9 hot companies to watch in 2011
- By Nick Wakeman
- Dec 09, 2010
It seems nearly every year is a year of transition for companies that serve the federal government. Standing still just isn’t an option for those that want to succeed.
All the companies and industries on our watch list are making changes to adjust to the rapidly evolving federal market. The catalyst for change is a desire to take advantage of emerging business opportunities in some segments of the market and a reaction to what many are predicting will be fewer opportunities in other segments.
1. The aerospace defense industry
In 2011, one group of companies in particular bears watching, and that’s the major aerospace/defense companies, such as Boeing, General Dynamics, Lockheed Martin, Northrop Grumman and Raytheon.
All those companies have built substantial services businesses in the past 10-plus years. In today’s market, they face challenges on multiple fronts. Concerns about organizational conflicts of interest have pushed Lockheed Martin and Northrop Grumman to sell off substantial pieces of business.
At the same time, the companies’ core platform business faces dim prospects for growth as the government looks to cut defense spending. In reaction, they are moving aggressively into what they see as growing segments of the market. For example, Boeing has been an active buyer of companies that can bolster its cybersecurity capabilities.
Look for companies in this group to continue to acquire other businesses in the IT services space, but conflict-of-interest concerns will likely put a limit on blockbuster deals.
2. Booz Allen Hamilton
Two questions remain after Booz Allen Hamilton’s successful initial public offering in November.
The company raised $238 million, but that’s nowhere near its value: The company pulled in $5 billion in annual revenue last year.
Private equity firm Carlyle Group, which financed Booz Allen’s split from its commercial side, still owns 71 percent of the company.
Will the company do a secondary offering, which would allow Carlyle to recoup more of its investment?
Another question that only time will answer is: How will being a public company affect Booz Allen’s culture?
3. GTSI and the art of survival
When the Small Business Administration suspended GTSI for using small-business prime contractors as fronts to funnel money to itself, the big question was whether the company would survive.
Its stock plunged from $7.25 to $3.50 a share when the suspension was announced. It’s now trading at around $4.55 a share.
To get the suspension lifted, company CEO Scott Friedlander had to resign. On Nov. 30, Sterling Phillips was named the new CEO. Indications are that Phillips wants to stick with the strategy of transforming the company from a reseller to a services company.
But the big question is whether the brand is too damaged to survive.
4. CGI Federal
The merger of CGI Federal and Stanley Associates is one of those marriages that many people didn’t see coming, but once they were together, it made a lot of sense.
In a people-driven business, a big fear is losing critical employees when an acquisition occurs. You can only have one person running your Army business, for example.
CGI and Stanley avoided such issues because the companies had few customers in common. CGI was primarily a civilian contractor before buying Stanley for $1 billion, while 77 percent of Stanley’s revenue was from defense and intelligence customers. No one got a new boss or had customers taken away.
The thing to watch in 2011 is whether the new entity, which has more than $1.2 billion in annual revenue, can compete and beat the other billion-dollar babies in the market.
5. Dynamics Research Corp.
Dynamics Research Corp. celebrated its 55th year of business in 2010, so the company might seem a little long in the tooth to be considered an up-and-comer.
But in the past three years, the company has made several strategic hires and one major acquisition that should position it for growth. When it bought Kadix Systems in 2008, DRC, based in Andover, Mass., established a sizable presence in the Washington, D.C., area. Given the looming budget crisis, close proximity to decision-makers is crucial to protecting one’s business.
Now the company is starting to see its investments pay off. DRC was one of six companies to win the first Network-Centric Solutions II contract from the Air Force. The contract has a $460 million ceiling, and DRC will be competing with top-tier systems integrators, such as Booz Allen Hamilton, CACI International and Science Applications International Corp.
6., 7. and 8. Dell, Hewlett-Packard and Cisco Systems
The rivalry between Dell and Hewlett-Packard has expanded beyond making PCs and laptops. Dell is the underdog in this fight, and its acquisition of Perot Systems was an attempt to build a services business. Although significant, the move is much smaller in scale than HP’s acquisition of EDS, which added billions in government and commercial services.
Dell and HP also battled over 3Par, a company that provides data center management tools. HP won that bidding war.
Meanwhile, Cisco Systems and HP are increasingly seen as rivals as Cisco tries to gain a foothold in the data center market.
Acquisitions, budget cuts and contract wins are sure to raise the profile of myriad other companies in 2011. The potential is there for any enterprising business to grab mind share.