Contractors Cash Out but Try to Stay Humble
Monday, April 10, 2006
Harry M. "Pete" Howton, the son of an Air Force officer who grew up to be a Navy man and a basement entrepreneur, banked about $50 million last year when he sold his 10-year-old government technology company.
There were no opulent parties. He didn't buy a new house or start a yacht collection. Every morning Howton wakes up and goes to work. He's not even sure his neighbors know he is a wealthy man.
"We've become nouveau riche, which is wonderful in some ways, but we've got to keep our feet on the ground," said Howton, 63, whose extravagances included the installation of a twirling neon slide to carry his two daughters between floors of the Falls Church home he bought with his wife 16 years ago.
The growth in government contracting has transformed the Washington region, pumping billions of dollars into local companies, luring workers from around the country, inflating home prices and taxing already-crowded roads. It has also created a new class of multimillionaires -- entrepreneurs like Howton who started small companies, expanded them, then sold them at premium prices. If the government's influence here has led to steady jobs and pensions for the federal workforce, it is changing to include another dimension: catalyst for private wealth.
"There has been a lot of trapped, passive equity released -- released to the owners and to the local economy. Without a doubt it's billions of dollars," said Rick Knop, managing director of BB&T Capital Markets/Windsor Group, a company that helped negotiate the sale of 20 local government contractors in 2005.
Exactly how many billions is hard to estimate. Many of the 70 or so local government contracting mergers last year involved private companies that are not obliged to disclose their finances. The 20 deals Knop handled put $900 million in the pockets of 25 local residents.
Typically they are like Howton and established small technology or service companies years ago, then were in high demand as the government began upgrading its computer systems, investing in new security technology and preparing for war after the Sept. 11, 2001, terrorist attacks.
Washington companies received $52.5 billion in federal contracts in 2004, an increase of more than 55 percent over 2001 and the largest concentration of government work in the country, according to the Institute for Public Policy at George Mason University.
As their pipeline of business and staff expertise increased, companies such as Kathryn B. Freeland's RGII Technologies Inc. became attractive to bigger firms -- in RGII Technologies' case, Computer Horizons Corp., which paid Freeland more than $21 million in a takeover.
Jeanette Lee White, who did not take a salary for the first four years she ran Sytel Inc., will split most of the $18.5 million profit from its sale with her ex-husband.
Roger Mody made about $125 million when his 15-year-old government contracting firm, Signal Corp., was sold for $227 million in 2002.
"For me, it was like hitting the lottery," Mody said.