Mike Fox has just taken on a new role within SRA: Senior Vice President for Corporate Development. Fox will focus on leading SRA’s corporate strategic planning activities; he’ll also be spending more of his time helping to launch SRA’s new business initiatives. “I will be getting more heavily involved in M&A activities to make sure the strategic planning and new initiatives are supported with the right acquisition targets, and then working closely with those companies after we acquire them to ensure we achieve the right business synergy,” says Fox. In the following Q&A, Fox tells us more about his new position and the key steps he’ll be taking to help drive growth at SRA.
Tell us more about your new position — what does it mean for SRA?
Mike Fox: We often talk about one plus one equaling three; that together two companies are much stronger than they are operating independently. We look for that synergy in every M&A transaction, but there is a lot of work that needs to be done after you acquire a company to realize that goal. My job will be to not only get heavily engaged with those companies pre-acquisition to make sure they are consistent with our overall strategy, but to lay out thorough go-to-market plans so that the day we close the deal we hit the ground running. And then the last part of my job involves continuing to lead major capture activities on some of our larger and more strategic bids; something that I have done for the past 20 years at SRA. As we grow, pursuing billion dollar prime bid opportunities will become more common. I’ve committed to Stan that I would take on at least a couple major capture activities each year.
You talked about driving the growth of SRA — tell us more.
Mike Fox: It’s our strategic goal put in place last April by our CEO Stan Sloane when he took over the helm at SRA – to drive company growth to reach five billion in revenue and 10 percent operating margin. It’s a very ambitious goal; right now we are a company with about $1.5 billion in revenue so reaching $5 billion means really turning up the juice. It’s going to require that we grow about 30 percent each year through a combination of both acquisitive and organic growth. And that is just the five billion part; the goal of increasing margins is also getting a lot of attention. We’ve already made great strides in that area over the last year by increasing the labor services component of our work. But there is still room to do better. It will involve a combination of continuing to manage ourselves well; being selective in the type of work we pursue, there are certainly some markets that lend themselves to higher margin work because of the required skills and clearances; and increasing the proportion of revenue from SRA-developed products. Stan is investing more heavily in our IR&D activities to generate some proprietary intellectual property that we can develop into new commercial products and solutions. Our goal is that as much as a third of our revenue will come from the development, sale and support of SRA developed products.
SRA has a unique approach to M&A, does that approach have to change to get to your new goal?
Mike Fox: No, not at all; we are not looking to simply “bulk up.” The $5 billion goal is just that — a goal. It’s not going to cause us to do something unnatural or counter to our traditional M&A approach. If we are at $3 billion, we are not going to go out and buy a $2 billion dollar company just so we can say we reached $5 billion. Our philosophy around M&A has not changed: we are looking for companies that ideally are accretive on day one; not fixer-uppers. We are looking for companies that share our values and would meld well with our culture. Most importantly, we are looking for companies where one plus one equals three, meaning that together we can pursue larger opportunities or expand into new markets more easily and in less time then if either of us tried on our own. A good example of “1 + 1 = 3”, is our acquisition of the Constella Group. SRA recently won a contract with the Food and Drug Administration to implement an adverse event reporting system. Constella had extensive functional domain knowledge and experience with adverse event reporting. SRA had the broad IT capabilities and the CMMI Level 3 processes. Together we made an extremely strong team. Both of us could have bid separately, but our chances were much stronger as one company. We’re fortunate to have a number of similar examples with each of our acquisitions.
Talk about the approach of buying companies not working for an auction block where everyone else is chasing you in a one off basis; you have kind of a unique approach.
Mike Fox: The first five – six acquisitions we completed were not for sale. Orion was not for sale, neither was Adroit nor Galaxy when we first approached them. It was more of a courtship that developed over time through mutual respect and admiration for one another. It works great because through that courtship they come to appreciate how joining SRA would be good for their company and for their employees and we get a chance to approach companies that we think are the best fit with SRA. If you’re forced to only focus on those companies for sale then you are limited in terms of the pool to choose from.
