Perot starts fast in fed sector

Acquisitions spur growth of government unit

Perot Systems Corp.

Headquarters: Plano, Texas

President and CEO: Ross Perot Jr.

Employees: 9,000

Fiscal 2002 revenue: $1.3 billion

Fiscal 2002 earnings: $78.3 million

Primary lines of business: Commercial outsourcing solutions in specific vertical markets, such as health care; consulting services, including application development, systems integration and package implementation; and government integration technology services.

www.perotsystems.com

Greg Bedner, head of the new government unit for Perot Systems Corp., has been charged with making it as big as possible.

Olivier Douliery

The name is instantly recognizable, but Perot Systems Corp. isn't counting on its name to make a splash in the government market. Instead, the company is making acquisitions and winning new business as it tries to become a major provider of information technology services to the government.

The marching orders from the company's Plano, Texas, headquarters to Greg Bedner, head of the government unit, are clear: Get as big as you can.

"I've told Bedner if he can make it 80 percent of the company, go for it," said Ross Perot Jr., president and chief executive officer.

The company entered the government market in July with its acquisition of ADI Technology Corp., which provides technical, information and management solutions to the defense, intelligence and law enforcement communities. Perot now is in the process of purchasing Soza & Company Ltd. of Fairfax, Va.

Under the deal, announced Feb. 5, Perot Systems will pay $75 million in cash for Soza, plus another $32 million in cash and stock if performance targets are met.

With the Soza acquisition, the unit will more than double in size, from 600 to 1,500 employees. And with the addition of Soza's revenue, which topped $135 million in 2002, Perot's government services group is expecting revenue of more than $200 million in 2003, according to Bedner, president of Perot Systems Government Services. Bedner had been the founder and head of ADI and stayed on board after the purchase.

The government services unit, just seven months old, will account for more than 15 percent of Perot Systems' $1.3 billion in revenue. And the hunt is on for other businesses that can add to the company's depth and breadth of expertise.

"There are a couple of candidates [for acquisition] we're lining up to look at right now," Bedner said.

Perot Systems is in an enviable position as it scouts the federal market for prospective acquisitions, said Joe Vafi, senior vice president of Jefferies & Co. Inc., a New York investment firm, who has given the stock a "hold" rating. Vafi said he doesn't own any shares himself.

"Of the larger IT outsourcers out there today, Perot is the only one that has any balance-sheet flexibility with plenty of cash and no debt," Vafi said. "The acquisition prices look pretty reasonable [and] ADI is turning out well out of the box."

Shortly after Perot Systems bought ADI and created the government unit, it won a 10-year, $392 million comprehensive submarine support contract from the Naval Sea Systems Command. In November, the company won two task orders from the Immigration and Naturalization Service worth a combined $12 million. And in December, a consortium assembled by the company won a subcontract worth $8 million from Lockheed Martin Corp. to provide self-diagnostic technology for the Pentagon's Joint Strike Fighter aircraft.

The Perot name once was almost synonymous with government contracting. Ross Perot Sr. founded Electronic Data Systems Corp., the information technology company that today ranks 11th on Washington Technology's list of top 100 federal contractors.

Perot Systems was founded in 1988 in Plano after the senior Perot sold EDS, and for the past 15 years it has concentrated on private-sector opportunities.

"When you look at where the world was then, the commercial sector was really the hot place to be," Ross Perot Jr. said. The company has built up an outsourcing presence in commercial health care services, financial services, industrial services and strategic markets services, he said.

When Perot took over management in 2000 from his father, who remains chairman of the board, he questioned why the company wasn't in the government sector.

"It's very important to have a federal government presence," Perot said, because of the high caliber of people who want to work on public-sector programs and because it's an important arena in which to work.

"It's the right thing for them to be doing now," Vafi said. "Clearly, Mr. Perot and the Perot family have a deep, long association and tradition with the government, especially the military. Ultimately, that will be a net benefit as the company moves forward."

For example, health care services in the commercial sector represent about 45 percent of Perot Systems' revenue, Perot said.

One of Soza's federal customers is the National Institutes of Health. The combination of private-sector expertise with the knowledge of the government services team positions the company to bid on big contracts in the health care arena, he said.

Bedner also sees the government unit as a player in the rapidly developing homeland security market. He said the division is particularly interested in border protection and consequence management, and that the company does some work for the Justice Department that fits well under border protection.

The Soza acquisition was a perfect fit, Bedner said. Soza counts the Coast Guard, among others, in its customer base. That agency is a key component of the new Department of Homeland Security.

Bedner downplayed concerns over integrating Soza into Perot Systems Government Services, saying the two cultures are very similar.

"At ADI, we never lost a client in 15 years," Bedner said. "With the Soza folks, it's nice to know they keep a client an average of seven years. In talking to the clients, you get a warm and fuzzy feeling that the organizations are focused the same way."

Almost everybody from Soza is joining Perot Systems. The only notable exception is William Soza, the company's founder, who is opting to step down after more than 30 years at the helm.

There were other companies interested in acquiring the company, Bedner said, but Soza selected Perot Systems because he thought it was the best opportunity for all of his associates.

"Five years from now, he'll be able to walk through the halls and not have to duck," Bedner said. *

Staff Writer Patience Wait can be reached at pwait@postnewsweektech.com.

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