Alternatively, how else should they take advantage of market conditions to grow and/or re-position the company?

One obvious factor suggests selling in the near- term. Valuations are strong, M&A deals of all sized firms (some 60 over the last 12 months) are getting closed and the overall defense and federal IT budgets are well funded.

But, personal issues aside, government tech owners face a sea of conflicting, intriguing and rapidly changing information that affect their liquidity and strategic decisions.

Consider these headlines and trendlines:

• Outsourcing. The trend remains clear that more government jobs will go to the private sector. Last month DoD published guidelines authorizing up to 25,000 buyouts for DoD civil servants.
• Base Closure. The Pentagon has now asked base commanders for inputs for the fifth round of base closings. These inputs will form the basis for a recommendation to an independent base-closing commission next year. Clearly, depending on a company’s physical presence and workforce mobility to track the money, there will be company winners and losers.
• GSA vehicle makeover. GSA plans to merge some or all of the requirements of six current government wide acquisition contracts (GWACs) into the new 15 year, $150 billion Alliant vehicle. One goal is to ensure full participation by smaller enterprises in the Alliant GWAC, with 5 of 20 contracts going to small business ‘coalitions’ and 30-40% small business goals for the 15 large company awardees. The GWACs to be folded inside Alliant would be ACES, ANSWER, Disaster Recovery, Millennia, Safeguard and Visual Data Center. Does your firm rely on one or more of the vanishing GWACS. Is it positioned to grab a share of the Alliant GWAC?
• Homeland Security. The same uncertainty faces the contracting environment at the Department of Homeland Security. DHS is preparing to compete its $10 billion agency-wide SPIRIT contract this September, considered by many as an essential badge to carry if serious about winning DHS work. SPIRIT will enable DHS to secure a broad range of IT services through a task order contract.
• Small business Re-certification. The SBA is still deliberating its proposed rule that small businesses would have to be annually recertified as ‘small’ to continue participation under a GWAC vehicle. The outcome of this rule has obvious impact on whether ‘non-small businesses’ can acquire approved small firms and continue to bid on the following years’ work under the smaller firm’s GWAC.

The path may not be evident to firm owners but those who navigate best will certainly maximize their company’s financial position - now or at later time when the liquidity decision is made.

SI International Acquires MATCOM

SI International, Inc. (NASDAQ: SINT) completed its acquisition of privately-held MATCOM International Corp.
SI International said that the acquisition supports its “strategic growth plan to broaden its customer base and strengthen the portfolio of mission-critical solutions SI International provides to its federal government clients.”

Alexandria, Va.-based MATCOM offers information technology (IT) and engineering solutions to the federal government in areas such as software development, enterprise systems, homeland defense engineering and technical services, tactical links integration and training, and integrated logistics support (ILS).

Established in 1983, MATCOM has approximately 500 employees with 10 primary office locations nationwide and two international locations. Clients include DoD, U.S. Air Force, Dept. of Homeland Security, Federal Retirement Thrift Investment Board, National Institute of Health, and Dept. of Justice. MATCOM is owned by DFW Capital Partners, L.P., Westbury Equity Partners, L.P., and management.

SI International chairman and CEO Ray Oleson stated: "MATCOM is exactly the type of strategic acquisition we have been seeking. This acquisition will enable us to accelerate SI International's growth, significantly increase the depth of our qualified professionals and augments the range of mission-critical IT solutions we provide to the federal government. MATCOM brings us a complementary set of customers within both the Federal Government civilian agencies and DoD, and offers meaningful cross-selling opportunities. Just as important, MATCOM is an excellent fit with SI International's corporate culture, bringing a dedication to building and maintaining long-term customer relationships."


TERMS

On Jan. 21, 2004 MATCOM International completed its acquisition of MATCOM International for $65.8 million in cash. The transaction also includes an earnout provision of $7.9 million in the form of SI International subordinated notes if MATCOM achieves certain short-term revenue objectives.

SI International paid the purchase price with its cash- on-hand and borrowings from its senior credit facility, which has been increased to $80 million. SI International expects the acquisition to be accretive to earnings immediately.

For the trailing 12 months ended September 30, 2003, MATCOM had revenues of approximately $70.4 million and EBITDA of $7.9 million. (EBITDA is defined as GAAP net income plus interest expense, income taxes, depreciation and amortization.)

