The Rockville, Md.-based unit of Keane Inc., a systems integrator based in Boston, had just $22 million in revenues in 1996. But that number swelled to $43 million in 1997 and is projected to hit $65 million in 1998, company officials said.
While Keane Federal is a relatively small player in the $23 billion annual federal IT market, it brings to bear the heft of a commercial parent with revenues of $654 million in 1997.
"Part of our culture is knowledge and resource sharing," said Glenn Giles, general manager for Keane Federal. When the federal unit pursues government work, it can turn to the rest of Keane for resources, people and expertise, he said.
The company's federal business has begun to blossom because the government is increasingly looking for commercial solutions to its information technology problems, he said.
Keane Federal is pushing four core capabilities: application development, year 2000 remediation services, information technology assessments and outsourcing of applications management.
Year 2000 will be a key to the company's success, Giles said. "We are leveraging from our commercial experience, and this is a door opener to new clients," he said.
That's because doing year 2000 work gives the company insight into nearly all of an agency's IT needs, which helps Keane sell other services, Giles said.
Keane Federal has won year 2000 work with the Department of Defense, the Agency for International Development, the U.S. Information Agency and the Immigration and Naturalization Service, he said.
Keane Federal's growth has mirrored that of the rest of the company, whose overall revenues have zoomed from $467 million in 1996 to $654 million 1997. Analysts project Keane's revenues will exceed $900 million in 1998.
Comparing Keane's first quarter 1998 revenue to the same period last year offers a good snapshot of how the company has changed, said William Loomis, an analyst with Legg Mason Inc. of Baltimore.
The company's year 2000 work grew from 13 percent of revenue in the first quarter of 1997 to 34 percent one year later. Outsourcing revenue grew from 13 percent to 16 percent over the comparable period, according to Loomis.
At the same time, the share of company revenues derived from providing IT staff to customers dropped from 48 percent in 1997 to 28 percent in the first quarter of 1998, Loomis said.
"That shift in their business has done wonderful things for their bottom line," he said, noting first quarter 1998 earnings per share were 29 cents compared to 15 cents per share a year earlier.
To help that transformation, Keane has been making acquisitions, including three in the past six months alone.
In May, Keane bought GSE Erudite, a consulting company in Salt Lake City, with about $18 million a year in revenue. In April, the company bought Omega Systems, an application development and software consulting company in Pittsburgh with $6 million in annual revenues.
But the most interesting acquisition, according to analysts, was the purchase of Chicago-based Bricker & Associates Inc., an operations improvement consulting firm. The $110 million deal is expected to close early this month.
"That is the fascinating one," said Alexander Arnold, an analyst with the investment firm, H.C. Wainwright & Co. in Boston. While most of the contracts Bricker wins are in the $2 million to $3 million range, the technology-related consulting the firm does results in follow-on IT contracts worth 10 times that, Arnold said.
"Keane will be in a position to leverage itself off of that," he said.
All three acquisitions will play well in the federal market, Giles said. Omega and GSE Erudite will help the company serve federal customers outside of the Washington area, he said. And the Bricker acquisition will help bring more commercial best practices to the federal government, Giles said.
"Five years ago, it wasn't a benefit to have a commercial parent," he said. "But now it is a competitive advantage."
Analysts agreed the company has successfully used year 2000 work to win other business. "They have been using it as a funnel to move into more value-added services," Arnold said.
One reason for its success is that Keane had a head start over many competitors, Loomis said. Many of Keane's Fortune 1000 clients have been leaders in addressing year 2000 problems and turning to outsourcing as a solution for IT needs, Loomis said. The company has provided year 2000 and other information technology services to companies such as General Electric, Sears, Mobil Oil, Fidelity Investments and Citibank.
"They were able to build off of their existing customer base," Loomis said. "That got their momentum going."
The best practices Keane has developed for its Fortune 1000
customers are readily adaptable to the federal market, especially when it comes to outsourcing, Giles said.
The company won a $21 million contract with the Immigration and Naturalization Service in May 1997 to manage the deployment of workstations and provide user support services, he said.
"We are fielding IT components to INS sites around the country, and it is incumbent on us to manage that whole process from cradle to grave," Giles said. That includes conducting needs assessments, delivery and installation, training and inventory control.
"Outsourcing is the next classic step for the government," Giles said. The government is looking for a level of service with its outsourcing projects, just like commercial customers, he said.
"As that happens, that is really going to allow us to bring our commercial capabilities to the market," Giles said.
Keane Federal Inc.