Veridian Corp. latest member of billion-dollar club

Signal buy seen as good fit for both

The recently announced $227 million marriage of Veridian Corp. and Signal Corp. is a case where the seller pursued the buyer.

"We went to Veridian, we approached them," said Roger Mody, the founder, president, chief executive officer and majority shareholder of Fairfax, Va.-based Signal. "We chose not to go through the auction process."

Mody regarded defense and intelligence specialist Veridian as the right company to capitalize on Signal's expertise and reputation in the government services sector. Signal would bring its own capabilities and customer base to Veridian while benefiting from the larger company's skills and assets, he said.

With other companies that might have been interested, Mody said, "we would have been additive."

"Roger and his management team had identified Veridian as their preferred acquirer. ... They saw the fit, they saw the opportunity," said David Langstaff, president and CEO of Veridian. The Arlington, Va.-based company announced Aug. 13 it has signed an agreement to acquire privately owned Signal for $227 million in a combination of cash and notes.

The deal is expected to close in late September. Credit Suisse First Boston represented Veridian, while Signal used Banc of America Securities and the law firm Shaw Pittman LLP as its advisers, a Veridian spokesman said.

Purchasing Signal will expand Veridian's presence in the defense and command, control, communications, computers, intelligence, surveillance and reconnaissance community, and "gives Veridian access to new markets in key civilian agencies, which we believe will become increasingly important as homeland security unfolds," Langstaff said.

One of Signal's more high-profile programs is a $100 million contract it won in May to provide a range of information technology services to Senate offices in Washington and to 450 Senate offices nationwide. Other Signal customers include the Army, Navy, Environmental Protection Agency, Social Security Administration and the Commerce Department.

"We do not acquire simply for bulk. We've always made acquisitions with a clear, strategic purpose in mind," Langstaff said. "What Signal represents is access to markets we felt we couldn't reach as effectively on our own and a broadening and deepening of our IT capabilities."

Veridian intends to incorporate Signal as its own operating group, the Veridian IT Services division, Langstaff said. With the acquisition, about 20 percent of Veridian's business will come from federal civilian agencies, he said.

"Bringing them in this fashion makes the integration much easier," he said. "One of the things we want to make sure we do well is give Signal an understanding of and access to the broader Veridian capabilities [and] allow them to take advantage of those capabilities."

With the acquisition, Veridian's annual revenue will reach $1 billion, with approximately 6,800 employees. Among its recent contracts, Veridian in July won a five-year, $154.4 million contract for scientific, technical, administrative, research, development, test and evaluation services from the Naval Air Warfare Center Weapons Division at China Lake and Point Mugu, Calif.

Veridian made its last acquisitions in 1999, when it purchased Trident Data Systems, MRJ Technology Solutions and ERIM International. "Since then we have focused on integrating those companies into what is now Veridian," Langstaff said. "It was much more challenging integration process; we didn't leave any of the acquired companies alone."

Signal's annual sales last year reached $252 million, the company said. In May, Signal officials estimated that fiscal 2002 revenue would top $300 million.

Rick Knop, managing partner of the Windsor Group, a Reston, Va. investment banking firm, said the acquisition was a good move for Veridian.

"This is clearly a demarcation for them. It gets them into new civilian agencies, [it] bulks them up, gets them to a billion dollars in sales, it gets them into a whole new tier of players," he said. Now Veridian can compete with the likes of CACI International Inc., Anteon Corp., ManTech International Inc. and DynCorp, he said.

"Signal has developed a very, very good reputation among its government clients for providing real roll-up-your-sleeves kinds of services," said Ray Bjorklund, vice president of research with Federal Sources Inc., a market research firm in McLean, Va. "What they've done as a private corporation without any kind of outside help has been impressive."

Bjorklund said the acquisition is good for Veridian, too. The company has been developing its credentials and competencies and has done a good job of serving clients with national security interests. The purchase of Signal, with its good reputation, is really complementary to Veridian's existing strengths, he said.

"This points to Veridian being able to provide more of a full-service solution [and] this is the solutions market," Bjorklund said. "A lot of people haven't paid attention to them, and this will make them sit up and take notice."

Signal's acquisition was no surprise, said Jon Kutler, chairman and chief executive officer of Los Angeles-based Quarterdeck Investment Partners LLC.

"This is a company that's effectively been for sale for three years, off and on," Kutler said. "Post-Sept. 11, the company looks prettier to the outside world than it did."

With the exception of Mody, the Signal management team will be staying on, Langstaff said. Scott Goss, now Signal's senior vice president, chief financial officer and chief information officer, will become a senior vice president of Veridian and president of the IT services division.

Mody has signed a three-year non-compete agreement. He said he intends to establish the Mody Foundation, which will help underprivileged minority children with their education.

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