If someone ever makes a movie called "The Washington Story," the script probably will look something like this: Young computer whiz in his late 30s or early 40s gets the urge to go into business for himself. He talks with a couple of his pals at the mega-buck company where they all work, and they decide to give it a try. They quit their jobs, borrow thousands of dollars from relatives and friends, pick a catchy name for the new firm and hang a shingle on the door that says: "Professional Services."
The company issues founders' stock for which the partners pay pennies, and they lay the groundwork for future stock option plans. Then, for the next few years, the partners work for peanuts while they haunt the federal corridors in search of government contracts.
If the partners are both smart and lucky, the business prospers, and within a few years, they're ready to sell millions of dollars worth of stock to the public. A big chunk of the money goes to the owners, who sell some of their original shares. The rest of the money, from the sale of company shares, goes into the firm's coffers, helping the business become even more successful.
Well, if that script isn't what Horatio Alger had in mind when he wrote his "rags-to-riches" stories, it happens often enough these days to qualify as the computer-age version. At the very least, it's the free enterprise system at work in a town where Uncle Sam is every businessman's favorite customer.
In one of the many versions of this story, Vanguard Technologies International of Fairfax is now following the course carved out by dozens of other Beltway companies that went public in recent years.
Vanguard is a company that provides automatic data processing (ADP) services to federal agencies and prime contractors for the government. It derived 83 percent of its revenue last year from contracts, including ones from the departments of Defense, Transportation, Housing and Urban Development, Treasury and the General Services Administration.
From a handful of employes when the firm opened its doors in 1979, Vanguard has grown to 866 employes in 58 locations in 24 states and the District. In four years, its $2.3 million in contract revenue grew to $26 million. During the same time, its $124,000 in profit became a $1.4 million profit. Per-share earnings leaped from 6 cents to 46 cents.
One of the founders of the company is Dean W. Crawford, a 44-year-old electrical engineer who serves as the president and chairman of the board. Crawford previously worked for Potomac Research, which was merged with Electronic Data Systems (EDS). He also worked at Computing and Software Inc. (Cordura Corp.) and IBM. All of Crawford's background was in the field of providing data processing services to the government.
While they did not all join Crawford at Vanguard simultaneously, the company's executive roster lists three other Potomac Research alumni, including Gordon H. Clow, 44, senior vice president; Theodore H. Foret, 49, vice president; and John C. Styer, 41, vice president. It took about $200,000 to start the firm, Crawford said.
Did Crawford's foray into entrepreneurship bring him any unexpected surprises, he was asked. Crawford said he didn't think so, but mostly because the Vanguard crew went into a business that they already knew very well. And that was a key to their success.
Seven years after Vanguard opened its doors, the firm is selling 1.1 million class A common shares at between $11 and $13 each. The company is offering 553,920 shares, which, at $12 a share, would raise $6.6 million, before commissions. Company officials will sell 546,080 shares for a total of $6.5 million, before commissions. Of that, most of the shares will be sold by Crawford and Clow.
Crawford will sell 341,250 shares, worth $4.1 million. Clow's 148,750 shares will be worth $1.8 million. The company's present shareholders, according to the prospectus, paid an average of 6 cents a share for their stock.
After the public offering, about 33 percent of Vanguard's stock will be in the hands of the public. But Vanguard, which has class A and class B stock, will remain solidly under the control of Crawford and Clow, who will have 93.5 percent voting control of the company. Together, they will own almost all of the class B shares, which have 10 votes a share, and, as a group, can elect three quarters of the board's directors. Class A shares get only one vote per share and, as a group, can elect only one quarter of the directors.
The biggest worry about professional services companies, of course, is the direction of federal contracting. Vanguard, like many Beltway companies, could be hurt if there are sudden shifts in government procurement policy or severe cutbacks in federal expenditures. Gramm-Rudman-Hollings and its deficit-reduction mandate have draped a huge question mark over all future federal spending.
For some time now, BDM International of McLean has been looking for a company to acquire. BDM, one of the strongest and most successful professional service companies in the Washington area, does most of its business with the defense and space agencies. Ideally, a company BDM acquires would be doing professional services work for commercial customers or for nondefense government agencies.
BDM President Earle C. Williams said that BDM has not yet found the right company to acquire, but he wants to be ready if he finds a good match. That, in turn, means having enough cash on hand for the deal. At one point last year, he noted, BDM had as much as $10 million on hand, but, for a number of bookkeeping reasons, the cash on hand has dwindled considerably. One of the reasons is that the government tends to pay its bills rather slowly.
To return to a strong cash position, BDM and its officials are selling 1.5 million shares of its class A common stock, now trading at about $28 a share. Of that, 1.3 million shares will come from the company, to raise an estimated $36.4 million, before commissions.
Another 225,000 shares will be sold by five company officials. Williams will sell 50,000 shares, as will each of the three men who founded the company: corporate vice presidents Joseph V. Braddock, Bernard J. Dunn and Daniel F. McDonald. The sale of 50,000 shares represents $1.4 million, before commissions. Stanley E. Harrison, executive vice president, will sell 25,000 shares.
BDM, like many companies these days, has two classes of stock, which prevents corporate raids. Before the offering, BDM had 5.9 million class A shares and 3.8 million B shares outstanding. B shares, held by company officials, do not trade.
BDM's class A shares are a big favorite among institutions, such as pension funds. Thirty-two institutions now own about 2 million shares of BDM stock. The stock was off almost 16 percent in 1984, up 85.2 percent in 1985 and up 11.5 percent thus far this year.
BDM is selling for about 26 times its 1985 earnings of $1.04 a share. The firm earned $10.5 million last year on $250 million in revenue, a 31 percent increase over 1984. Its five-year annual growth rate has been about 26 percent.
George F. Shipp, assistant vice president of the Investment Corporation of Virginia in Norfolk, likes the outlook for Williams Industries of Falls Church, now selling at about $12 a share. Williams Industries installs structural steel used in buildings, highways and industrial facilities.
Earnings have been spotty during the last few years, but Shipp thinks Williams Industries will be a "major beneficiary of billions in federal and state funds now being released for rebuilding the country's roads and bridges." The Highway Trust Fund, which spent only $8 billion in 1982, could be moving up to the $13 billion range this year and the $15 billion area next year, Shipp said.
The analyst estimates fiscal 1987 earnings of $1.02 a share, compared with a 1986 estimate of 55 cents and actual earnings of 38 cents in 1985 and 53 cents in 1984. Williams' year ends July 31.
Williams stock rose 27 percent in 1984, went up 33.3 percent in 1985 and is up about 30 percent so far this year. The stock is selling for about 22 times Shipp's estimated 1986 earnings of 55 cents a share.