Veridian set for growth with Signal acquisition

Veridian Corp., a steadfast contender in the defense and intelligence communities, last week snapped up civilian player Signal Corp. in a $227 million acquisition designed to bolster Veridian's civilian-rich portfolio in pursuit of homeland security deals.

Veridian's buy serves as proof that defense contracting mainstays now realize the importance of positioning for the coming wave of homeland security purchasing, one analyst said.

"I think everybody clearly recognizes that this is likely going to be the fastest growing area," said Stephen Murphy, executive director of CIBC World Markets.

Further, the acquisition is representative of the fact that positioning for homeland security accounts will be a tough endeavor for those vendors intending to start from scratch. As a result, acquisition is the natural avenue for gaining access to the right agencies, Murphy said.

"These relationships are hard to build," he said, adding that aside from the fledgling Transportation Security Administration, all agencies being pulled into the homeland security mix have long histories with certain vendors.

Signal is arguably one of those, because the company boasts strong ties to a spate of civilian agencies. For instance, Signal counts as customers the Transportation Department, Federal Aviation Administration, Coast Guard, Immigration and Naturalization Service and the Federal Energy Regulatory Commission.

Meanwhile, Veridian draws 89 percent of its revenues from the Defense Department and the intelligence agencies. With eyes now set on the homeland security market, Veridian officials acknowledged the need to forge quick inroads.

"While Veridian has long-standing relationships in the federal/civil world with the Department of Justice and the FBI and some Transportation work, it is not a market we felt like we were particularly well-positioned for," said David Langstaff, Veridian president and chief executive officer.

For Signal, the purchase holds the promise that the company will be instrumental in Veridian's efforts going forward, said Roger Mody, Signal's majority owner and CEO.

"One of the key attributes of this acquisition is the fact that we are strategic to Veridian as well as additive," Mody said. "As we looked at other companies, we felt we would be additive."

Although Signal has sustained strong earnings and growth, the company was amenable to acquisition.

The reasoning, according to Mody, was the growing tendency among government agencies to emphasize the size and financial stability of vendors when making awards.

Following the acquisition's September close, Mody will step down from Signal's top post. Signal's Scott Gross will then serve as president of Veridian's new IT services division, which will be composed mostly of Signal resources.

Along with its links to civilian agencies, Signal brings to the table a host of indefinite-delivery, indefinite-quantity and governmentwide acquisition contracts — a factor that appealed immensely to Veridian, Langstaff said.

Especially attractive was Signal's General Services Administration presence. "We anticipate that GSA will provide key contracting vehicles for homeland security," particularly as the proposed Homeland Security Department comes together, Langstaff said.

Signal holds a prime contractor position on GSA's Millennia Lite contract. Other governmentwide vehicles in Signal's back pocket include Transportation's two Information Technology Omnibus Procurement contracts and the National Institutes of Health's Chief Information Officer Solutions and Partners program.

Further, Langstaff trumped the Signal buy as a strength his company will need in the face of another growing trend in government IT buying.

"DOD and civilian agencies alike are beginning to bundle their infrastructure support and mission-critical support purchases into single contracts," Langstaff said.

Veridian itself can hold down the mission-critical end of such propositions, while the company's new Signal assets will serve as complementary IT infrastructure and services components, he said.

Jones is a freelance writer based in Vienna, Va.

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At a glance

Veridian Corp.

Headquarters: Arlington, Va.

Employees: 5,200

Annual revenue: $1 billion

Key customers: Naval Air Systems Command, plus recent wins with Naval Air Warfare Center Aircraft Division and the Air Force.

Signal Corp.

Headquarters: Fairfax, Va.

Employees: 1,600

Annual revenue: $250 million

Key customers: Coast Guard, Federal Aviation Administration, Customs Service and Department of Veterans Affairs.