Ownership changes, but vision remains

David Karlgaard, former leader of PEC Solutions Inc., now is vice chairman of the board at Nortel Government Solutions.

Rick Steele

Twenty years of hard work and strategic thinking brought David Karlgaard's company to where he thought it eventually might wind up: no longer his.

PEC Solutions Inc. was a major player in the government market. Founded in 1985 by Karlgaard, Paul Rice and Alan Harbitter, PEC was a government services business that offered agencies Internet solutions and other advanced technologies to optimize their business functions on both sides of the firewall. It did its job to the tune of $142 million in prime contracts with the federal government in 2004, boasted 1,700 employees and annual sales of $203 million in 2004.

PEC Solutions came in at No. 66 on Washington Technology's 2005 Top 100 ranking of federal prime contractors when the list was released May 9. About a week later, May 15, Nortel Networks Corp. announced it had bought PEC Solutions for $448 million.

PEC Solutions was not a top-tier company, and to get the really big deals it wanted, it needed to go on the block.

"We were too small to participate on some of the large federal contracts, yet too big to participate on some of the smaller awards," Karlgaard said. "If you look at industry, there is a shortage of companies in that midrange size from $100 million to more than $1 billion. You have to be a big company to compete on the big awards."

With PEC Solutions now part of Nortel Networks subsidiary Nortel Government Solutions Inc., the big deals are coming. Nortel Government Dec. 5 announced two big wins: a subcontractor role with Lockheed Martin Corp. on the $500 million Decennial Response Information System for the Census Bureau; and $21 million in contract modifications for another year of work on the Postal Service's PostalOne! Automated mailing service.

"The fact that these contracts keep coming our way is a sign that our clients, in general, support this merger," Karlgaard said. "We've had a number of interesting extensions and expansions of our business, so we think the synergy is working."

Karlgaard and his co-founders started PEC Solutions intending to build a high-end IT company focused on mission-critical applications throughout government. That has remained the underlying vision, he said.

"We like to think many government clients came to us because we were a company that could solve hard problems reliably with aspects of the solution. That was attractive to our clients," Karlgaard said.

It also may be what attracted Nortel. Industry executives and market analysts scratched their heads a bit over the merger, wondering what the Brampton, Ontario, supplier of global telecommunications equipment saw in PEC. The attraction was an inroad to the U.S. government market, one of Nortel's priorities for growing its business.

For Karlgaard, Nortel had "a combination of size and background. It was the right partner coming along at the right time," he said.

PEC Solutions and Nortel complemented each other in many ways, Karlgaard said. For Nortel's product focus, PEC had its IT focus. Nortel's clients were primarily on the defense side; PEC's were mostly on the civilian side. All this plus "a good culture fit" and a nice price made Nortel the right partner with the right price at the right time, he said.

Karlgaard, now vice chairman of the board for Nortel Government Solutions, said the vision with which he and his partners started PEC Solutions remains.

"We've always planned to be involved in some of larger IT systems in government, and this new structure gives us the strength, muscle and credentials to participate in these very large programs," he said. "Being a subsidiary of a large company gives us quite a bit of control. ? We appear to our clients as a combination of a large reputable company when they need it, but also a smaller, more agile organization when they have that need."

And although it may longer be his company, Karlgaard said the pairing with Nortel has been a good move.

"I can tell you from a personal basis, I'm comfortable with the merger, and the integration has gone very smoothly," he said. "I think most of our staff will agree that this is a case of a well-handled integration."

And yes, it does feel different not to be the company's owner any more, Karlgaard said. "But different in a positive way," he said. "There is so much more to do pursuing some of these big jobs that we couldn't do before. For the most part, it's a change in favorable direction."

Managing Editor Evamarie Socha can be reached at esocha@postnewsweektech.com.

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