By Anita Huslin
Washington Post Staff Writer
Monday, December 10, 2007
RS Information Systems, one of the Washington area's largest African-American-owned government contractors, has agreed to be bought by Wyle, a Southern California aerospace engineering company.
The deal, which is expected to close in January, will be the capstone for RSIS, a technology company that began 15 years ago with a $5,000 contract from the General Services Administration to provide tech support for small businesses. Terms of the transaction, which was announced last week, were not disclosed.
Founded by Prince George's County native Rodney P. Hunt, the McLean firm rapidly grew past its minority and small disadvantaged business status into a company with more than $300 million in annual revenue, and spawned a joint venture that in 2005 won a $1 billion contract from the Energy Department.
The firm, which provides information technology, systems engineering, scientific support and management consulting, had in recent years received weekly inquiries from prospective buyers, Hunt said in an interview.
The Wyle proposal piqued the firm's interest because of the "opposites attract" theory, Hunt said. While RSIS's business is focused on civilian federal agencies, Wyle has a strong emphasis on defense, engineering and aerospace research.
"Being engineers, they're very strong in R&D," he said. "And they made a proposal to us like we would our clients."
RSIS became one of the premier federal IT providers in the region, in part because of its designation as a priority minority and small business. But by 2005, when it had grown out of most of those programs, RSIS found itself swimming in a much deeper, more competitive pool.
To compete for contract renewals or to win new ones with such federal agencies as Homeland Security, the Army or the Navy, "we needed to take on companies with more resources, be acquired, or take the company public," Hunt said. "Companies like Northrop Grumman or SAIC can spend millions of dollars on acquisitions. We just didn't have those kinds of resources to go after the kinds of jobs we need to grow."
In recent years, as its preferred contractor status disappeared, RSIS's revenue fell from $363 million in 2005 to $323 million in 2006, according to the company. That trend continued this year, and RSIS estimated it would contribute $275 million to Wyle in 2008.
"A key reason for owners of companies like RSIS to decide now is the time to sell is you reach a plateau of growth," said Richard Knop, head of the defense and government contractors group at investment bank BB&T Capital Markets, Windsor Group. "You either have to merge your way or buy your way out of no man's land so you can compete effectively against the largest companies."
RSIS's market share will grow more quickly as a division of Wyle, Hunt said, and the California company's reputation for strong client service was a key factor in his decision to sell. Hunt, who owns 75 percent of RSIS, will stay on as a consultant to help the transition.
"I feel like RSIS is my child so I wanted to make sure all my people are taken care of," he said. "I wanted the reputation of RSIS as having strong customer relations, and I wanted to be involved in the integration of any deal we made."
The acquisition of RSIS is expected to increase Wyle's 2008 annual revenue to about $800 million and the number of employees to more than 4,200, according to a Wyle news release.
"While we have some major contracts in the information technology field, this acquisition will enable Wyle to significantly broaden its presence in the information technology services sector and add key new contracts and customers that will complement our current client base," said George R. Melton, Wyle's chief executive. "This acquisition makes Wyle a major federal information technology provider with a major presence in Washington, D.C."
Staff researcher Richard Drezen contributed to this report.