CTA's Next Dance: Acquisitions

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CTA's Next Dance: Acquisitions

Comark photo Market analyst William Loomis of Legg Mason

Sometimes you gotta dance with the one that brung ya.

By shedding its satellite division, CTA Inc., Rockville, Md., is banking on information technology services - the company's base when it was founded in 1979 - to bring in more commercial work.

CTA photo Raymond McMillan, president of CTA's Information Technology Services Co.

The sale of the satellite division also will free up needed funds so CTA can buy a commercial company or two, McMillan said.

"Information technology services are now about the hottest market around so we need to do our investing there," McMillan said.

CTA is in the market to buy a commercial IT company, both as a way to grow the company, but also to make CTA more attractive when the company goes public, he said.

"We have taken a lot of our profits from the information technology services business to grow our satellite business," he said. CTA bought the satellite division in 1992. The satellite division's revenue swelled from $20 million in 1992 to $80 million in 1996.

McMillan said he expects the company to go public within a year or two. In 1997, revenues without the satellite division are expected to be about $100 million. The company will be ready to go public when revenues reach the $150 million to $200 million range, he said.

"I believe we are now in a position to grow at a rapid rate," he said. With an acquisition, revenues could hit $150 million in 1998, McMillan said. The company is currently in negotiations to buy two firms. McMillan said he hopes to have at least one acquisition completed by the end of the year.

The commercial mix is important to going public because the greater the amount of commercial business a company has, the higher the market value of the company is, both McMillan and Loomis said.

Presently, CTA's commercial business and its state government work represent a third of the company's revenues. Ideally, McMillan said he sees the mix closer to 30 to 40 percent federal government and 60 percent commercial and state government work.

The state and commercial work are accounted for together because most of that work is year 2000 conversions, McMillan said.

Work for the Department of Defense represents another third of the company's revenues. Civilian agencies comprise the last third, he said.

Year 2000 work is an important part of the company's strategy both to increase commercial revenues and capture more state business, McMillan said.

CTA is certified to do year 2000 work in 14 states and currently has projects going in five, he said. "In many cases the contracts allow us to do work other than conversions," McMillan said. "Our goal is to get into the state and then broaden our offerings to them."

Year 2000 work is providing an avenue for many companies that traditionally provide government service to move into commercial markets, Loomis said.

Many commercial providers of conversion services are reaching their limit for work, so the companies are turning to federal contractors to take up the slack, he said.

"It is a great opportunity for companies like CTA," he said.