A billion here, a billion there, and you have a major government contractor.
George Pedersen always wanted to run a $1 billion company. When he started ManTech International Corporation on a shoestring budget several decades ago, the hard-charging executive knew achieving that level of market share would be a watershed moment for his fledgling enterprise.
Soon, if all goes according to plan—and most analysts who track the company’s results say it will—Pedersen will achieve his goal. All it took were 37 years of determination, a decision to sell stock to the public and a willingness to spend countless nights and weekends at the office as he immersed himself in technology and the federal marketplace.
In a recent SIGNAL Magazine interview, Pedersen acknowledges that his only real hobby in life is his company. The reason for the $1 billion goal “is the nature of our market,” he says. “You have the very major corporations—Lockheed, Northrop Grumman, etcetera. I refer to them as the major money burners,” he offers.
“And then you have the billion dollar corporations, and then you have everyone else. We did not want to remain forever in a category of everyone else. So our target was to get to the billion dollars not just for the revenue and profits that we generate but also for position in the industry.
“Now, I can’t give you a [new] target. Do I want to be $2 billion or do I want to be $5 billion? We think the opportunity for continued growth is there, particularly in the marketplace we are in,” he concludes.
Indeed, Pedersen is aiming at the twin bull’s eyes of defense and intelligence technologies. Headquartered in
For example, ManTech supported the advanced telecommunications systems used in operation Iraqi Freedom; provides physical and cybersecurity to protect
ManTech’s recent corporate thrust reflects three broad events in roughly the last decade. With defense cutbacks in the 1990s brought about by the end of the Cold War, Pedersen felt ManTech was too heavily invested in the federal marketplace.
Tapping its contacts around the globe, ManTech began to build up its commercial work, again making acquisitions along the way. However, in 2001, Pedersen decided that ManTech should redouble its efforts to serve the government market, the company’s lifeblood since its founding in 1968 as a U.S. Navy contractor.
So he and 71 other ManTech executives held a series of high-level corporate brainstorming sessions at the Greenbrier Hotel in
After the Greenbrier conferences, Pedersen hired a mergers-and-acquisition team from Quarterdeck Equity Partners, now a part of the Jeffries Group. In July 2001, the Quarterdeck team offered a list of 66 possible companies to buy, Pedersen recalls, and ultimately suggested the company go public.
ManTech had remained privately held since it’s founding. Going public would mandate disclosing much more financial information and would require keeping Wall Street happy, feats some entrepreneurs simply despise. But Pedersen says the logic of the move was too compelling to ignore.
All these decisions came down just weeks before the terrorist attacks of September 11, 2001. Since that time, the Bush administration has made information technology the hallmark of modernized military and intelligence agencies. In fact, the United States spends nearly $58 billion a year on information technology, and observers expect a high level of commitment even if overall defense spending declines in the next few years because advanced technology makes the U.S. military ever more lethal.
Last year, ManTech made Business Week’s list of the 100 best small companies, coming in at number 53 based on sales and earnings growth and return on invested capital. That same year, following several acquisitions and ballooning federal intelligence budgets, ManTech registered revenues of $842 million. Company officials have advised Wall Street analysts to expect 2005 revenues of between $985 million and $1.005 billion, and the results should be reported next February.
Of course, in business anything can happen and plans often go awry because of budget cuts, recessions or national strife. But analysts say that in ManTech’s case the odds are definitely in the company’s favor, especially considering that all it would need is a minor acquisition or two to bolster revenues on top of an internal growth rate in excess of 15 percent. This means that ManTech would double every five years on its own.
However, Pedersen says ManTech intends to buy more companies and even now has a team of executives and investment bankers searching for the next acquisition. Just four years ago, the company had 66 firms on its radar screen.
“Acquisitions have always been a part of our culture,” Pedersen explains. “We have used acquisitions as a marketing tool. When we couldn’t penetrate a market, we would acquire a company.
“A key example is in 1980, when we were primarily a Navy contractor and really tried to penetrate the intelligence community. When you don’t have a contract, you can’t get the clearance. When you can’t get the clearance, you can’t have a contract. We penetrated that by buying a small operation from Raytheon—their systems surveillance operation. That gave us 57 employees, four contracts and the necessary security clearance.”
Pedersen took a page from the company’s history books last year when he acquired Grayhawk, which was a move that analysts applauded. With its work force of 500, many of whom have top security clearances, Grayhawk gave ManTech a foray into highly classified areas.
That represented the sixth acquisition the company has made since going public in 2002, a time when much of the general technology industry was out of favor with investors. One of those purchases involved MSM Security Services Incorporated, a subsidiary ManTech is now trying to sell.
ManTech bought MSM in 2003 because the parent had been awarded a major contract with the Defense Security Service (DSS), which provides clearances for the Defense Department and defense contractors. Just a few weeks later, federal officials said they would merge DSS into the Office of Personnel Management.
The merger of federal departments took roughly 18 months longer to complete than the government had officially estimated. Meantime, the work at MSM turned out to be far more complicated, time-consuming and expensive than ManTech executives had predicted.
In ManTech’s 2004 annual report, Pedersen pointed out that MSM hurt the company’s earnings. In fact, net income fell nearly 30 percent to $24.7 million from 2003 profits of $35.2 million. Earnings per share fell nearly 25 cents a share to 76 cents a share on continuing operations.
But Pedersen remains undaunted. After all, at age 70 he is one of the industry’s senior statesmen and understands the federal information technology market as well as anyone. He also has cash in the bank, ready access to Wall Street and a clear plan for growth.
Pedersen hasn’t disclosed when he will retire, but as part of a succession plan the company’s board last year elevated Robert Coleman to the job of president and chief operating officer. Coleman, 45, manages the day-to-day operations of ManTech and its subsidiaries. He also has responsibility for ManTech’s overall competitive positioning, business development, customer relations, communications, employee development and recruiting.
Before joining ManTech, Coleman served as chief executive officer and president of Integrated Data Systems (IDS), a provider of software engineering, computer security and enterprise architecture solutions to the defense and intelligence communities. Founded by Coleman in 1990, IDS was acquired by ManTech in February 2003. Prior to IDS, Coleman worked at the White House National Security Council Crisis Management Center during the Reagan and George H.W. Bush administrations. He has additional experience supporting national security efforts from working for SAIC and Raytheon Technical Services.
ManTech’s high profile in the industry could make it an acquisition target for a larger firm wanting a strong information technology subsidiary, Pedersen concedes. He says larger companies must be tracking his results the way he does smaller firms in which he is interested.
“I’m sure they review where we stand,” he allows. “Obviously if someone came in tomorrow with an offer, I can’t refuse on behalf of the stockholders, and I’m a major stockholder in this corporation. But I don’t think this is the right time for us to be acquired. I think the upside potential for our firm is enormous.”
ManTech International: www.mantech.com