Insights into SAIC’s Acquisition of R.W. Beck for $155M—and Beck’s Strategy in Energy, Water

7/20/09Follow @gthuang

It may be one of the great untold success stories of the Seattle technology scene. For the past decade, R.W. Beck, an engineering and business consulting firm, has been quietly making a name for itself in key technical areas like energy and water management.

Now the Seattle-based firm with 550 employees is becoming part of the closely guarded empire of SAIC (NYSE: SAI), the government contractor also known as Science Applications International Corporation. The companies did not disclose financial terms under the agreement they announced two weeks ago. But Xconomy has learned from a source familiar with the deal that the price was $155 million.

That amounts to 1.5 percent of SAIC’s $10.1 billion in annual revenue, and it seems unlikely SAIC will interpret R.W. Beck’s price tag as a “material event” requiring disclosure. Still, at $155 million, the deal represents one of the biggest acquisitions—if not the biggest—of a Seattle-area firm since Bellevue, WA-based SnapIn Software was bought by Nuance for $180 million last summer.

Even though SAIC’s core business is contract research and engineering, R.W. Beck’s focus on energy and water infrastructure represents a somewhat unusual foray into civil engineering for the San Diego conglomerate, which generates most of its revenue from defense and intelligence contracts. (A more characteristic deal for SAIC was last week’s acquisition of Atlan, a cybersecurity product testing firm based in McLean, VA, that specializes in validating cryptographic modules, including software and hardware components, to meet federal standards.)

If nothing else, though, SAIC has been extraordinarily adept at catching the big waves in government contracting—and right now, energy is huge. One of the biggest clues to SAIC’s plans for R.W. Beck was a contract that my colleague Bruce Bigelow noted in February, which basically pre-qualifies SAIC to compete for energy conservation contracts throughout the federal government.

Another noteworthy energy-related deal that SAIC landed was a $14.9 million contract to develop economical methods for making JP-8 grade jet fuel from algae. It turns out the Pentagon is interested in developing alternative sources for all that jet fuel that U.S. military aircraft use.

When I reached R.W. Beck president and CEO Russ Stepp last week, he said the deal with SAIC is expected to close on August 1. He had no comment on its size, but did speak freely about what the deal means to both sides.

First of all, the acquisition does not mean R.W. Beck employees will be relocating en masse to San Diego, nor will there be downsizing of the firm’s business operations, Stepp says. Most employees will be joining the Energy, Environment, and Infrastructure business unit of SAIC, led by J.T. Grumski. But the Beck Disaster Recovery division will be joining a different SAIC business unit—the Homeland Protection and Preparedness unit headed by John Ferriter. Both SAIC business units are part of the Infrastructure, Logistics, and Product Solutions Group (one of four), led by Joe Craver. Stepp says in the near term, R.W. Beck will be a wholly-owned subsidiary of SAIC, and he will remain its president.

Some quick history and stats: R.W. Beck was founded in Nebraska in 1942, but only incorporated in 1995. It has grown to about 550 employees spread among 24 offices in the U.S. and an office in Singapore. The company employs about 125 people at its Seattle headquarters. Its customers include utility companies, government entities, and financial institutions.

Stepp, a civil engineer by training, joined R.W. Beck about 11 years ago to help the firm expand into water and wastewater consulting. He had previously worked at CH2M Hill, a Colorado-based environmental and construction consulting firm. In 2005, R.W. Beck was looking for a new chief executive, and Stepp was promoted from his senior management role. “Beck was still operating as an incorporated partnership,” he says. “We needed to make some changes.”

So Stepp led the firm’s renewed push in energy and water infrastructure projects, among other areas. In recent years, R.W. Beck has provided consulting services for King County’s Brightwater project to build a wastewater treatment plant, Sea-Tac Airport’s permitting effort for a third runway (involving groundwater issues), and several of Puget Sound Energy’s capital projects, to name a few. “We do independent engineering and translate that into a financial plan so investors can get a return on investment,” Stepp says. “We are true consultants, providing the expertise from both a technical and financial perspective.”

And Stepp’s leadership clearly seems to be paying off. He says that over the last three years, R.W. Beck has doubled its revenue. “We’ve been very fortunate in the marketplace,” he says. Which brings us to the firm’s acquisition by SAIC—why do it, and why now?

As Stepp explains, “SAIC provided for us an option to allow us to expand our resources by connecting with these guys. Their strategic plan is almost the same as ours. Their resource capability is much larger, which gives us the opportunity to pursue larger projects.” He didn’t give any specifics about these projects yet, but it seems like SAIC’s funding and reach will greatly increase the impact of R.W. Beck’s work, particularly in the areas of energy and water infrastructure. “We’re just completing a five-year strategic cycle,” Stepp says. “We had pretty big plans and some pretty big financing needs. We approached them for being a venture partner.” (And ended up being acquired.)

In turn, R.W. Beck’s expertise will help SAIC push into new markets—at least, that’s the plan. “SAIC, with some of their other projects, has developed interesting smart grid technologies, and really great modeling capabilities,” Stepp says. “It’s an opportunity for us to help them take those technologies into the utility market space.”

Apparently, the whole deal happened pretty quickly. Stepp says the genesis was when he met an SAIC employee at an awards ceremony some time ago. The two talked on and off about their various projects in the market, and began looking for opportunities to team up. Stepp says he discussed a possible deal with his board of directors early this year, and the board decided to pursue it around February or March.

Stepp couldn’t say much about future strategy, but he emphasized that his firm will have broader reach because of the deal. “It’s the right time and place,” he says. “There will be some opportunity. We’ll be looking at all fields. Our plan with SAIC is to build more capabilities jointly with them. Over the next six months, we’ll identify them and continue to expand.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang