Frontenac Unleashes SI International IPO –

Frontenac Company finally jumped on the IPO bandwagon, placing its SI International portfolio company in line with the other federal government outsourcing firms that have cashed in on a public offering this year.

Frontenac announced its intention to rollout the company in May, and last month followed through by offering 4.35 million shares to the public markets, raising approximately $61 million in the process. Wachovia Securities and Legg Mason Wood served as the underwriters for the IPO.

McLean, Va.-based SI International provides information technology and telecom infrastructure solutions to customers in both the private and public sectors, including the federal government. Among the company’s most recent action, SI received two contracts totalling $9.2 million to provide IT management, engineering and other services to the U.S. Air Force, and in October the company was contracted for $10 million as the prime contractor for the development of the Joint Staff’s Enterprise Portal.

In the offering, SI priced its shares at the low end of its previously estimated $14 to $16 per-share range and also pared the size of the IPO down from its originally planned five million shares. In another change to the offering, SI decided at the last minute to alter its ticker symbol to “SINT” from a proposed “SIIT,” in a preemptive move to stifle the possibility of any embarrassing typos, according to Jim Crawford, a managing partner at Frontenac.

Frontenac now holds a 40% share in SI following the offering, which, according to Crawford, came about as part of the company’s efforts to “put cash on the balance sheet.” He noted that after fees and the payment of debt, the IPO will give SI around $6 million of cash on hand. Frontenac, itself, received roughly $15 million from the offering and also owns around 3.2 million shares in the company, which at approximately $12 a share, signals that SI has come a long way from Frontenac’s original investment.

Frontenac started SI in 1998, with a $31.5 million equity commitment. In 1999, SI acquired Statistica, WPI Inc. and Noble Star Federal Systems and, in 2000, followed up those deals with the acquisition of System Technology Associates.

SI has seen its revenues climb from $33.9 million, in fiscal 1999, to $147.8 million, this past year.

The SI offering follows a number of other IPOs priced earlier this year from the government IT space.

ManTech International’s IPO in February kicked off the sector’s rush to the public markets, and that offering was quickly followed by IPOs from Anteon International, SRA International, Veridian and MTC Technologies. While all of these names started strongly, only MTC Technologies has continued to achieve gains recently.

SI International, meanwhile, received only modest interest from traders in its IPO, with volume of just 1.8 million on the day of the IPO. SI’s stock finished flat with its offering price in that session, and since that time SI shares have been slowly moving backwards.

However, the recent pullback in the sector is not seen as a lasting trend among the industry experts.

Michael Legg, a government IT analyst with Jefferies & Co., said that with market growth, increased government spending and future consolidation within the industry, he believes the group represents an attractive opportunity at this time. “Bottom line, it’s a great environment for companies in this space,” he said.

Contact