The big Washington area business stories of 2012

For all the brinksmanship over the federal budget, it was easy to miss the fact that 2012 wasn’t such a bad year for local business. Yes, the economy slowed, particularly for those that depend on Uncle Sam, but the pullback was more out of fear of what may come than from any existing crisis. If anything, corporate Washington seemed to learn from the last recession; few wanted to be caught unprepared for 2013.

Employment improves, but ...

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Unemployment in the Washington area continued to improve slowly in 2012. The region’s jobless rate fell from 5.5 percent in January to 5.3 percent in October, the most recent month for which rates are available. The local economy added 34,300 jobs between November 2011 and November 2012, with most of the growth coming from the private sector.

The sector with the strongest performance this year was education and health services, which added 11,300 jobs in the one-year period ending in November. As the massive baby boom generation ages, demand has grown for health care workers.

The jobs picture was not as encouraging, however, in the government sector and the professional services sector, which together form the bedrock of the regional economy. The federal government shed 4,200 jobs. And while the professional services industry continued to be one of the area’s largest job creators, economists say the sector has been underperforming and that its pace of growth has been too moderate to give the area’s recovery a major boost.

— Sarah Halzack

Contractors cut back

While the public only became aware of terms such as “sequestration” and the “fiscal cliff” later in the year, contractors started buzzing about the falloff in government spending in January.

Many government program managers kept a tight leash on new spending given the uncertainty over federal budget plans.

As time passed, concern about sequestration — or about $1 trillion in automatic spending cuts — only heightened. This summer, major contractors such as Bethesda-based Lockheed Martin warned that they might be forced to issue layoff notices to their employees in the fall under federal law.

After guidance from the Labor Department and the Office of Management and Budget, contractors shelved those plans but many continued to make reductions to their real estate and employees.

— Marjorie Censer

A scandal over conference spending

Few federal agencies had a more trying year than the government’s real estate manager, the General Services Administration. The GSA’s leadership, including administrator Martha Johnson and Public Buildings Commissioner Robert Peck, was toppled in April following revelations about excessive spending on a Las Vegas conference. Picking up the pieces is acting administrator Dan M. Tangherlini, who is considering redevelopment of the J. Edgar Hoover Building and 22 acres along Independence Avenue, and looking to cement a deal with Donald and Ivanka Trump to redevelop the Old Post Office.

— Jonathan O’Connell

SAIC announces split

McLean-based Science Applications International Corp. made one of the most decisive moves of 2012, announcing that it would split its storied business into two pieces: a roughly $4 billion-a-year services business focused on areas such as systems engineering and financial analysis and an estimated $7 billion-a-year IT company — which SAIC is calling a “solutions” business — with expertise in science and technology for the national security, engineering and health sectors.

John Jumper, the company’s chief executive, is set to head the solutions business, while Tony Moraco, who heads SAIC’s intelligence, surveillance and reconnaissance group, will lead the services company.

Still to come before the split is complete by the end of next year are decisions on where the companies will be based and what they will be called.

— M.C.

HGS and GeoEye are gobbled up

The summer of 2012 brought contentious acquisitions for two longtime Washington area companies.

Human Genome Sciences was purchased by British drugmaker GlaxoSmithKline for $3.6 billion in July after months of resistance from the Rockville biotechnology firm. The companies co-developed a drug for systemic lupus called Benlysta.

In April, HGS executives rejected Glaxo’s initial bid of $2.6 billion as too low. Glaxo attempted to take the company by force with a tender offer aimed directly at its shareholders, thus bypassing the board of directors, but HGS responded with a “poison pill” that made the move untenable.

In July, a deal finally got done.

That same month saw Herndon-based GeoEye fold to its chief rival, Longmont, Colo.-based DigitalGlobe, in a buyout agreement worth $900 million. That acquisition didn’t come together without a quarrel, either.

The two companies, which capture satellite images of Earth, saw funding for their most lucrative federal contract fall victim to budgetary uncertainty. That cast their future income into doubt and made them more likely to survive as a combined entity.

The problem: The companies couldn’t agree who should be bought. GeoEye offered $792 million in April for DigitalGlobe, which promptly rebuffed the deal. DigitalGlobe, in turn, opened its wallet to buy GeoEye.