MATCOM has approximately 500 employees. During FY03, MATCOM derived approximately 99% of its revenues from work with the federal government — 40% from DoD agencies and 59% from civilian agencies. The company generated 78% of its revenue as a prime contractor.

SI International intends to fully integrate MATCOM's operations to achieve the full benefit of the acquisition for the customers, employees, and stockholders.


ANALYSIS

For SI International, it was worth the wait. The quietest member of the IPO class of 2002 has not made an acquisition since a 15- month flurry, from January 1999 through March 2000, during which it bought and integrated four smaller government IT services businesses. But what is most striking about the MATCOM deal is its relative magnitude to the acquirer, uncommonly high in this sector.

This is a big buy for a company of SI International’s size. Many Wall Street analysts were expecting SI to make a few small acquisitions, in the $10-$20M range, during the near term. Boy, were they wrong. With the addition of $70M/year MATCOM, SI will grow from an estimated $160 million in 2003 revenues to well over $230 million, with more than 1,800 employees.

There are three plausible reasons why SI chose to reach outside the expected range:

1. Despite all the sellers in the federal IT marketplace today, few targets meet the desired profile (i.e., specialization in select technologies, complementary client base, large number of cleared employees, etc.). MATCOM clearly satisfied SI's requirements.

2. A growing reluctance among mid- and first-tier contractors to take on set-aside work (most $10-$20M companies have a large percentage of work in contracts competed among small businesses or 8a firms only; acquisition by a "large business" puts these contracts in jeopardy).

3. SI is feeling much better about itself now that the company’s stock price is up to $20.65 (at a market capitalization of $175 million) after having been at an all-time low of $6.75 in March 2003.

When buying a company better than 40% its size, the acquirer faces obvious challenges (integration, cultural, and debt issues to name a few) that it will wrestle with for several months to come. Nevertheless, SI is betting heavy that the upside of this merger outweighs the downside. Have they bitten off more than they can chew? We don't believe so. But don't look for SI to take any more bites, no matter how small, until it swallows this one.

As for MATCOM, its hand was forced. The firm, until recently, had been a relatively active buyer of government services businesses, having merged with Management Assistance Corp. of America (MACA) in August 1998, and acquired Mei Technology Co. (Lexington, MA) in March 1999 and Entek, Inc. (Alexandria, VA) in October 2002. These deals were financed largely with capital provided by DFW Capital Partners, LP (Teaneck, NJ), and Westbury Equity Partners, LP (Westbury, NY), both of which now own a significant stake in MATCOM. Interestingly, Westbury's portfolio includes a recent $7 million investment in UAV-maker Aurora Flight Sciences Corp. (Manassas, VA).

Preoccupied with getting maximum value in their investment, MATCOM's owners had to wonder if they had waited too long when values in the government IT sector troughed in March 2003. But the stock market downturn was followed by a dramatic increase in the sector's equity values. The jump was punctuated by several high-value M&A transactions, most notable of which was Lockheed Martin's acquisition of Titan Corp. (at an enterprise value close to 1.5 times estimated FY03 revenues). Worth noting, SI International's stock soared 20% in the immediate days following the announcement of the Titan deal.

Almost overnight, a new question emerged: "How much upside is left in the federal IT market?" This time, the investors didn't wait for the answer, but began looking for their return. SI reportedly was one of "six or seven" companies that looked MATCOM over. Even with that level of interest, the sellers didn't end up with the type of multiple Titan and some others received, but they got out while the getting was good.

FGR presents briefs on selected technology services contracts awarded by the U.S. government to mid-tier federal contractors during the last two months. The briefs are compiled by InfoBase Publishers, Inc.©, a leading provider of competitive intelligence for the worldwide defense/aerospace industry. All rights reserved. For more on InfoBase Publishers' services, contact Bill Burton (410.820.6821), wkburton@inf obasepub.com or click http://infobasepub.com

NASA MSFC Inks COLSA for Huntsville Operations Support Center
(HOSC)

The NASA Marshall Space Flight Center (MSFC) (Huntsville, AL) awarded COLSA Corp. (Huntsville, AL) a five-year, $125.4 million, IDIQ
contract (NN-M-04-AA07-C) for the Huntsville Operations Support Center (HOSC) contract.

