IT contractors broaden their expertise to land government work

Government information technology contractors are casting a wider net to win business, targeting multiple agencies and organizations to make up for revenue lost from fewer projects.

Comment on this article in The Forum.Among the latest to pursue that strategy is Dynamics Research Corp., which has focused on Defense Department contracts. DRC's most recent acquisition helps to strengthen its foothold in the Homeland Security Department and other civilian agencies.

Last week, DRC acquired Kadix Systems, a management consulting firm that specializes in information technology, public and environmental health, and human capital issues, for $42 million. Kadix reported revenue of $23 million and 40 percent growth for the 2007 calendar year, with half of its revenue derived from DHS. It holds prime contracts on the DHS' Enterprise Acquisition Gateway for Leading Edge Solutions (EAGLE) vehicle for acquiring IT services solutions and on the department's Program Management Strategic Sourcing vehicle.

The acquisition of Kadix comes four years after DRC purchased the government division of Impact Innovations Group LLC for $53.4 million in cash. That bolstered DRC's presence at the National Security Agency and Treasury Department.

"The cheese moved, [and] we're moving to where the cheese went," said James Regan, chairman and chief executive officer of DRC. Kadix will maintain its brand name and there won't be any layoffs in the short term. The latest acquisition will strip Kadix of its status as a small business, which will result in about $8 million of contracting business that will be moved to different contracting vehicles or lost, Regan said.

DRC is not alone. More government contractors are trying to find new ways to land federal business as agencies spend less on IT and Congress approves fewer projects.

Cisco, the dominant network manufacturer in the federal sector, announced a new, combined public sector organization - effective Aug. 1 - for federal, state and local government, and education and health care. Those segments operated independent of one another for the most part. And in July, IT solutions provider SI International entered a definitive agreement to acquire Arrowpoint Corp. to expand its relationship with key Defense Department clients, though the agreement was terminated less than two weeks later with little explanation.

"There are places to go [for] incremental business, and we'll be ready," Regan said. "At the end of the day, these are all customers that simply have challenges to solve. It's not such a big leap. The key is to maintain domain knowledge [and] appreciate the agency's processes. We want to target growth markets, and by acquiring these companies, we're finding the parts and pieces to help us accomplish that. There's no way to get to these guys otherwise."