Condor Consolidates Small IT Players
Condor Consolidates Small IT Players
By Bob Starzynski
Condor Technology Solutions Inc. of McLean, Va., is expecting the public market to transform it from a paper company to a profitable $100 million operation overnight.
An initial public offering expected within the next month on the Nasdaq National Market will raise funds needed to purchase eight information technology firms ranging in annual revenue from $2.6 million to $44.7 million.
The initial public offering will trigger the consolidation of the eight companies, immediately giving Condor 525 employees, annual revenue of $103 million and annual earnings of $3.4 million.
Companies to be acquired by Condor
|NAME ||HEADQUARTERS ||EMPLOYEES ||YEAR |
|Computer Hardware Maintenance Co. ||Langhorne, Pa. ||230 ||1972 |
|Corporate Access Inc. ||Andover, Mass ||25 ||1986 |
|Federal Computer Corp. ||Falls Church, Va. ||42 ||1982 |
|Interactive Software Systems Inc. ||Denver ||94 ||1979 |
|InVenture Group Inc. ||Pittsburgh ||36 ||1993 |
|Management Support Technology Corp. ||Framingham, Mass. ||25 ||1992 |
|MIS Technologies Inc. ||Tulsa, Okla. ||62 ||1984 |
|U.S. Communications Inc. ||Annapolis, Md. ||17 ||1994 |
| Source: Company information filed with the Securities and Exchange Commission|
Until now, Condor has had no operations, generated no revenue and just recently assembled its management group for the combined entity. The eight companies run the gamut of information technology services, with 75 percent of their business concentrated in the commercial sector. They are: Management Support Technology Corp., Framingham, Mass.; Computer Hardware Maintenance Co., Langhorne, Pa.; Federal Computer Corp., Falls Church, Va.; Corporate Access Inc., Andover, Mass.; Interactive Software Systems Inc., Denver; U.S. Communications Inc., Annapolis, Md.; InVenture Group Inc., Pittsburgh; and MIS Technologies Inc., Tulsa, Okla.
Federal Computer Corp. is the only federal contractor of the group. Its $27 million in revenue last year accounted for about one quarter of the total revenue generated by all eight companies. Condor's largest contract, private or public, will be a Federal Computer Corp. contract with the U.S. Customs Service.
Consolidation has accelerated in the information technology arena, with recent merger announcements bringing together primarily larger players, such as TRW Inc. of Cleveland buying BDM International Inc. of McLean, Va., for $1 billion, and Affiliated Computer Services Inc. of Dallas buying Rockville, Md.-based Computer Data Systems Inc. for $373 million.
But Condor's approach is a little different: Unite smaller niche information technology companies together to form a mid-sized player that has a broader range of services and stronger collective buying and negotiating power.
Company officials would not comment on the offering, citing "quiet period" rules set by the Securities and Exchange Commission that prohibit such conversations.
According to Condor's prospectus, "the company believes that a single-source IT service provider will help middle market organizations reduce cost and management complexity and increase the quality and compatibility of IT solutions." The company originally filed its prospectus in October but updated it on Jan. 9. Most mid-sized companies and other organizations currently have to shop with several information technology specialists, according to Condor's prospectus.
Bill Loomis, an information technology analyst with Legg Mason Inc. in Baltimore, said roll ups - snapping up smaller companies and rolling them into one large company - have been popular in most commercial markets but they are rare in IT contracting.
"Roll ups have a mixed track record," Loomis said. "They are very difficult to execute well. Their success depends almost entirely on management's ability to integrate the companies and cultures they are bringing together."
Condor admits in its prospectus that a lack of history is one of its largest obstacles and further states that "there can be no assurance that the management group will be able to successfully manage the combined entity."
Although Condor does not have any household IT names on its management list, it does have several professionals with years of industry experience. Kennard Hill, chairman and chief executive officer, was formerly a group president at I-Net Inc. in Bethesda, Md., and worked at Electronic Data Systems Corp. of Plano, Texas, for 20 years. And Daniel Roche, chief operating officer and president of Condor, was formerly COO of an IT service division for Medaphis Corp. in Atlanta.
The idea of creating the holding company called Condor surfaced two years ago from Commonwealth, a merchant banking group managed by Marshall Coleman, former attorney general for Virginia.
After Condor goes public, Coleman will still be the second largest shareholder, with more than 400,000 of the 10 million shares outstanding. Management Support Technology Corp.'s top officer, Lawrence Meador, will be vice chairman of Condor and will be the company's largest shareholder with 560,000 shares.
While he was originally slated to stay on as a director of the company, recent SEC filings state that he will resign from the board after the IPO. Coleman could not be reached for comment.
Loomis said that the strongest growth prospect for Condor is to use existing contracts with agencies and companies to offer new, complementary services available through its other subsidiaries.
Condor is proposing to sell 5.9 million shares at between $13 and $15 a share through underwriters Volpe Brown Whelan & Co. of San Francisco, Wheat First Butcher Singer in Richmond, Va., and Furman Selz in New York. Of the roughly $70 million in proceeds from the offering, $48 million will go out as immediate cash payments for the eight companies. The rest of the proceeds will go to working capital and general corporate purposes.
In addition to the cash that Condor will pay for its eight companies, the purchasees also will receive stock, bringing the total sticker price of the acquisitions up to $79 million.
If the initial public offering is a success at its proposed price of $13 to $15 a share, Condor's market capitalization will be in excess of $150 million.