    Under the contract, the company will provide operations and maintenance and system development services to meet the requirements of the Flight Projects Directorate, Ground Systems Dept., and the International Space Station (ISS) Payload Operations Center and its customers.

    Program Management functions include planning, controlling, data systems security, and interaction with both domestic and international customers. Engineering includes software and data systems development and maintenance and the evolution of cost-effective and state-of-the-art systems. Facility O&M includes the provision of 24x7
voice, video, and data processing services in support of HOSC and ISS payload operations customers. Business management includes financial
management, property management, safety, and procurement.
    COLSA’s subcontractors include:
    -- CSC Federal Sector, Civil Group, NASA unit (Lanham, MD).
    -- Morgan Research Corp. (Huntsville, AL).
    The contract was competitively procured through NASA’s Space Mission Communications and Data Services (SMCDS) solicitation (RFP-03-HAW-001), which was issued in April 2003, and called for bids on five separate work packages supporting NASA's MSFC, Goddard Space Flight Center (GSFC) (Greenbelt, MD), and Kennedy Space Center (KSC).

       SMCDS is considered a follow-on effort, primarily to NASA’s Consolidated Space Operations Contract (CSOC), which will expire in December 2003. The CSOC incumbent is Lockheed Martin Space Operations Co. (LMSO) (Houston, TX), which was awarded a 10- year, $3.4 billion contract (NAS9-98100) in September 1998.

NAWC-TSD Inks IRML to Support Manpower, Personnel & Training
Dept. (AIR 3.4)

The U.S. Naval Air Warfare Center - Training Systems Div. (NAWC-TSD) (Orlando, FL) awarded Information Resources Management, Ltd.
(IRML) (Lexington Park, MD) a five-year, $65 million, IDIQ contract (N61339-04-D-0003) for technical, analytical, and developmental products in support of NAVAIR’s Manpower, Personnel and Training Systems Dept. (AIR 3.4).

    Under the contract, the company will provide Navy training systems plans and manpower estimate reports, training products and related services, and the weapons systems technical training needs to include fixed-wing and rotary-wing training products. Work will be performed in Patuxent River, MD. The work is expected to be completed in December 2008.   The contract was competitively procured through solicitation N61339-03-R-0042, which was issued on June 6, 2003, and called for competition limited to small businesses only (NAICS 541330, $23 million). Proposals were due on July 14, 2003. A total of five offers were received.

    The procurement is considered a follow-on effort to a multiple-award IDIQ program awarded by NAVAIR HQ in December 1998. The incumbents
were:
    -- Management Analysis Group Associates (MAGA) (Lexington Park, MD)
(N00019-99-D-1143).
    -- Compliance Corp. (Lexington Park, MD) (N00019-99- D-1149).
    -- Consulting Associates, Inc. (CAI) (Virginia Beach, VA)
(N00019-99-D-1157).

NSWC Crane Selects Three to Support Air Defense and Missile
Systems

The U.S. Naval Surface Warfare Center, Crane Div. (NSWC) (Crane, IN) awarded three parallel, five-year, $49.9 million, cost-plus-fixed-fee, firm-fixed-price, IDIQ contracts to support the improvement of air defense & missile systems, and aviation systems capabilities and operation.

    The recipients were: -- CSC Federal Sector, Defense Group, Navy/Marine Corps & Missile Defense (Falls Church, VA) (N00164-04-D-6613). -- CAS, Inc. (Huntsville, AL) (N00164-04-D-6629). -- Madison Research Corp. (MRC) (Huntsville, AL) (N00164-04-D-6630).

    Under the multiple-award program, these three companies now will compete for $49.9 million in task orders that cover engineering, technical, logistics, field engineering, and program management services to support various air defense & missile systems, and aviation systems.

    Air defense systems supported under this program are those capable of providing low- and medium-altitude air defense. Missile systems consist of those capable of providing air-to-air, air-to- ground, ground-to-air and ground-to-ground missiles.

    Aviation systems supported under this program include components and systems of rotary-wing aircraft.

    This contract combines efforts for the U.S. Navy (80%) and the countries of Turkey (5%); Lithuania (5%); Israel (3%); Jordan (3%); Egypt (3%); Greece (.5%); and Spain (.5%) under the Foreign Military Sales (FMS) program. Work will be performed in Huntsville, AL (50%); Crane, IN (25%); Quantico, VA (25%).