— Steven Overly

The fall of a legal giant

One of the largest and most prestigious law firms in the world, Dewey & LeBoeuf, collapsed in remarkably quick fashion in 2012. In January, partners began trickling to competing firms as mounting debt left the firm unable to meet multimillion pay guarantees promised to star lawyers. By May, the Dewey partnership had dwindled from 320 to 160. And on May 28, the firm — which last year had about 100 attorneys in Washington, its second-largest U.S. office after New York — filed for Chapter 11 bankruptcy. The rapid unraveling of the 103-year old law firm came just 14 months after Howrey, the venerable Washington law firm, closed its doors after 55 years. The news sent shock waves through the legal industry and prompted many analysts to warn a similar fate may await other large law firms that followed a similar path to growth: mega-mergers, offers of lucrative pay packages to senior attorneys who bring big books of business, and rapid expansion into international markets.

— Catherine Ho

Talent wars heat up

Among Washington area human resource professionals, there was a particular urgency this year in efforts to recruit and retain highly-skilled workers. Many companies said they struggled to find job candidates who possessed the skill sets that they need most. The determination to lure and hang onto the best talent has helped drive compensation up in the region and has led employers to offer or at least consider a wider array of workplace benefits such as flexible work arrangements or phased retirement.

As employees sense that competition for talent is intensifying and that the economic recovery is gaining traction, they have been more willing to seek new job opportunities. Human resource professionals say that they expect this increase in employee turnover will accelerate further in the new year.

— S.H.

Small businesses take center stage

Small businesses found themselves at the center of several broad economic disputes in Washington — most memorably, during the final months of the race for the White House. President Obama survived both his “you didn’t build that” remark and his opponents’ attacks over small-business taxes and health care costs, winning reelection with a campaign that emphasized his efforts to eliminate regulations, improve access to capital and level the playing field for large corporations and small businesses.

On the Hill, Congress came together in April to pass the Jumpstart Our Business Startups Act, a potentially game-changing measure intended to ease the regulatory process for businesses raising capital with the creation of new online crowdfunding platforms. However, entrepreneurs must wait a little longer before taking advantage of the law’s provisions, as regulators have fallen well behind schedule in issuing rules to govern the new platforms.

—J.D. Harrison

Capital One goes shopping

Capital One Financial, the parent of the region’s largest bank, became even bigger this year after the completion of two major acquisitions aimed at beefing up the company’s credit card and consumer loan businesses.

In February, the McLean-based company purchased online bank ING Direct for $9 billion and renamed it Capital One 360. Three months later, the bank took over much of HSBC’s credit card business for $2.6 billion.

— Abha Bhattarai

The women of defense

As 2013 gets under way, two of the region’s largest defense contractors will be headed by women — a stark change from the industry’s male-dominated heritage.

Despite months of succession planning at Lockheed Martin, the Bethesda-based contracting giant was forced to change course late in the year after it claimed that incoming CEO Christopher E. Kubasik had a relationship with a subordinate.

The company forced Kubasik’s resignation and selected Marillyn A. Hewson, who was in line to become president and chief operating officer, to instead serve as CEO.

At Falls Church-based competitor General Dynamics, Jay L. Johnson announced his retirement, and the company selected Phebe N. Novakovic to step into the top spot.

Heading into what could be a tough year for government vendors, Hewson and Novakovic will join Linda Hudson, who leads BAE Systems’s Arlington-based U.S. business, as the most senior female executives in the industry.

— M.C.

Marriott gets a new CEO, buys Gaylord

It was a big year for Marriott International, the Bethesda-based hospitality giant. Arne Sorenson became the the first non-Marriott family member to take the helm of the company when he became its president and chief executive in March, following the retirement of J.W. Marriott, Jr.

In May, the company bought Gaylord Entertainment’s hotel business for $210 million, adding 7,800 rooms to its portfolio.

— A.B.

Health care reform confirmed

The June ruling by the Supreme Court upholding the individual mandate of the Affordable Care Act ended months of speculation and contingency planning by health care lawyers and lobbyists. Lawyers went right to work advising employers and employer group health plans on how to adjust benefits accordingly. Lobbyists scrambled to influence both federal agencies on how to implement regulations, as well as state governments to get their clients a spot at the table in building state-run online marketplaces (called health insurance exchanges) where the uninsured can shop for health plans. In all, health care reform brought a major boom in business for K Street, which otherwise saw a lackluster year in lobbying revenue.

