DynCorp to Go on Shopping Spree

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DynCorp to Go on Shopping Spree

By Shannon Henry
Staff Writer

DynCorp is about to embark on a series of acquisitions that will show the company is putting its money where its mouth is.

Company executives have been saying since the beginning of the year that DynCorp would go on a buying spree at any moment, but the deals just haven't happened as fast as some expected.

DynCorp CEO Paul Lombardi told Washington Technology three acquisitions are in the works, all planned to be announced in the next few months. Lombardi would not reveal the names of the companies but he gave these clues: one is a major player in the commercial market; health care is the focus of at least one other. All have headquarters on the East Coast; one is in the Washington region.

Lombardi, who took the helm from Dan Bannister in February, expects to close the three deals in October, December and January, respectively. Together the companies will add $145 million in annual revenues to DynCorp's projected 1997 $1.2 billion in annual revenues.

Lombardi said the areas that DynCorp most needs to beef up are telecommunications and network management.

Bill Loomis, an analyst with Legg Mason Wood Walker in Baltimore, said he wasn't sure which acquisitions are planned, he said DynCorp should be targeting the consulting, network management and integration companies to better compete against companies such as Computer Sciences Corp. of El Segundo, Calif., and American Management Systems Inc. of Fairfax, Va. "The bar is always getting raised," said Loomis, about the growing systems integration market.

Making acquisitions, said Lombardi, is the No. 1 priority on his agenda. "If there was a disappointment this year, it was that we didn't find the right acquisitions [earlier]," he admitted.

Lombardi's ambitious goal is to turn today's $1.2 billion in annual revenues company into a $2.5 billion company by 2001.

DynCorp is employee-owned and after a recapitalization in February has available about $155 million in cash. Some of that, of course, needs to go toward running the company, but much of that pot has been earmarked for buyouts.

"Making acquisitions is DynCorp's No. 1 priority."

-Paul Lombardi
DynCorp CEO

The company is hardly a stranger to such thinking - since 1990 DynCorp has bought 11 information technology firms. "Our acquisition history is good. We buy at five times cash flow and turn into 10 times," said Lombardi.

DynCorp also has much experience integrating new companies into the current business. However, Lombardi said he will not roll any commercial acquisitions into the core government business. "They are such dissimilar businesses," he said. The commercial sector of the firm is likely to have a new name that will include "DynCorp," said Lombardi.

Commercial work for the company will largely be in the back-office area, including billing systems. The niche will be Fortune 1000, somewhere in between the Exxons and the mom-and-pop operations, Lombardi said.

Over the past few years, DynCorp has emerged as a somewhat unexpected top contender for government infotech contracts. The company's outsourcing division is the fastest growing part of the company.

"We kind of snuck up on everybody," said Lombardi.


file photo

"To bring the company public, Lombardi needs to increase the higher-end IT work and the commercial side."

-William Loomis
Legg Mason Wood Walker

Lombardi sees himself as the catalyst of that transformation. "The board hired me to build the company to traverse the 21st century," said Lombardi of his 1992 move from PRC to DynCorp.

Some industry sources have said that Bannister's giving up the CEO role (he still remains chairman) was not altogether a short or easy process. But Lombardi said he is friends with Bannister and that the two work well together. And Bannister continues to have a visible role in the Virginia technology community. However, Lombardi added, "I run the show. ... It could have been a difficult transition if he didn't let go."

Loomis said the aggressive changes at DynCorp come in part from a hope to take DynCorp to the public markets. "To bring the company public, Lombardi needs to increase the higher-end IT work and the commercial side," said Loomis. Still, Loomis predicted an initial public offering is about two to three years away.

Lombardi said he tried unsuccessfully to take a company public at another job (he held positions at what is now known as Litton-PRC Inc. in McLean, Va., from 1981 to 1992 when he left to join DynCorp) and that the IPO market needs to be favorable and the company really has to need the cash.

And going public would by definition change the corporate culture of DynCorp, which now is one of the largest employee-owned technology companies in the country.

"Employee ownership is a very big motivator," said Lombardi. "I have to look my shareholders in the face every day."

There also has been much speculation in the industry that DynCorp would soon be bought or merge with another company. Lombardi here takes the typical CEO line that he must consider all offers.

One of the largest problems facing the company, said Lombardi, is the same one many other area integrators have - finding technical talent. DynCorp has 150 open jobs at any one time, he said.

Becoming a better-known and bigger company, however, is attracting more employees to DynCorp.

But the most fun part, said Lombardi, is the buyouts. "Absorbing these acquisitions will be a kick," he said. "I enjoy the action."


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