       The contract was competitively procured through solicitation N00164-03-R-6613, which was issued on July 24, 2003, and called for full & open competition (NAICS 541330, $23 million). A total of three offers were received.

    The procurement is considered a follow-on effort. The incumbent was Nichols Research Corp. (Huntsville, AL), now part of CSC, which worked under a five-year, $50 million contract (N00164-98-D- 0034) awarded in August 1998.


NSWC-IHD Names ARTI to Provide Admin Management Support for DARPA

The U.S. Naval Surface Warfare Center, Indian Head Div. (NSWC-IHD) (Indian Head, MD) awarded Advanced Technology Resources,
Inc. (ARTI) (Alexandria, VA) a five-year, $7.1 million, cost-plus-fixed-completion contract (N00174-04-C- 0012) to provide agency-wide support services for research and development (R&D) activities of the U.S. Defense Advanced Research Projects Agency (DARPA) (Arlington, VA).

    Under the contract, the company will perform administration management support for agency-wide functions such as correspondence control, technical information management, document and records management, logistics support and travel management. The work will be performed in Alexandria, VA.

       The contract was competitively procured through solicitation N00174-03-R-0047, which was issued on September 26, 2003, and called for competition limited to small businesses only (NAICS 541710, 1,000 employees). Proposals were due on October 28, 2003. A total of two offers were received.

NUWC Chooses Three Small Businesses to Support Electromagnetic
Systems

The U.S. Naval Undersea Warfare Center Div. Newport (NUWC) (Newport, RI) awarded three parallel, five- year, cost- plus-fixed-fee contracts, worth $76.5 million collectively, to provide field engineering and technical services for electromagnetic systems.

    The recipients were:
    -- Systems Engineering Associates Corp. (SEA CORP) (Middletown, RI),
which was awarded a $26.3 million contract (N66604- 04-D-001B).
    -- McLaughlin Research Corp. (Middletown, RI), which was awarded a
$22.9 million contract (N66604-04-D-001A).
    -- Research and Development Solutions, Inc. (Middletown, RI), which
was awarded a $27.3 million contract (N66604-04-D- 001C).
    Under the multiple-award program, these three companies now will compete for an estimated 442,400 labor-hours in task orders to support the planning, development, implementation, installation, training, support, maintenance, repair, and test and evaluation (T&E) of electromagnetic systems and equipment.

    The task orders will support ship checks; preparation of SHIPALT and TEMPALT drawing packages; design, fabrication and development of prototypes, test hardware, software, and firmware; performance of equipment installations and removals; engineering and technical support for laboratory, dockside, and at-sea tests; logistics support including the development of instructional materials and preparation and distribution of technical memoranda and reports; maintenance,
trouble-shooting, and repair; preparation of field change kits; installation of field changes; Storage and maintenance of inventories of systems and equipment and expendable consumable material; and maintenance of scheduling and configuration data as required.

      The work is expected to be completed by December 2008. Contracts funds in the amount of $20,000 will expire at the end of the current fiscal year.
   

USAF AFFTC Chooses Rohmann for AudioVisual Information Services
(AVIS)

The U.S. Air Force Flight Test Center (AFFTC) (Edwards AFB, CA) awarded Rohmann Services, Inc. (San Antonio, TX) a five-year, $14 million, IDIQ contract (FA9301-04-D- 0012) for audiovisual information services (AVIS) in support of Edwards AFB and its associates.

    Under the contract, the company will perform management responsibilities, audiovisual acquisition, photographic processing archival of visual information, audio public address, production control services, visual information equipment loan service, replacement/enhancement and motion picture film.

    This work will be complete by March 2009. No funds have been obligated.

    The contract was competitively procured through solicitation
F04700-03-R-0012, which was issued in June 2003 and called for a single
award under competition limited to small businesses only (NAICS
541922).

Government contractor CEOs – how can you get a client (or potential client) to say ‘yes’? Simple: eliminate their reasons for saying ‘no.’

This is a technique that you have seen and experienced, but may not have recognized. It is a technique that Ronald Reagan used frequently and, if you bought a car recently, may have been used by an automobile salesperson. It is the technique of eliminating the “NO.”

Strangely, in presenting a recommendation, the propositions presented first, or in the opening statement, are often the least carefully examined.

