High above the court at Washington, D.C.’s MCI Center, Russell Wright watches the action as the playoff-hopeful Wizards square off against the Atlanta Hawks. From an apartment-sized executive suite, replete with a fully stocked bar and buffet table, Wright’s eyes are on the game, but his mind is focused on business.
The crowd roars as the heavily favored home team goes on a scoring run, led by guard Gilbert Arenas, but Wright is making phone calls, gathering his thoughts. The 37-year-old chairman and CEO of Dimensions International Inc., the Alexandria, Virginia-based technical services dynamo, recently spearheaded the largest deal in the history of his firm. Acquiring SENTEL Corp., a former BE 100S company that provides engineering and software services, moved DI into one of the sweet spots in the government services sector. This provider of telecommunications, logistics, information technology, systems integration, engineering, and test evaluation services to Uncle Sam has now grown large enough to handle bundled contracts: the consolidation of two or more requirements for supplies or services into a single contract. In the past, such opportunities would have been too large for a firm DI’s size to handle. Not anymore.
The deal is not without its share of risk. SENTEL was nearly 80% of the size of DI — a large acquisition funded with some $30 million borrowed from Bank of America. But the incorporation of SENTEL’s operations is going smoothly, and acquisition-related debt is being paid down ahead of schedule. In fact, not one to rest on his laurels, Wright is looking at another acquisition — another government IT services firm with as much as $25 million in revenues.
Some three years ago, Dr. Robert L. Wright, who founded DI in 1985, handed the reins over to his son. Eager to make his own imprint on the company, the younger Wright orchestrated one of the larger black-on-black acquisitions in recent history with the SENTEL deal. He did it by surrounding himself with the right people to hammer out the deal, secure the necessary financing, and successfully integrate operations. Growth is the name of the game in the red-hot government IT services sector, and Wright has positioned DI to expand right along with it, gaining the critical mass needed to attract bigger and better contracts.
Instead of going it alone and taking a sliver of the government contracting pie, DI represents the emergence of a new BE 100S business model in which revenue expansion and market-share growth is a byproduct of joint ventures and strategic acquisitions between black-owned firms. By achieving economies of scale, increasing capabilities, and bolstering product offerings, DI has been transformed into a tech powerhouse that grossed $98.62 million in sales in 2004, earning the company the No. 35 rank on this year’s BE INDUSTRIAL/SERVICE 100 list. Due to its position as an industry trailblazer and viable force in the business mainstream, BLACK ENTERPRISE has named DI its 2005 Company of the Year.
With the increase in government spending for homeland security and continued military action overseas, the federal IT services market has grown into a $50 billion-plus annual business. “Ever since the bursting of the dot-com bubble where the commercial sector simmered down, the government space has been viewed as attractive from a growth standpoint,” says John C. Allen, co-head of the defense and government services group for BB&T Capital Markets/Windsor Group, a Reston, Virginia-based investment banking firm. “It’s a hot spot right now, but even in times when other market segments are [more] attractive, it’s still a growth market. It’s just that it gets a little less attention than the hotter markets.”
These factors have caused Wright’s firm to heat up as well. “As bad as it sounds, we’re in the fighting business,” the soft-spoken younger Wright says with a hint of a Georgia accent. “We’re in defending our borders. When the military occupies other countries, we go right along with them.”
DI is perhaps best known for its Flight Explorer subsidiary. After the 9-11 attacks, Flight Explorer, an Internet-based, real time global tracking system, was used by the government to track commercial aircraft and was the predominant flight-tracking technology used by news agencies. Flight Explorer’s products and services generated $4.4 million in sales in 2004, and the system has some 5,000 subscribers. The product can be seen regularly on CNN when the network’s air traffic specialist, Rally Caparas, delivers his flight and airport delay reports.
ART OF THE DEAL
The SENTEL deal made sense on several levels. SENTEL, an engineering and software company that ranked No. 73 on last year’s BE INDUSTRIAL/SERVICE 100 list with $43 million in sales, had contracts with such agencies as the Department of Defense, NASA, and the Federal Aviation Administration. Its technology is used to guard military bases, government buildings, stadiums, subways, bridges, and tunnels. The firm had established itself as a leading provider of homeland security with its Remote Data Relay system, used primarily by the U.S. military. RDR provides a remote perimeter of defense in areas where there might be a threat of chemical and biological attacks. The wide-area network integration system lets users control the detection of up to 400 sensors from one single command site to reduce the need to send soldiers and citizens into harm’s way.
