FDC Aims for Big League With Acquisitions

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FDC Aims for Big League With Acquisitions

By Bob Starzynski
Staff Writer

Federal Data Corp. is close to becoming a household name in the government information technology industry thanks to four acquisitions in the past year, including two in the past several weeks.

Just last week, the privately held Bethesda, Md.-based company said it will buy Telos Information Services from Telos Corp. of Ashburn, Va., for an undisclosed price. On Feb. 19, the company purchased ROW Sciences Inc. of Rockville, Md., for an undisclosed price.

Federal Data specializes in providing the federal government with turnkey, fully integrated system solutions and professional services. Its largest clients are the U.S. Navy, the National Aeronautics and Space Administration and the Department of Veterans Affairs. Officials with the 29-year-old contractor declined interviews for this story.

Many people don't know of them, but "they're one of the hottest growth companies in the federal IT market," said Bill Loomis, an analyst with Legg Mason Inc. in Baltimore.

The most recent purchases add more than 450 employees to FDC's 1,100 employees, making the company one of the Washington region's largest IT contractors. Before this string of acquisitions, FDC had an estimated 250 employees.

The latest acquisitions will add to FDC's customer base and skill sets. Telos Information Services provides engineering and IT services to NASA, the National Oceanic and Atmospheric Administration and the Defense Information Systems Agency. ROW Sciences provides services combining expert knowledge in life and health sciences with state-of-the-art computer-based technologies. ROW's biggest customers are the National Institutes of Health and other agencies within the Department of Health and Human Services.

The simple reason for FDC's explosive growth through acquisitions, Loomis said, is an effort by the company and its primary investor, the Carlyle Group of Washington, to find comfort as a larger player in a blossoming industry. "In the government market, you need to either be a small niche player or you have to grow substantially," he said.

Federal Data Corp.

Headquarters: Bethesda, Md.

Founded: 1969

CEO: Daniel Young

1997 nine-month revenue: $309 million*

1996 annual revenue: $332.8 million*

1997 nine-month net earnings: $1.8 million

1996 annual net loss: $2.5 million

*Pro forma figures

Source: Securities and Exchange Commission filings
FDC has chosen the latter path. The company posted a net loss of $2.5 million on revenue of $309 million through the first nine months of 1997, according to a filing with the Securities and Exchange Commission. Revenue projections incorporating the Telos and ROW acquisitions were not available.

The market's demand that federal IT players become larger to succeed makes the connection between FDC and Carlyle an appropriate one.

Carlyle, which became FDC's largest stockholder in 1995, is a $1.3 billion merchant bank that has amassed a series of successes in the IT and defense markets, while maintaining a low profile. Many of the group's holdings - including Howmet Corp., GDE Systems Inc., Vought Aircraft Co. and Magnavox Electronic Systems Co. - have been sold to such larger companies as Hughes Electronics Corp., Tracor Inc. and Northrop Grumman Corp. Most recently, BDM International Inc. of Mc- Lean, Va., of which Carlyle owned 25 percent, was sold to TRW Inc. of Cleveland for $1 billion.

"Carlyle has an uncanny ability to buy a company, make it beautiful and sell it for a premium," said one investment banker who is familiar with the organization.

There is no indication the Carlyle Group is seeking a buyer for FDC. But its strong Wall Street ties, which can give a company financing to make deals, is certainly helping FDC round up some large acquisitions.

The Carlyle Group has sponsored more than $5 billion in mergers, acquisitions and other corporate investments and has acquired real estate assets exceeding $1.3 billion since its founding in May 1987. Frank Carlucci, a former secretary of defense, is chairman of the group.

Last summer, FDC bought NYMA Inc. of Greenbelt, Md., for $29.5 million. One month later, it bought Sylvest Management Systems Corp. for $40.4 million. Another month after that, it received $105 million through a private placement debt offering.

"Management expects to continue to pursue strategic acqui-sitions, which it believes can contribute significantly to the company's future business growth," read an SEC filing the company released in December. According to the filing, Carlyle maintains an 80 percent voting interest in FDC.

The ROW acquisition fits nicely for FDC, observers said.

"[FDC's] other acquisitions made them reseller heavy," said one investment banker. "ROW fills in the holes."

"Sylvest gave FDC expanded product capabilities," Loomis said. "NYMA gave them higher-end engineering. This gives them a good foundation in the life and health sciences."


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