Frontenac Unleashes SI International IPO

Frontenac Co. finally jumped on the bandwagon, and decided put to its portfolio company SI International in line with the other federal government outsourcing firms that have cashed in on IPOs this year. Frontenac initially announced its intention to roll out the company in May, and last month it followed through by offering 4.35 million shares to the public, raising roughly $61 million. 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 deals, SI received a contract to provide IT management, engineering and other services to help implement the Air Force Product Management system and, in October, the company was signed on 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 the company also pared the size of the IPO down from its originally-planned 5 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 sheets.” He noted that after fees and debt payment, 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 around $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 trails behind a number of other IPOs priced earlier this year in 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. Only MTC Technologies has continued to put up 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., told PE Week that with market growth, increased government spending and future consolidation within the industry, he believes the group represents an attractive opportunity at this time, attesting, “Bottomline, it’s a great environment for companies in this space.”

Contact Ken MacFadyen