NIC Eyes More Public Business After Latest Buy

NIC Eyes More Public Business After Latest Buy

By Nick Wakeman, Staff Writer

National Information Consortium Inc. of Overland Park, Kan., is using acquisitions and partnerships to strengthen its foothold in the government market.

In its most recent acquisition, the developer of Web sites for federal, state and local governments added to its application development punch by making a Feb. 16 deal to buy SDR Technologies Inc. of Westlake Village, Calif., for $100 million in stock.

With that acquisition, NIC picks up capabilities in building Web-based applications and adds 60 people and about $10 million in annual revenue. NIC had $57 million in 1999 revenue, an increase of 65 percent over the previous year. Company officials expect that kind of strong growth to continue.

"This gives us the engine to create more e-government applications," said NIC President and Chief Executive Jim Dodd.

The publicly traded company also is planning a secondary offering of 8.1 million shares to finance acquisitions as well as develop new products and increase marketing efforts. The date of the offering and the pricing has not been determined.

SDR has built online filing systems for the Federal Election Commission and state agencies such as liquor control boards and professional licensing agencies. NIC's strength is in building Web portals that give citizens and businesses access to a variety of government services.

"This acquisition allows us to accelerate the pace of development for our existing partners (what he calls the company's customers) and go after new partners even more powerfully," Dodd said.

NIC's federal government subsidiary, eFed Inc. of Reston, Va., also has signed a joint venture deal with Bank of America to build electronic procurement sites for state governments. If certain revenue goals are met for the joint venture, Bank of America will be able to buy a total of 2.5 percent of NIC stock in two equal blocks for $34.44 a share and $44.77 a share, respectively. The revenue goals for the joint venture were not disclosed. On Feb. 18, NIC stock closed at $55.88 on Nasdaq.

Under the deal, Bank of America will provide the financial transaction processing capabilities while eFed brings the Web-based procurement system.

NIC bought eFed in September for $30 million from Electric Press Inc. of Reston, Va., to gain its first foothold in the federal market. eFed has built electronic procurement systems for the Air Force, Army, Navy, NASA and the General Services Administration. Going after state government business is the logical next step, Dodd said.

"This is the next hurdle for us to deliver on," he said.

With the acquisition of SDR and eFed, NIC has established the core capabilities for its future growth, Dodd said. He will continue to look for niche acquisitions that add specific technologies and new customers, he said.

For SDR, being acquired is a change in direction, said Kelly Kimball, chairman and CEO of the 9-year-old company. "We were heading down the IPO path," he said. "But then we met NIC and we were just excited by the synergies."

SDR, which will be known as NIC Technologies, has the ability to rapidly develop Web-enabled applications. Combining with NIC's ability to rapidly deploy Web portals, the two companies made a good fit, Kimball said.

"We aren't unique in the Internet world, but we are unique in the government world," he said.

The electronic government space is getting more crowded. NIC is facing competition from both software companies such as Ariba Inc. of Mountain View, Calif., and Commerce One Inc. of Walnut Creek, Calif., and traditional systems integrators like American Management Systems Inc. of Fairfax, Va., Electronic Data Systems Corp. of Plano, Texas, and IBM Corp. of Armonk, N.Y. There also are smaller companies concentrating solely on the government market such as Inc. of Atlanta and govWorks Inc. of New York.

But Dodd said a key differentiator for his company is that it uses an enterprisewide approach to its projects rather than just developing single applications. NIC also tries to form a partnership with its government customers and uses a self-funding model where the agencies do not have to pay for the Web-enabled applications. NIC instead is paid a transaction fee.

"The self-funding approach is something we have gotten good at," he said. "We are willing to invest in our clients and make our money on the tail end."

In its Feb. 22 Securities and Exchange Commission filing for the secondary offering, NIC officials said, "We face intense competition in all sectors of our business."

Because of the "quiet period" associated with the SEC filing, analysts would not comment on the offering or NIC's potential as a vendor.

Building its customer base is a key challenge. Because electronic government is a relatively new concept, there is a danger of customer confusion, NIC officials said in the filing.

"Confusion and uncertainty in the marketplace may inhibit customers from adopting our solution, which could harm our business, results of operations and financial condition," the filing states.

But the market potential is huge. Some estimates call for more than $600 billion worth of online transactions annually among government, businesses and citizens.

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