with investment banker Bear Stearns & Co., New York, to find a possible buyer.

"We wanted to explore all of our options," Lombardi said. DynCorp saw many other infotech mergers taking place - Lockheed and Loral, Litton and PRC. "We didn't want to be shortchanged," he said.

The company also was looking for a way to buy out Herbert S. "Pug" Winokur, whom Bannister replaces as chairman of the board, sources said. Winokur helped finance DynCorp's move from a public to a private corporation in 1988.

DynCorp has bought back a large share of Winokur's interest but he will remain on the board, sources said.

None of the companies that expressed interest in DynCorp would pay the price per share Winokur wanted, said one source. But another source countered that DynCorp officials did not think that any of the companies that nibbled would make a good fit.


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