Logicon Sets Lofty Goals

Logicon Sets Lofty Goals

Herb Anderson

By Nick Wakeman



Multibillion-dollar contract wins by Logicon Inc. should forge more outsourcing and systems integration wins for the Northrop Grumman unit in the government space, but acquisitions could also prove pivotal to future growth.

A pair of big-ticket government contracts propelled record bookings at Northrop Grumman Corp.'s Logicon subsidiary last year, but acquisitions could help push revenue from $1.1 billion in 1998 to more than $2 billion in 2004.

"We are willing to look at other properties, and we are willing to acquire properties where it makes sense for us," Herb Anderson, president and chief executive of Logicon, told Washington Technology.

Indeed, Northrop Grumman has been mentioned by several sources as a possible bidder for GTE Government Systems and Boeing Information Services, which are both on the block. Anderson declined to comment.

Several analysts said the tight, slow-growing defense market makes it all but certain that Logicon will not be able to rely solely on internal growth to reach it goals, and thus would make acquisitions. Approximately 65 percent of the unit's business is with the Department of Defense.

"We see the state and local, civil federal and commercial markets growing at a much higher rate than DoD, so you want to position yourself with the capabilities you have and extend them into these marketplaces," Anderson said.

In 1998, Anderson's unit won $3 billion in new contracts, nearly double its goal. With more than 10,000 employees at 150 locations, it contributed about 13 percent to Northrop Grumman's overall $8.9 billion revenue in 1998.

"IT is the principle growth business in Northrop Grumman's portfolio," said Bryon Callan, an analyst with Merrill Lynch Global Securities.

Anderson's unit provides a wide range of IT services, including base and range support, systems support services, design and development of information systems, communications and intelligence work and training and simulation services.

One of its bigger wins is the 10-year, $2.2 billion contract to run facilities for the National Aeronautics and Space Administration and the Air Force in Florida. The company also got a major spot on the Computer Sciences Corp. team that won the Internal Revenue Services' $8 billion modernization contract.

Since Northrop Grumman's planned merger with Lockheed Martin Corp. fell apart in July 1998, it has made one IT-related acquisition.

Northrop bought Inter-National Research Institute Inc. of Reston, Va., last September for $60 million. INRI is a defense and intelligence software and applications developer.

That move, coupled with last summer's reorganization of Northrop Grumman's IT pieces into one unit, showed the company's employees that the company is serious about IT, Anderson said.

"I think that [the fact that] we did it immediately after the Lockheed Martin merger fell through got [our] people excited," Anderson said in an interview.

Northrop Grumman signaled a strong interest in IT when Northrop and Grumman merged in 1994, said Thomas Meagher, a principle with Boles, Knop & Co. of Middleburg, Va. While Grumman was known as an aerospace company, Northrop wanted them for their IT, he said. "They've followed that with the purchase of Logicon and then INRI," he said.

Northrop Grumman also needs a higher percentage of information technology revenue vs. aerospace revenue so it can get better valuations on Wall Street, said Douglas Schmidt, managing director at Legg Mason Inc. of Baltimore.

Schmidt said he expected the company to look for both large and small companies to buy.

As the Logicon unit grows, its defense share should drop, Anderson said. He still expects the raw dollar figure for the defense business to grow, but with other parts of the government market growing faster, the percentage will decrease.

For the next several years, the growth leader for the unit will be state and local work and federal civilian business.

Anderson projected that state and local business will rise from 2 percent of revenue in 1998 to 14 percent in 2005. Federal civilian business will grow from 23 percent to 26 percent. Its commercial share should grow from 10 percent to 14 percent.

The IRS contract Logicon won in December 1998 will help win state and local business and federal civilian business, Anderson said. Northrop won a spot on the CSC team in part because of work it was already doing for the IRS in processing tax forms.

"When people talk about IRS contracts being screwed up, they don't talk about ours being screwed up," Anderson said.

If the IRS approach to modernization is successful, other federal agencies will follow, said Steve Carrier, vice president of business development for Logicon.

"The IRS touches every citizen, and there are other agencies that touch every citizen, so those agencies will take a look at this contract," he said.

The contract also gives Logicon "great bonafides" with state governments looking to modernize their tax systems, Anderson said.

"The fact that you are working on something like that puts you in a prestigious place," he said. "State governments will look at you and say, 'You worked at the IRS, you ought to be able to help us, too.' "

Other state and local business the unit is pursuing includes welfare fraud detection systems, health care systems, law enforcement and data center outsourcing, Anderson said.

A major key to winning more federal civilian business will be large indefinite delivery, indefinite quantity contracts, Anderson said. Logicon has won more than 20 of these contracts over the last several years.

Most recently it was one of the winners of the General Services Administration's Applications and Support for Widely Diverse Enduser Requirements contract, which could be worth more than $500 million to Logicon over 10 years, he said.

"It is much like the commercial marketplace where you have sales people out there selling, and if you don't have that orientation, you're in trouble," Anderson said.

The contract wins for the Logicon unit show that it is building an infrastructure for growth, Callan said. But leveraging its defense work into new markets will be a challenge.

"Mission planning for the Air Force is a different kettle of fish from running a state's DMV system," he said.

In the defense market, Carrier said he sees opportunities for more contracts like the Joint Base Operations Support contract Logicon won in August 1998. NASA and the Air Force combined their operations and maintenance contracts for Kennedy Space Center and Patrick Air Force Base.

"In essence, we are running a small city of 20,000 people," Carrier said.

Under the contract, Logicon and its teammates ICF Kaiser Defense Programs Inc. of Fairfax, Va., and Wackenhut Services Inc. of Palm Beach Gardens, Fla., provide services ranging from cutting the grass and hauling garbage to running data centers and supporting space shuttle launches.

The military will combine more contracts to save money and deal with personnel shortages, Carrier said.

"The warriors can't be doing the base functions anymore," he said. "They've got to be out flying the airplanes and driving the tanks and ships."

Reader Comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

What is your e-mail address?

My e-mail address is:

Do you have a password?

Forgot your password? Click here
close

Trending

  • Dive into our Contract Award database

    In an exclusive for WT Insider members, we are collecting all of the contract awards we cover into a database that you can sort by contractor, agency, value and other parameters. You can also download it into a spreadsheet. Our databases track awards back to 2013. Read More

  • Navigating the trends and issues of 2016 Nick Wakeman

    In our latest WT Insider Report, we pull together our best advice, insights and reporting on the trends and issues that will shape the market in 2016 and beyond. Read More

contracts DB

Washington Technology Daily

Sign up for our newsletter.

Terms and Privacy Policy consent

I agree to this site's Privacy Policy.