Deals, E-Commerce Drive AMS Growth

Deals, E-Commerce Drive AMS Growth

Jerod Grochow and Reginald Foster

By Nick Wakeman



American Management Systems Inc. is rolling out new electronic commerce offerings and styling niche acquisitions to fortify core capabilities in procurement, financial and revenue system work under a dual-track strategy to ensure sizzling growth.

AMS executives said the $1.1 billion systems integration and consulting company wants to hit $2 billion in annual revenue by 2002. Their near-term goal is to grow by 20 percent to 22 percent in 1999.

To reach that goal, AMS will have to add more than $200 million in new revenue, said Jerrod Grochow, chief technology officer for AMS, who figures acquisitions will account for $30 million.

"We have not seen a lot of success in the [systems integration] industry of these major acquisitions really working out," he said.

The Fairfax, Va.-based company closed its first acquisition in more than five years March 1, buying Budgeting Technologies Inc. of Bethesda, Md., for $5 million to $10 million. BTI, which had $4 million in 1998 revenues and 23 employees, develops and implements budget analysis solutions for state and local governments.

That acquisition will strengthen AMS' financial management offerings in the state and local market, said Grochow. Similar niche buys "in $10 million to $30 million range" will follow, and they will "complement what we already do," he said.

Acquisitions are definitely part of the company's strategy to enhance its e-commerce capabilities, said Reginald Foster, AMS' chief e-commerce officer. Also planned are new offerings, including the company's E-Customer program set for launch later this month.

Under this program, government and commercial customers will be able to send bills and receive payments electronically, said Foster, a 20-year AMS veteran tapped in November 1998 to the newly created e-commerce post.

The software can be used for business-to-business transactions and for transactions between a business or agency and an individual. The company also will offer its e-customers consulting and system integration services, said Foster.

"They certainly understand how to grow organically," said Brian Maimone, an analyst with the investment firm ING Barrings of New York.

But acquisitions will be important if AMS is to "put a stake in the ground" in e-commerce, he said.

Foster said AMS' e-commerce efforts also will focus on building Web-based procurement systems; adding Web capabilities to current offerings such as AMS' Momentum financial management software; working with third-party vendors on Web-enabling their products; and strengthening the company's Web consulting practice.

AMS is coming off a stellar year. The systems integrator saw overall revenues jump to $1.06 billion in 1998, a 21 percent increase from 1997. Leading AMS' growth was its federal and state and local business.

Last year, AMS' federal revenue increased to $241.3 million from $189.2 million, an increase of 28 percent from 1997. State and local revenue soared to $282.1 million, up 65 percent from $171.4 million.

AMS' earnings were 66 percent higher, shooting from $31.2 million in 1997 to $51.8 million in 1998. Revenue from commercial work rose from $511.7 million to $534.4 million, an increase of 4 percent.

"The state and local market exploded last year, and the federal market grew significantly," Grochow said. And approximately $200 million of the $1 billion-plus in revenue had some e-commerce component, he said.

In 1999, he said, that figure should grow by 80 percent to 100 percent.

To keep pace with its internal growth goals, AMS is planning during 1999 to hire 1,000 recent college graduates and another 1,000 employees who already have work experience, Grochow said. It currently has more than 7,000 employees.

E-commerce is going to play a significant role in the continued growth of both the federal and state and local markets for AMS, because agencies are looking for ways to use the Internet to work faster and cheaper and provider better service to constituents, Grochow said.

AMS is chasing more electronic procurement system work in light of the success it has had with a 1997 contract from the Department of Defense valued at $250 million over 10 years.

The contract for the procurement system, which will allow online purchasing and automated approvals, has created additional business for AMS.

"This has been a major win, because we aren't just installing software," Grochow said.

In February, AMS hired former Defense Department official Robert Molino as vice president of business enterprise solutions to target e-commerce initiatives at the Defense Department.

Molino will work with Foster to coordinate e-commerce efforts. Molino had been executive director of the Defense Logistics Agency, which provides supplies and services to the U.S. military around the world.

AMS has the ability to "be a big player in e-commerce," said Thomas Meagher, a director with the investment banking firm Boles, Knop & Co. of Middleburg, Va. "E-commerce is definitely going to be a big-time thing."

But the company faces a wide range of competitors. They include Big 5 accounting firms, major systems integrators such as Andersen Consulting, Computer Sciences Corp. and Electronic Data Systems Corp., as well as a variety of smaller niche players, Grochow said.

AMS' strength in the e-commerce arena is its deep knowledge of its customers, said Rai Archibald, an analyst with J.P. Morgan Securities in New York.

"Any time you really get into walking the corridors of your clients, you get to know your clients," he said. "And that is an absolute strength of AMS."

Besides having organizations focused on the federal and state and local markets, AMS has units targeting commercial customers such as telecommunications companies, financial services, the health care industry and gas and electric utilities.

Analysts estimate the global government and commercial e-commerce market to grow from $8 billion in 1998 to $12 billion in 2202.

Indeed, e-commerce will become so prevalent among IT solution providers that it will not be broken out separately in a few years, Grochow said.

"People don't ask anymore how much of your work is client-server, because it's all client-server, because that's how we do business," he said. Three years ago, he said, that was a relevant question.

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