Some Naughty and Nice Predictions
With most of the mega-merger deals already done in the federal information technology arena, the big action in 1998 will turn to smaller niche players.
That's right. The dust just settled on three key integrator deals: TRW's purchase of BDM Corp., Litton Inc.'s acquisition of TASC, a unit of Primark which specializes in national security work, and the purchase of Rockville, Md.-based Computer Data Systems Inc. by Dallas-based Affiliated Computer Services Inc. But we predict one or two more deals in the $200 million range in the next month or so.
Not surprisingly, the consolidation trend can be traced to uncertainties in the federal marketplace. Procurement changes are driving this uncertainty and that circus-like contracting atmosphere is bound to continue.
Systems integrators can expect more multiple contract awards, more blanket purchase agreements and more selling of services via the GSA. The wild card in 1998 will be the impact of two huge government outsourcing efforts planned for spring. Those desktop services awards, from NASA and from GSA, total more than $12 billion and will be the new benchmark for government outsourcing.
Peering into WT's crystal ball, here's what else we see:
Federal regulators and legislators will come to the conclusion that telecommunications deregulation is not progressing as planned but won't be able to do anything but tinker around the edges.
Vice President Al Gore will try to get closer to the high-tech industry while somehow staying cozy with the unions and environmentalists.
The Federal Communications Commission's auctions division will spend much of 1998 reauctioning personal communications service licenses after many companies realize they cannot pay the commission back for licenses that have already been granted.
AT&T, which has somehow avoided an Internet strategy until now, will buy an access provider or an online company such as AOL.
The competitive local exchange carriers, such as WinStar and American Communications Services Inc., will beat the bells to the finish, offering telco services faster and cheaper, while boosting their own stock prices.
The capital markets in Washington will get more crowded as investment banking firms in the rest of the country look to do business here. Friedman, Billings, Ramsey and Co., which has so far led the region in tech investment, had perfect timing for its IPO. Now the big question is whether FBR will be gobbled up by a large commercial bank.
Its Netplex neighbor to the north, Baltimore-based investment banker Legg Mason Wood Walker, will mount an aggressive regional campaign in 1998 that will see its technology-related IPO offerings jump.
Two technology wunderkinds, Raul Fernandez and Michael Saylor, will become much more wealthy. Both of their companies, Proxicom of Reston and MicroStrategy of Vienna, respectively, will go public. The two men, both in their early 30s, hold the largest stakes in their companies.
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