The June 1 merger between RMS of Vienna, Va., and Intellisource of Fairfield, Conn., creates a company with about 1,800 employees and expected 1998 revenues of $150 million, plus another $100 million in contracts from Intellisource that must be counted separately, company officials said. No layoffs are expected.
RMS provides information technology services mainly to federal agencies such as NASA and the Department of Defense.
The company, which had $92 million in revenues last year, graduated from the government's 8(a) program in 1995.
Intellisource provides so-called integration services to commercial companies. Basically, Intellisource helps companies outsource their administrative functions so management can focus on core operations.
Intellisource's customers include IBM, Armonk, N.Y., and AT&T, New York.
Founded in 1995, the company had revenues of $3 million in 1996 and $31 million in 1997.
RMS will be a subsidiary of the new company, The Intellisource Group.
The two companies are largely owned by Safeguard Scientifics Inc., a Wayne, Pa.-based venture capital firm that focuses on the IT services industry.
Safeguard has a mix of 30 public and private companies in its portfolio and on average takes three companies public every year.
The company has a track record its investors love.
In 1994 it took public, at $5 a share, Coherent Communications System Corp. of Ashburn, Va. Coherent closed May 29 at $47.31.
Other companies Safeguard guided to the public markets include Novell Inc., Provo, Utah, and DocuCorp International Inc., Dallas.
Safeguard had sales of $1.9 billion in 1997.
Glenn Rieger, Safeguard's senior vice president, is expecting The Intellisource Group to make a big splash on Wall Street, but he is not in too much of a hurry.
"There's going to be a fair bit of integration and transition" involved in merging the two companies, he told Washington Technology. "Our goal at the moment is to let that happen while they're private. They need to get a quarter or two of operation under their belt, and then we'll look at an IPO."
One analyst said the merger makes so much sense, he was surprised he did not see it coming sooner.
"RMS fits right into Intellisource," said Eric Ross, a research analyst at H.C. Wainwright & Co. Inc., a Boston investment banking firm. "They're very complimentary. It's a smart move."
Though Intellisource Group will compete against giants in the IT industry - companies such as IBM, Electronic Data Systems Corp., Plano, Texas, and Computer Sciences Corp., El Segundo, Calif. - those companies control just 12 percent of an industry that generates more than $300 billion annually, Ross said. "There is a lot of room for growth," he said.
RMS and Intellisource have very different histories. Founded in 1977, RMS nearly went bankrupt in 1995 when it deviated from its IT roots and got tangled in a strategy to build federal prisons.
Intellisource started from scratch in 1995 and generated $250,000 in sales its first year of operation.
"RMS was a turnaround situation," Rieger said. "Intellisource was a dead start-up. We're kind of proud with the merger in that it's two companies coming from very different backgrounds."
Safeguard invested in both in 1995. It owns 23 percent of RMS and is one of its largest shareholders.
Before the merger, it owned 45 percent of Intellisource.
Rieger declined to disclose Safeguard's stake in the new company or the value of the merger.
He did say it was not Safeguard's idea to merge the two companies. That idea came from Michael Berta, chief executive officer of RMS, and Charlie Gibbons, chairman of Intellisource.
The two worked together on several contracts over the last year and a half and negotiated a merger over the past five months, Bewtra said.
"Something clicked between Charlie and Mike when they looked at the two companies' strengths and weaknesses," Bewtra said.
Gibbons will become chief executive officer of The Intellisource Group, and Berta will become president and chief operating officer.
The bad news for average investors is they probably will never get a shot at the new stock.
Safeguard does all of its initial public offerings through rights offerings to its private investors.
In other words, Safeguard's investors will get a chance to buy all of The Intellisource Group's stock upfront.
In Safeguard's previous initial public offerings, not a single share has been left unclaimed.