CDSI continues post-merger metamorphosis

In a few weeks, Computer Data Systems Inc. will change its name to ACS Government Solutions Group, but the new moniker tells only part of the story of the developments of the past two years at the Rockville, Md.-based federal systems integrator.

The name change caps a merger announced last year when CDSI became the 37th in a string of 43 acquisitions carried out since 1988 by the Dallas-based Affiliated Computer Services Inc. And CDSI was ASC's first acquisition in the government marketplace.

The merger helped transform CDSI, whose revenue grew about 40 percent to $414 million from fiscal 1997 to fiscal 1998, making it ASC's largest vertical merger. It achieved the growth mostly through acquisition, and company officials project continued growth to the $500 million revenue level in the current fiscal year, which will end in June 1999.

While consolidation in the federal marketplace has become common, CDSI officials said their deal was different because it was the marriage of a purely commercial systems integrator to a federal systems integrator. The union gives ACS a chance to deliver its commercial experience in data centers, help desks and other outsourcing projects to the federal market through CDSI.

"Most commercial companies have shied away from the federal marketplace because it has a whole different set of parameters in how you do business," said Jon Kutler, president of Quarterdeck Investment Partners Inc., a merger and acquisition consultancy serving federal information technology companies.

"ACS recognized that the federal government as a customer is increasingly becoming more and more like a commercial customer," Kutler said. "The difference between commercial and federal customers probably reached its peak about 10 years ago. That gap is narrowing and will continue to narrow."

CDSI, which celebrates its 30th anniversary this year, was not for sale when ACS came knocking, said Pete Bracken, president of ACS Government Solutions Group.

"But ACS knew there would be a wave of opportunity for outsourcing, and that would be difficult to do without having a partner that had some government experience," said Bracken, who joined CDSI two years ago after 23 years with NASA and 10 years with Lockheed Martin Corp.

Customers are driven toward companies with a certain critical mass because winning seat management deals requires low prices and a large offering of capabilities, Kutler said.

"ACS/CDSI, because of its size, is able to offer an extensive, affordable list of services," Kutler said. "Having capabilities is important because the federal government wants to reduce [the] number of contractors it deals with."

CDSI achieved a broader offering by acquiring two companies that specialize in defense and intelligence IT services. Analytical Systems Engineering Corp. (ASEC), acquired in May 1997 in a $51 million deal, provides systems engineering services to the Defense Department, particularly the Air Force, and the intelligence communities.

A high percentage of ASEC employees have the highest security clearance granted, Bracken said. ASEC's experience in firewalls and encryption will complement ACS's capabilities in imaging, which will be valuable in pursuing contracts designed to create a paperless office, a concept that is moving slowly in government but happening nevertheless, he added.

CDSI also recently brought Betac International Corp., which had revenue of $48 million last year, into its fold to further round out its defense and intelligence capabilities. CDSI is still shopping and is likely to close a deal around $50 million before the end of the year, said William A. Woodard, president of ACS Information Technology Solutions Co.

CDSI is showcasing its abilities in a $50 million contract to provide local-area network support services to the Senate. CDSI is maintaining 9,000 desktop PCs and 2,100 printers located in Washington and at senators' offices across the country, including all the security requirements for the systems, Woodard said.

CDSI, which won the contract in March, replacing Wang Government Services, operates a help desk with about 100 employees in the basement of the Capitol.

CDSI also has more than 100 employees at the Federal Deposit Insurance Corp. performing a range of IT financial systems support services, including business process redesign and data warehousing. It also is supporting more than 10,000 desktop PCs at FDIC locations in Washington, and nine sites across the country.

Another major federal contract is CDSI's multimillion-dollar pact to supply data processing to the Education Department's Direct Loan program. The Department of Housing and Urban Development and the Small Business Administration are supported to a lesser extent by the data center, which is in the process of migrating into an ACS data center, Woodard said.

Despite enthusiasm for seat management contracts, CDSI did not bid on the Outsourcing Desktop Initiative for NASA or the General Services Administration's Seat Management indefinite-delivery, indefinite-quantity contracts.

"The rationale was...we want to bid fewer of the multiple-award IDIQs and continue to focus on specific customers with specific mission support requirements," Woodard said, adding that CDSI will selectively bid multiple IDIQ contracts in the future.

Woodard said CDSI has moved away from being a niche player and can accurately claim the loftier description of solutions provider, but it understands the consequences.

"The good news is we're a major Tier One player," Woodard said. "The bad news is we have bigger and stronger competition, but we're backed by a commercial powerhouse and will continue to be best value for the money."