Four years ago, the president of BDM International Inc. complained that Wall Street didn't understand his McLean-based professional services firm and that no investment firm was interested in backing BDM's efforts to sell stock to the public.
Today, three years after going public and only months after a 2-for-1 stock split, the president has a different concern: investors understand--and appreciate--BDM's business so well that he fears the company may eventually become the target of a hostile takeover.
As a result, BDM's board of directors is moving to restructure its stock to make sure that President Earle C. Williams and the company's three founders can maintain control over the company.
"We've come a long way" since 1979, says Williams. "We've convinced a lot of people that we have something of value here."
Not only has the company gone public, but it has also moved its stock from the National Association of Securities Dealers over-the-counter market to the American Stock Exchange, where it is closed Friday at $44.
Williams believes the move to the Amex not only reflects increasing interest on Wall Street but also underscores the company's strong financial growth.
Over the past 10 years, BDM has recorded a 33 percent compounded annual increase in profits, from $365,000 in 1973 to $4.6 million in 1982. Revenues over the same decade grew at an annual rate of 31 percent, from $11.2 million to $118.3 million.
BDM officials say this record is the chief reason why shareholders should go along with their stock-restructuring plan, insisting they can do still better in the future.
"We're out to build a greater company," says Daniel F. McDonald, one of BDM's three founders, and now corporate vice president in charge of technology research and development.
Stating that the company should be working even harder to expand its business activities, McDonald says, "We have a lot more opportunities to make contributions to national programs. . . . We could expand more than we have into industrial and commercial areas."
"This may sound a bit arrogant," Williams adds, "but we really believe the world would be a better place if more organizations would make use of our services."
BDM's services encompass a wide variety of professional activities, ranging from developing and testing a laser weapon for the Army and building the world's largest solar-electric plant to studying how to bring better health care to rural-area children.
BDM neither makes nor sells anything that can be touched, smelled, seen or transported. Instead, like a think-tank, its staff of 2,200--including engineers, computer scientists, economists, physicists, psychologists and economists--provides detailed research, analyses and advice on a host of different problems, both public and private.
Above all, McDonald notes, "we work in areas where technology is causing change and transition--and where we can promote a healthy change and transition."
More than 90 percent of this work is with the U.S. government, primarily the Defense Department. Among other things, BDM has tested a large array of individual weapon systems, from tanks to missiles; examined Army weapons to see if they are susceptible to laser attack; worked on a rapid runway repair project for the Air Force; tested the effect of large electromagnetic fields on U.S. aircraft and missiles; enhanced the U.S. Strategic Air Command's communications systems, and looked at ways to improve Army training, especially in high technology.
For private industry, BDM's projects included designing and constructing the world's largest solar-electric power plant for Arco Solar Inc.; providing enhanced oil-recovery services to the research arm of the Venezuelan national petroleum company; researching ways to improve natural-gas production from wells in the Appalachian region; developing a device to provide continuous measurement of fuel consumption in diesel locomotive engines, and helping to plan and locate highways.
BDM was founded in 1959 by Joseph V. Braddock, Bernard J. Dunn, and McDonald--three physicists who were just getting their PhDs at Fordham University.
"In those days there was considerable opportunity for small companies with a strong scientific staff to provide a lot of direct help to the military in weapons-system analysis," McDonald says. "The McNamara era was just beginning and there was a great opportunity for people like us."
In 1962, the company hired Williams as an engineer. Shortly afterwards, McDonald says, the founders realized that "we would have to give up our technological leadership role as the company expanded and spend more of our energies on the traditional leadership functions . . . or transfer that role to the qualifed people who could step in and do that job."
Thus, the B,D and M of BDM decided to hand over the company's reins to Williams, each of the founders preferring to stay more intimately involved with the emerging technology. Braddock is BDM's corporate vice president for systems research and development, while Dunn is the company's chief scientist.
Initially, the company initially was located in El Paso, where its first contract was to do analyses on various missiles at White Sands, N.M. But, in a desire to be closer to the government--and therefore more business, BDM moved to McLean in 1973 and immediately began its impressive growth, taking off from revenues that then totaled $11.2 million.
Within five years, the revenues had more than quadrupled, to $47.9 million, and profits had grown from $365,000 to $1.5 million in 1978. Growth has continued at an even stronger clip since then, with the profit margin steadily climbing from 3 percent in 1978 to 3.9 percent last year. Profits for 1980 totaled $2.8 million on revenues of $83 million, while profits for 1981 were $3.2 million on revenues of $88.2 million.