— C.H.

Reassessing LivingSocial

The high-flying daily deals companies that have seen rapid growth in recent years came tumbling back to Earth last year, as renewed skepticism about their longevity sent their values into decline.

District-based LivingSocial reported a net loss of $566 million for the third quarter after it wrote down the value of the daily deal companies in foreign countries that it has acquired in recent years. In November, the firm let go 400 employees.

That news called into question whether LivingSocial will qualify for a $32.5 million tax credit that the D.C. Council passed over the summer in an agreement that requires LivingSocial to keep its headquarters in the city and employ 1,000 people there.

Chicago-based Groupon, LivingSocial’s chief rival, has seen its stock price slide more than 80 percent since its public debut in November 2011. That rapid fall has sparked questions about whether chief executive Andrew Mason will be replaced.

The new reality has forced both companies to pursue new lines of business, sometimes with mixed success. For example, both LivingSocial and Groupon offer online stores that sell everyday goods ranging from watches to body lotion to small kitchen appliances.

LivingSocial also opened a venue for events at 918 F Street NW in 2012. The company has begun selling tickets to one-of-a-kind events that it creates, such as beer tastings or sushi-making classes. (LivingSocial’s chief executive Tim O’Shaughnessy is the son-in-law of Washington Post Co. chairman and chief executive Donald E. Graham.)

— S.O.

Apartment construction soars

Anyone in Washington with a piece of dirt and a shovel tried their hand at apartment building in Washington in 2012, as the condominium market remained tepid and developers tried to take advantage of historically low apartment vacancy and rising rents. Apartment builders gave a major boost of confidence to planners looking to urbanize Tysons Corner and White Flint when they snapped up sites there and began building new high-end apartment towers, and cranes became ubiquitous in NoMa, Mount Vernon Triangle and along 14th Street Northwest and H Street Northeast. The successful projects should begin to distinguish themselves from the less-so this year.

— J.O.

Renovating the malls

Forecasters have been heralding the death of enclosed malls for years, but 2012 offered some details as to what they might be used for down the line. Vornado Realty Trust closed Springfield Mall to rebuild it as Springfield Town Center, and other mall owners — such as the Lerners in White Flint — are looking at their own properties and plotting outdoor, mixed-use projects as well. This year could also mark the unveiling of a reworked Shops at Georgetown Park as a home for big-box stores and a bowling alley.

—J.O.

Exxon leaves Fairfax County

Exxon Mobil announced that it will move its entire Fairfax County operation, along with 2,100 jobs, to Houston beginning in early 2014.

The decision, which was announced in June, came as a blow to Fairfax County, which has made an aggressive push to attract major corporations such as Hilton, Volkswagen and Northrop Grumman in recent years. The Irving, Tex.-based oil company arrived in Fairfax in the early 1980s.

—A.B.

Deal days for Coventry, SunrisE, CatalYst

Over the summer, Aetna announced plans to acquire Bethesda-based Coventry Health Care in a deal valued at $5.7 billion, part of the managed-care giant’s effort to beef up its Medicare and Medicaid programs. A couple days later, Sunrise Senior Living of Mc­Lean agreed to be acquired by Health Care REIT, an Ohio-based health care property owner, in a cash deal worth $845 million. The pair of deals followed July’s $4.4 billion sale of Rockville’s Catalyst Health Solutions, a pharmacy benefits manager, to a Chicago competitor.

— Dan Beyers

Leadership shuffle at local banks

Local banks got a management shake-up this year as Capital One Financial, Bank of America and Bank of Georgetown all welcomed new regional heads.

McLean-based Capital One tapped George Swygert, formerly Wachovia regional president for greater Washington, to lead its Maryland and Washington regions. Kimberly Conte, previously a regional executive for Capital One, was named head of operations in Virginia.

At Bank of America, Mid-Atlantic President Bill Couper retired in September after 40 years at the bank’s Washington office. Couper’s role was split into three state-level positions. David Millman, who previously oversaw the Baltimore market, was named Maryland president, while Gary Gore, the bank’s Richmond market president, took over duties in Virginia and Jeff Wood, a former Merrill Lynch executive, now serves as the bank’s Washington president.

Earlier this month, Bank of Georgetown named Mike Fitzgerald its new chairman after former chairman Curtin Winsor III, 49, died of a heart attack Dec. 11.

— A.B.

 
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