As AMS CEO Exits, Reflections of What Might Have Been
Monday, March 22, 2004
Alfred T. Mockett, the departing chief executive of American Management Systems Inc., arrived at the software and consulting firm in late 2001 with a five-point game plan. But he can sum it up in one line:
"We needed to get to $3 billion a year [in sales] as quickly as possible," a figure that would make AMS one of world's 10 biggest technology consulting firms, Mockett said in an interview Friday. At the time, AMS had annual revenue of $1.18 billion.
The proposed sale of Fairfax-based AMS to CGI Group Inc., a Canadian outsourcing company with $1.85 billion in 2003 sales, achieves that goal, Mockett said.
Montreal-based CGI caters to banks and telecommunications companies, important customers for AMS. CGI does little work for governments. CGI officials have said they plan to break into the U.S. market for public services by acquiring AMS, which does more than half of its business with federal, state and local governments.
The combined company will have the heft to compete for the most coveted outsourcing contracts, Mockett said. These contracts generally last longer than work that centers around solving one technical problem, so they are attractive to consulting companies looking to escape an unpredictable economy, he said.
On its own, AMS was too small to win the most elaborate and lucrative outsourcing contracts, according to local investment bankers and equity analysts. Mockett agreed, saying: "We were sub-scale for the task at hand."
Two years ago most of the company's contracts lasted only one or two years and were typically worth less than $30 million, Mockett said. He set out to change that by urging employees to think big. The result was some of the largest contract wins in the company's history, including a $232 million subcontract to help build a system to track child support payments for the state of California and a $400 million contract to install and maintain a computer program that organizes supply and logistics information for the Defense Department.
"The question is: How much further up the chain can you take it?" Mockett said.
Originally, Mockett said, he had intended to build AMS up through a series of niche acquisitions in preparation for a "big bang merger of equals." But AMS bought only one company under Mockett's watch -- R.M. Vredenburg & Co., a Fairfax firm that sells James Bond-style gadgets to intelligence agencies, like a portable translator to scan terrorist documents in the field.
Firms supplying cutting-edge technology to the military and spies have been in high demand since the Sept. 11, 2001, terrorist attacks. Their high prices and small numbers gave AMS few opportunities to follow up the Vredenburg acquisition, Mockett said. Without more acquisitions, AMS's defense and intelligence practice was too small to pursue ambitious Pentagon technology projects.
A CGI merger did not make sense for that unit, Mockett said. As a foreign company, CGI did not have its own defense unit and probably would not receive Pentagon approval if it tried to buy one.
That is why Serge Godin, CGI's chief executive, and Mockett hatched a plan to split AMS in two and sell the pieces separately. AMS's defense business, which did $250 million in business last year, is now being bought by CACI International Inc., an Arlington government contractor that had $843.1 million in revenue in the year ended in June.