Anteon Keeps to Growing Ways

Acquisitions, Contract Wins Drive System <@VM>Anteon Corp. Information

Joseph Kampf

By Patience Wait, Staff Writer

Anteon Corp. is part of a vanishing breed: midsized systems integrators that sell to the federal government.

Midsized companies, with annual revenue between $100 million and $1 billion, are vanishing as the giants in the government market continue consolidating their holdings to meet the government's increasingly large, complex contract requirements.

Even big companies disappear, absorbed by even larger companies, such as the Dec. 21 announcement that $9 billion Northrop Grumman Corp. of Los Angeles plans to purchase $6 billion Litton Industries Inc. of Woodland Hills, Calif.

Small companies are flourishing as they develop niche products and services, and many of them are being acquired by the big companies.

"We're seeing that right now," said Tom Meagher, vice president of equity research at BB&T Capital Markets, Richmond, Va. "It used to be $500 million, but now you have to be $1 billion to be comfortable."

Part of that pressure is coming from "the movement away from indefinite quantity, indefinite delivery [contracts] to a GSA schedule," he said. To compete for the larger government projects, systems integrators must be larger so they can tap into a wider array of skills and services.

Joe Kampf, president and chief executive of privately held Anteon of Fairfax, Va., agreed. "There aren't many companies our size," said Kampf. The company's 1999 revenue was $400.8 million; Kampf estimated 2000 revenue of close to $540 million, with 2001 projected to exceed $650 million.

Other companies in this size range and looking to grow to the $1 billion mark include CACI International Inc. of Arlington, Va., and Veridian Inc. of Alexandria, Va.

But several other midsized companies have been acquired in the past year, including Federal Data Corp. of Bethesda, Md., which was acquired by Northrop Grumman, and Advanced Communications Systems Inc. of Fairfax and Averstar Inc. of Burlington, Mass., both acquired by Titan Corp. of San Diego.

If Anteon continues winning contracts at a high rate and adding bulk through acquisitions, the company could break through the $1 billion ceiling soon.

October 2000 demonstrated Anteon's strategy. Its acquisition of Sherikon Inc. added an estimated $65 million in annual revenue, while its success in winning a spot on the General Services Administration's Logistics Worldwide contract is expected to bring in up to $50 million per year.

"It's really not an acquisition strategy," Kampf told Washington Technology. "From the outset, I said the object was to beat industry standard win rates [and] internal growth rates ... You have to have business development that generates a higher win rate."

Kampf estimated the industry average win rate is 25 percent to 30 percent. Anteon's rate is about 60 percent, he said.

Anteon holds GSA schedules for IT and professional engineering services; is on GSA's Management, Organizational and Business Improvement Services contract, known as MOBIS; and holds a GSA Environmental contract.

The company's IT divisions include life-cycle services, system development and integration, enterprise resource planning, communications services, emergency management services, training and investigative technology services.

On the engineering side, Anteon offers ship and combat systems engineering, undersea warfare services, logistics modernization, technology management and command, control, communications, computers, intelligence, surveillance and reconnaissance services.

"We have a two-fold goal: to maintain the win rate while increasing the size of each win, and the total number of wins," Kampf said. "We want to beat the industry average by two times in internal growth rate. Acquisitions augment that strategy."

Anteon's business is dominated by contracts with the Defense Department, which Kampf estimated makes up some 60 percent of its revenue. Federal civilian agencies and state and local governments generate about 30 percent. The remainder comes from contracts with commercial customers, Kampf said.

While Kampf said Anteon does not pursue acquisitions for their own sakes, the company has reviewed "a couple hundred" possible deals over the past several years, and there is a purchase in the works that should be finalized in early 2001.

"The one we're working on now ... has a good deal of Web-enabled e-government, a small information assurance group with good network security," Kampf said. "That's been a hard hole to fill, information assurance and network communications."

Because Anteon is owned by Caxton-Iseman Capital Inc. of New York, it has an advantage in hunting for corporate bargains, Kampf said. Caxton is not a venture capital firm, nor does it raise money publicly. Instead, it has private investment funds. "There isn't the need ? therefore the pressure ? for liquidity," Kampf said.

Bill Loomis generally agreed with Kampf's observations. Loomis, managing director of the technology research group at Legg Mason Wood Walker Inc. in Baltimore, said the only disadvantage in general to growth for a private company is having limited access to capital.

"Having the private equity backer means they get around that," Loomis said. "In general, they have a good strategy of consolidation [in] the federal marketplace. They're looking to acquire different skill sets and leverage that."

Another test of such an acquisition strategy is the buyer's ability to digest its purchase. Kampf said he believes Anteon integrates its acquisitions very well.

"Many companies rip the [old] sign down immediately. That particularly doesn't work in a people business, [though] it might work better in an asset business," Kampf said. "We do the soft things, the integration planning. Senior executives go out and speak with employees before we do anything. The message we basically leave them with is we're a best people, best practices company, [and] we're going to blend cultures to get the best."

While Caxton has owned Anteon since its formation five years ago from the former Ogden Corp., the investors are not yet looking to either sell out or take Anteon public. "The market continues to grow, our market share continues to grow," Kampf said. "They have not developed an exit strategy."

On the other hand, Anteon may not be well-positioned to go public, nor is it an ideal acquisition target right now, anyway, said BB&T's Meagher.

"The market is going to look at profitability and debt," he said. Anteon "is break-even, and it has debt from its acquisitions."

Anteon Corp.
Business: Information technology and engineering services, including logistics, communications, enterprise resource planning, combat systems engineering and criminal investigation services

Based: Fairfax, Va.

Founded: 1976

Employees: 5,500

1999 Revenue: 400 million

2000 Revenue: $540 million

Ownership: Caxton-Iseman Capital Inc., New York

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