The VC, bank and bond boys are beginning to see what is coming in the defense/Homeland Security sector and are wrapping up companies and getting them ready for IPO...this could go on for years. We already know A LOT of companies in these sectors, many of which are already profitable. Believe me when I tell you this is not going away...it is only going to get bigger and bigger. Doing your R&D and positioning properly now could allow you to retire in a few years:
SRA International eyes more growth
Military IT firm is latest in hot sector out of quiet period
By Steve Gelsi, CBS.MarketWatch.com
Last Update: 3:23 PM ET June 28, 2002
NEW YORK (CBS.MW) - SRA International is the latest in a series of hot initial public offerings from defense-related contractors doing business with the U.S. government.
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Specializing in information technology (IT) services for the military, SRA International (SRX: news, chart, profile) has also diversified into other sectors such as health care.
SRA International went public at $18 per share on May 24, when it raised $79 million with underwriter Salomon Smith Barney. The stock is now trading at about $26.
Other military-flavored IPOs of late include Veridian (VNX: news, chart, profile), ManTech International (MANT: news, chart, profile), Anteon International (ANT: news, chart, profile), United Defense Industries (UDI: news, chart, profile), not to mention Friday's standout IPO from MTC Technologies (MTCT: news, chart, profile). See full story.
SRA International's President and Chief Executive Officer Ernst Volgenau founded the company after serving as the director of inspection and enforcement for the U.S. Nuclear Regulatory Commission. He retired from active duty with the Air Force as colonel in 1976, after working in the Office of the Secretary of Defense and holding the position as director of data automation for Air Force Logistics Command.
CBS.MW: Why did you go public when you did?
A. Volgenau: We have always envisioned a public offering and that's from the time our founding in 1978. The valuations have never been on par with what we think our (company) is worth. It's only now that valuations are near the value that we place on our stock.
Q. CBS.MW: Why the low valuations in the past? What kind of thinking was there prior to this current period?
A. Volgenau: There have been government contractors that have held IPOs going back at least 20 years. The capitalization for those firms has varied over time. In the 1980s, we weren't big enough to go public. In the 1990s, we were, but during the early 1990s, after the Berlin Wall fell down, and the Soviet Union fell apart, the U.S. defense budget was decreased and there was an upsurge in dot-com companies. It's not as if there was a stigma with being a government contractor. It was more a case of us being in the background because of these other events.
Q. CBS.MW: Isn't it ironic, though, that the Internet began as a military effort, yet it was the dot-com companies that got all the glory for a while?
A. Volgenau: We formed and spun out a company, Navisoft, that was based a lot of what is now the Web, way back in the early 1990s. We've been working with this technology for many years. The Department of Defense has a very good record of innovation and the Internet was one example . . . . We were one of many companies involved in the World Wide Web and there were so many contributors that our (role) was really very small.
Q. CBS.MW: How long will the current cycle of defense spending increases continue? Will it level off after two, three, or four years?
A. Volgenau: Even before Sept. 11, the government was scheduled to increase the homeland defense and national security budgets. It depends on our success with the war on terror. If we can't control terrorism, the increases will continue indefinitely. Let's hope the latter is the case.
A. We don't want national security spending to grow our business. If it occurs, we will try to make our contribution. Even during the early 1990s when defense spending was cut, our business was growing at a compounded annual rate of more than 20 percent per year.
Q. CBS.MW: Is that because you diversified into health and other sectors?
A. Volgenau: We have a diversified portfolio. National security is about half. We have several governmental agencies and health sector clients as well. They represent 30 percent and 20 percent of our business respectively. The reason we continue to grow is because government IT spending, regardless of national security, has increased as long as I can remember.
Q. CBS.MW: Why does the government spend so much on outsourcing rather than doing it on its own?
A. Volgenau: There's a General Accounting Office report that indicates about 30 percent of the workforce in the government is eligible for retirement by 2006. The government has a difficult time recruiting young workers . . . So they're going to lose more and more workers. They have no choice -- they have to outsource.
Q. CBS.MW: What kind of financial growth are you looking at?
A. Volgenau: We can't give a projection, but I can give you a goal. Whether or not we can achieve it remains to be seen. Our goal is to grow more than 15 percent a year organically. We've grown more than 20 percent a year for the past 10 years. It's harder to grow when you're bigger, but we should be able to grow more than 15 percent.
Q. CBS.MW: SRA International is the latest in a series of IT firms in the Washington, D.C. area to go public. Are you worried that there may be a glut of these companies on the market and your stock price will go down?
A. Volgenau: No. Even though there have been several firms with successful IPOs that are somewhat similar, the size of our market is tiny compared to all of the investment capital that is out there. It's still a pretty small market compared to a segment such as manufacturing, transportation or financial services.
Q. CBS.MW: Now that you're public, are you looking at more acquisitions?
A. Volgenau: We've been looking at acquisitions for many years. We made one acquisition of a small environmental firm in January of this year. So the answer is, yes, we're looking at acquisitions, but we're not a rollup, we're not going to grow through acquisitions. We'll continue to be organic, but we'll use acquisitions to enter related markets.
Steve Gelsi is a reporter for CBS.MarketWatch.com in New York. |
