BearingPoint Plays the Game Well

From afar, Northern Virginia's information technology sector looks like one big company.

Employees are constantly jumping from one firm with an alphabetic name to another, while the firms themselves are constantly competing with one another, teaming or buying each other out -- sometimes all at the same time.

And while the executives in each firm claim to know precisely which part of the "IT space" they occupy, the various permutations of "solutions" and "value-added" and "technology" that they conjure up make it all seem like the same meaningless mush.

There's a good business purpose to this studied obfuscation. Depending on where the growth and higher margins are at any moment, it allows companies to tell customers -- and Wall Street -- that they are focused more on government or commercial work, or that their real strength is in integration, or outsourcing or consulting. These companies change "core competencies" the way J. Lo changes husbands.

One company that has played the game remarkably well is McLean-based BearingPoint.

The firm was spun off four years ago from accounting firm KPMG. Back then it was known largely as a "box kicker" hired by companies to advise on which hardware and software to buy -- and then put the stuff together. Since then, it's gone upmarket, changed its name and recast itself as more of a management consulting firm advising companies and government agencies on how to use technology to re-engineer key business processes.

Most significantly, BearingPoint became the first of the accounting-firm spinoffs to go public, using its stock to buy up consulting firms in Europe and Asia and lure about 40 percent of Arthur Andersen's consulting practice after that firm imploded last year.

Now, with more than $3 billon in revenue, an expanded customer list, a global footprint and more than 15,000 employees, BearingPoint finds itself in a sweet spot in the information technology sector. Its strong presence in the government market -- including a recent Iraq contract with a potential value of $80 million -- has provided a source of growth even as recession shrank its commercial business. And its focus on business process re-engineering has prevented the erosion of profit margins that has befallen other companies that jumped headlong into an overcrowded outsourcing market.

As significantly, BearingPoint managed to avoid the disasters that have befallen two competitors that tried to merge with bigger, outsourcing firms -- A.T. Kearney with EDS and Ernst & Young's consulting unit with Cap Gemini.

Not that the process has been without its bumps. Over the past year, BearingPoint has had to change its audit firm and restate three quarters' worth of profits because of how it accounted for its recent acquisitions. Continued softness in the commercial market forced the company to lay off 1,500 employees and to miss last year's earnings target. Much of this year's profit could be wiped out by a $70 million write-off for office space.

While none of these has been fatal, collectively they have taken a toll on BearingPoint's share price, which at $8.95 is less than half the $18 offering price and is a modest nine times earnings (Accenture, its bigger rival, has a multiple of 16). Most employee stock options are underwater, which may or may not be a factor in some recent high-level defections and résumé shopping by its Washington staff.

The real threat to BearingPoint, however, is likely to come from bigger firms that have decided to compete in its space. Companies such as Hewlett-Packard, SAP, Oracle and IBM now aim to package business consulting with their hardware and software, while Accenture is scrambling to win a bigger presence in the burgeoning federal marketplace. Off in the middle distance, telephone companies are angling for a share of the information technology pie.

But don't count out BearingPoint. Chief executive Rand Blazer is as sharp and tough as he is smooth. And although there will be more heartburn before the new acquisitions are fully digested, he's successfully maneuvered BearingPoint into the front ranks of Washington's tech community.

Steven Pearlstein can be reached at pearlsteins@washpost.com.