SENTEL’s technological capabilities fit snuggly with DI’s homeland security products and services. But the two companies almost didn’t get hitched. “I put SENTEL on the market and had a broker firm and shopped around. We had other offers, and [DI] was very competitive in their offer,” recalls former SENTEL CEO James Garrett. “I was looking to sell the company and merge with another company. I wanted a culture that fit in with SENTEL’s and would allow SENTEL to continue to operate as it always has.”
Wright learned that SENTEL was looking to sell in August 2003 and was interested, very interested. But to pull off this deal, the young CEO needed cash — loads of it. “I wanted to give DI a jump-start,” says Wright. “I wanted to make a splash and begin to create my own reputation out there.” To do
that, a company needs to gain size — growing both organically and through acquisition. And with Garrett placing his company on the auction block, the stars were perfectly aligned for the acquisition.Due diligence was also required to get the capital needed, so Wright assigned the job to his A-team, led by CFO Holly Asher Beveridge. But, things did not go well initially. “We pulled together an LOI (letter of intent), and they chose someone else. Then it came back to us in November that they did not go with someone else and we had another shot at it,” says Beveridge.
“The economics and everything had to work first,” says Garrett of the deal. “And as I saw it unfolding, I came to recognize more and more that something perhaps historic is happening and certainly it would be a bonus if it happened.”
The purchase price (which was not disclosed) was also bandied back and forth. Once they settled on price, Wright had to contend with the banks. After talking with five institutions, he finally went with Bank of America, which had a pre-existing relationship with DI. “We met with them, they eyeballed the management team, and listened to Russ’ vision to gain an understanding of the plan to be executed,” says Beveridge.
Beveridge then developed a model for the bank. Although DI would be heavily leveraged, the company would be able to repay a considerable portion of the funds borrowed within 18 to 24 months based on increased revenues from the combined entity and the cost-control structure they would put in place. “Basically, I felt that they had done a thorough job of analyzing the transaction and that it was a go
od strategic fit, and the strategic analysis I thought was very thorough,” says Diane Zanetti, a senior vice president at Bank of America. “I also think that Russ and the management team had a good overview of what’s going on in the industry and were positioning themselves appropriately.”
THE FIRST GENERATION
Before founding DI, Dr. Wright practiced optometry for two decades in Columbus, Georgia, afer obtaining a degree from Ohio State University. The elder Wright also dabbled in politics, gaining a seat on the Columbus City Council. After coming to the attention of then-President Ronald Reagan, Dr. Wright was appointed to the U.S. Small Business Administration in 1981 as an associate administrator for minority small businesses. During his two-year stint, he helped allocate nearly $2 billion in contracts to minority businesses.
When he left the SBA, he tapped his federal contacts to launch his own venture. DI started out as an 8(a) company. (Operated by the SBA, the 8(a) Business Development Program is designed to provide assistance to socially and economically disadvantaged businesses.) “I always felt that as African Americans, if we really want to realize the American dream, some of us have to be entrepreneurs,” Dr. Wright says. “I’ve always been business-oriented, so I used my knowledge of federal programs and the relationships that I had developed to launch our business.”
Dr. Wright began
his enterprise by cold-calling government agencies. After a lot of investigation and piles of paperwork, his firm landed its first contract, worth $4,800, to design architectural drawings for the offices of the Immigration and Naturalization Service. After that, Dr. Wright methodically grew his business one contract at a time for the next two decades.On March 6, 2003, he passed the torch to his son, naming him chairman and CEO.
FROM GOFER TO CEO
The younger Wright’s rise to the top was a combination of intense financial and technical training and tough love. He began his career at DI while attending Morehouse College, doing everything from working the switchboard to moving office furniture. When he graduated with a business management degree in 1989, he joined DI as a full-time employee. “The best way to describe my position when I started is as a gofer,” Wright recalls. “I went to get lunch for people, took mail to the post office and FedEx — all the ripping and running around.”