Conversely, propositions presented late in the process, are likely to be questioned in detail. Therefore, this reasoning goes, cover the most difficult issues first, with minimal detail, and present your strongest arguments last and with overwhelming evidence and supporting information.

Step by step, then, here is how to do it. Let us assume that you are preparing a response to a Request For Proposal.

Step One - Brainstorm
Get three to seven people in a room for at least three hours and start by brainstorming reasons why we will lose the competition for this contract. Keep working in a brainstorming mode – do not discuss or argue ideas for failure, just list them. Write them on flip chart sheets and tape the sheets on the wall. You should generate at least 20 reasons for failure without much difficulty. But push on. Aim for sixty reasons for losing. Dig into the details and produce specific reasons, not just generalities. When you have 40 to 60 reasons for losing the competition on the wall and seem to be producing no new ideas stop your brainstorming.

Step Two – Group
As a group, review all of the ideas that are now on the wall and look for groupings of similar items. But, do not go overboard on grouping ideas together. It is very important to recognize subtle differences and keep those differences intact. For instance, you might decide to group these two ideas:
- We cost too much
- Our rates are too high

But one deals with total cost, which may be addressed by our approach to the Scope of Work and the other deals with our mark-ups and pricing approach. If they are combined and made into one idea - High Cost – then we lose the opportunity to address two very different issues. So - group ideas but maintain distinct thoughts or issues.

Step Three – Rank
You should now have 20 to 40 clear issues that may be reasons for us losing this competition. Your next task is, based on your understanding of the client, to select the three to five reasons that are most likely to be reasons for our loss and the three to five that are very unlikely to be reasons for losing. Put all the remaining issues into two groups: those that are closer to likely reasons for failure and those closer to unlikely reasons for failure. You now have four groups of issues:
A - Likely reasons for failure (3 to 5)
B - Issues close to likely reasons for failure
C - Issues close to unlikely reasons for failure
D - Issues very unlikely to be reasons for failure (3 to 5)
This task will succeed only if you “stand in the client’s shoes” and look at the issues from the client’s perspective. Do not slip into a corporately ego-centric view of the issues.

Step Four – Strategy
Now you will turn each one of your 3 to 5 reasons (Group A) for failure into strengths. You will develop an opening statement, that positions these issues as fundamental strengths of your proposal, and you will not return to them. Do not ever bring them directly into your presentation or proposal again.

Say, for example, that you have identified cost as the most likely reason for your failure to win the contract. Your opening statement might be something like this, “Our clients return to us, time and time again, for the proven and demonstrated value of our services.”

Having said this in the opening, you will let it stand – unexamined – and proceed with the presentation. You will want to include some evidence in the body of your presentation about satisfied clients and about clients that have been with your firm over a number of years or number of assignments – but you will not directly cite these facts as support for the initial statement. Let the client’s mind make the connection.

There is ample evidence that human beings see reality based on “mental models” (see “The Fifth Discipline” by Peter Senge) and not on raw factual data. You are building a mental model for your presentation in your opening statement. Then you are letting the client see your entire presentation as facts supporting your statement. If you strive to present evidence and prove your case – lawyer like – you risk destroying the mental model and convincing the client that indeed, you do cost too much. If I say the sky is blue, and then present two hours of argument supporting the statement, I will, most likely, convince you that the sky might not be blue after all.

The last two groups, C and D, are the areas you should mine to structure the last third to half of your presentation. This is the material that the client is most likely to accept and believe. This is the area where your details of evidence will reinforce the client’s receptivity to the view of you as the superior firm in the competition.

Area B is the most troubling. These issues demand that you present some detailed evidence of your strength – these issues must be discussed and resolved. The trick is to work them into the presentation so that they make a very positive impression on the client. But you do not want to dwell on them or discuss them at length. Nail them and go on.

Finally, the opening in a proposal to the government occurs in two places: your cover letter, or letter of transmittal, and the Executive Summary. In this approach, you create the first sentence of those two documents.

Conclusion
When done correctly, this technique eliminates all reasons for not selecting you to win the contract. In many competitions, the elimination of “NO” is all that is necessary to win.

Gary A, Dunbar, Inc., a business development consulting firm specializing in helping federal technology providers and firms in other industries create consistent, long-term revenue growth. Gary is a Minuteman Ventures Advisor. For additional information, contact Gary Dunbar at gary@garydunbar.c om. or see www.garydunbar.com.