Unsatisfied even with this rate of growth, BDM is trying to build its earnings at an even faster clip by attempting to increase its services to the private sector as well as moving into new areas.
One avenue the company is considering in order to meet its ambitious growth plans is acquisitions. "There are markets we would like to get into but don't really have an entree," Williams says. Possible candidates for acquisitions include architectural engineering firms; software development houses; firms providing energy services to private companies, and conventional management-consulting firms.
BDM's plans to acquire a complementary firm are not new: Williams has been talking about it for years. But now, as a result of the stock restructuring plan, analysts suspect that BDM is more serious than ever.
Williams acknowledges that the restructuring plan grew out of serious negotiations to buy another company. The negotiations fell through, but while they were going on, Williams said he and the founders realized that in order to buy the company, BDM would have to issue a large chunk of stock.
That move would have substantially diluted the 47 percent stake in the stock represented by the more than 2 million shares that Williams and the three founders hold, making it easier for outsiders to come in and take control of the company.
"To avoid the possibility of a hostile takeover in the event we want to issue future stock either in an acquisition or to raise more capital," Williams says, BDM's board of directors are hoping to convince stockholders to transfer their current shares, which will be designated as Class B stock, into new, limited voting Class A shares.
In making the switch, shareholders will receive both a cash and stock dividend. Each 100 shares of Class B stock will be worth 110 shares of Class A stock. Additionally, cash dividends will be 15 percent higher for Class A shareholders. Williams, Braddock, Dunn and McDonald all intend to keep their shares as Class B voting stock. The new Class A shares will have fewer voting powers. Holders of Class A stock would be able to elect only one-fourth of the board of directors, with Class B shareholders electing the rest. On all other matters, Class A shareholders would have one-tenth the vote of a Class B shareholder.
Given BDM's recent growth record, "the board believes it is in the shareholders best interests to ensure the continuity of BDM's management group," Williams said in a press release when the board announced the plan two weeks ago.
Shareholders are expected to vote on it in early December.
"We have voting control now," Williams says, adding, "Stockholders are not giving up anything that they now have." To avoid charges that the company "is trying to cram this down our shareholders' throats," Williams says that he and the founders will not vote until all of the other public shareholders have voted. And then, their votes will be cast in direct proportion to those cast by the public shareholders.
Additionally, Williams says, the management team plans to write into the restructuring plan a date--not yet selected--for the time when the two classes of stock will be combined into one, with the voting advantage disappearing. "We're not necesarily wise enough to choose the next generation of control," Williams explains.
But for now, Wall Street is clearly pleased about the current management of BDM. "I think it's an excellent company and would expect it to continue to grow as it has in the past at a 30 percent growth rate," says one analyst who declined to be identified. "The market they serve is immense and the management and people have consistently done a good job on the contracts they have had," the analyst adds.
Arthur Rade of Merrill Lynch agrees, saying that BDM's customers seem pleased with the company's performance. "They are very well-respected. They will tell you they are not the lowest price, but they get the job done."
What's more, Rade says, among its competitors, BDM is "held out as an example to emulate--it is so successful in holding on to its people and penetrating new technology."
Yet analysts do have some concerns about the company. "Their weakness is a dependence on the government," says May Graves of Scott & Stringfellow in Richmond. "A lot of people would like to see the company come out with more commercial products and services."
Williams, however, believes otherwise. "There is nothing wrong in being dependent on the government in the business we're in." Noting that the company has more than 500 government contracts, Williams says the loss of any one would not adversely affect the company.
Even so, he acknowledges that BDM did run into problems in 1981 when defense spending came to a standstill as the government made the transition from the Carter to the Reagan administration. The company had to lay off 67 people and "market like crazy" to make up for the reduced revenue, Williams said.
Another problem--and perhaps more significant--to Rade of Merrill Lynch is the challenge the company will have in "effectively and efficiently managing its vast group of professional people to attract and retain them," especially as the company diversifies and grows.
For, as Rade points out, people are BDM's sole and chief assets.
Williams is certainly aware of that concern. He says, proudly, "We have never in our 23 years had any group spin off from us and go in competition with us." He reaches down and knocks on the wooden floor. "Not very many companies can make that statement."