He then went to work in accounts payable where he began to learn DI’s inner workings. In accounting, he learned how to handle billing and payroll, before moving into contracts — the lifeblood of the company. It was during these early days that the younger Wright developed a keen sense of discipline and responsibility. “When I turned 23 … as most young adults, I found myself in a little bit of debt,” says Wright. Wright then went to his father hoping to get a raise. Rather than bailing the recent college grad out of debt, the elder Wright suggested he find a second job. Despite being the son of a businessman with a multimillion-dollar company, he moonlighted as a stock clerk at the discount retailer T.J. Maxx.
Every night for roughly 18 months, Wright would leave work at Dimensions to stock shelves and check inventory. The elder Wright felt it built character. “You can’t just hand the company over,” says Dr. Wright. “He hadn’t progressed far enough in the company for me to arbitrarily give him a raise. To his credit, he went to T.J. Maxx and I went down one day to check up on him and he was working the cash register on the checkout line. He earned his way.”
Over the years, Wright would work in each department within the company, climbing the corporate ladder and understanding every nook and cranny of the business and government contracting. No special treatment was asked or given. “My father is a big proponent of tradition and earning your keep,” Wright says. “If you earn it and deserve it, you get it. If you don’t earn it and don’t deserve it, you don’t. Being his son didn’t earn me any extra kudos or any extra influence. [He didn’t pass] the company to me just because I was his son.”
It’s evident that the Wrights run a meritocracy: they have given their employees a piece of the rock. The Wrights control 59.4% of the stock of the privately held corporation while its 900-employee workforce owns 31.1% through an Employee Stock Ownership Plan, and a minority shareholder owns the remaining shares.
BULKING UP
One of the keys to DI’s success has been its creation of proprietary products, especially Flight Explorer. With this totally customizable system, subscribers can see a map of the U. S. with small airplane-shaped icons representing each flight in the air. Clicking on one of the planes shows its flight information (the airline, flight number, origin, destination, time of departure, and estimated time of arrival) and flight pattern (indicated by a thin line). Users can zoom in on individual streets and highways to see which airplanes are overhead and view weather fronts and other satellite images. A valuable homeland security tool, Flight Explorer has been used by government agencies such as the Federal Aviation Administration, the North American Aerospace Defense Command, and law enforcement agencies to determine if a flight has veered off course or if a plane is approaching a no-fly zone. Flight Explorer also has lucrative commercial applications. Companies such as FedEx, UPS, NetJets, and American Airlines have adopted the software to track and manage their aircraft fleets. Other customers include Atlanta’s Hartsfield-Jackson Airport, JetBlue, and Airborne Express.
In addition to its proprietary products, critical mass will be vital to sustaining or enhancing DI’s competitive advantage. “I think they now have the best of both worlds. They did an acquisition and they’re fueling their growth that way, but they’re also having success growing organically,” says Allen. “And that’s very important. You need to be able to compete head-to-head as well as through acquisitions. I like where their profitability is heading, and there seems to be room for the margins to continue to improve.”
And Wright is looking to improve. With the SENTEL deal, he and his team pulled off one of the hottest IT acquisitions of the year. “[The acquisition] reflected Russ’ style. He does take risks, but he’s not a shoot-from-the-hip person,” says Beveridge. “He makes the ultimate decision and he’ll make decisions quickly, but he always makes very sound, informed decisions.”
There will be more quick decisions to make if he wants to meet his sales forecasts: more than $130 million in gross sales this year and more than $160 million in 2006. Then there’s his focus on the development of multiple revenue streams. Some 90% of the company’s business comes from the government. Wright wants to map out a strategy to further expand into the corporate arena — gaining contracts from large multinationals.
Those decisions will have to wait. First thing in the morning, Wright will call a management meeting to discuss issues related to controlling costs and hitting revenue targets.
As the basketball game is wrapping up, Wright is already on the road. His slick black Benz weaves through evening traffic in the nation’s capital as he thinks about the next items on his agenda. He remains optimistic, confident that his strategy of growth by critical mass will enable DI to score big for years to come.