How has the recent SBA recertification rule impacted your business and potential valuations of the companies that you are looking at?
Mike Fox: You’re correct, it certainly had the greatest impact on M&A; in that some of the companies who we think would be good targets are suddenly less attractive knowing that we would not be able to retain their small business set aside contracts after they recertify. That has caused us to take a second look and pass on some great companies. It’s unfortunate because there are a couple of really good small businesses that hold some key contract vehicles we would very much like to own. But if we can’t retain those contract vehicles after we acquire them then they become less valuable to us. I’m sure this is probably consistent with what a lot of our industry peers are facing.
What would you say the key to your success from when you first started SRA in that growth period, people are always interested in that. What have you learned from that that will help you going forward?
Mike Fox: The key to our success was that we always challenged ourselves to think and operate like a much bigger company. We never thought of ourselves as the size we actually were. We always felt we could compete successfully with the “big guys” and go after opportunities much larger then many companies our size. If you look back on the history of SRA one of the biggest turning points was in 1991 when we won a $48 million contract with DISA, back then it was called DCA. It was the JOPES Development and Integration contract and we were about a $46 million company. Many companies at that point probably would wonder how they could win a contract greater than their annual revenues and might choose instead to be a subcontractor on some other prime’s team. Remember, this was back in the days before IDIQ’s and we had to compete in a full and open procurement against several very large integrators like GTE Government Systems, the incumbent, and CSC. That win really launched SRA. From there on out, we started priming larger and larger development and integration jobs and never stopped thinking that we could take on the biggest companies in our industry. Through all those years, from $46 million to $300 million to $1.2 billion that was really our key to success — always pushing ourselves to reach the next level and never thinking we were too small. Actually, being a bit smaller than your competition can sometimes work to your advantage. Since we’re still not the biggest guys in town, it forces us to think longer and harder about how we are going to beat a major competitor. We need to basically outsmart them by being more innovative, more creative, and more aggressive in how we pursue the opportunity. That approach has served us very well over the years. Now as we grow to $5 billion we need to follow that same approach as we chase $500 million to $1 billion and larger prime contracts.
What advice would you give the CEO of a small business looking to partner or team up with SRA?
Mike Fox: First and foremost, I would recommend that they find ways to distinguish their company from other small business competitors. What small businesses sometimes forget is that not only do large companies have extensive in-house IT resources capable of doing the work themselves, but they’re constantly bombarded by companies that want to work with them. To break through, small businesses need to separate themselves from the crowd. It’s frustrating when they call me and say we are such and such a company and we want to partner with SRA; I probably get eight to ten of those calls a week. Even worse are those blind emails from companies that just want to introduce themselves to you without a specific opportunity in mind. Those types of contacts very rarely get any follow up. Same with companies that only focus on the fact that they are a small disadvantaged business or 8(a).
Yes, we are always looking to team with those firms, but there are a lot of good 8(a) companies to choose from, so I need to know what else specifically they bring to the team — customer knowledge? relevant past experience? unique technical skills? cleared resources? I realize that requires the small business to do some homework and I’m very sympathetic to how hard it is for a small company without a full business development staff to pull that information together. In most small companies, folks are wearing multiple hats — they’re running the company, they’re out seeing customers, and they’re executing the work — it’s really tough. But if they can help me understand why they are the right partner for this opportunity it makes the teaming decision so much easier. The most successful discussions usually start with, “we met all the key decision makers and we know what is important on this job. Our value proposition on the SRA team is such and such and here’s how we can help you win.”
My other piece of advice to small businesses is to focus on what they do really well. Again, I’m sympathetic to their situation – in some cases they are very small businesses trying desperately to stay afloat, and it’s really hard to turn down a two-person job here or a three-person job there, especially if it will help them make payroll next week. But if they can focus enough so that they get to the point where they start being known as an industry leader with unique capabilities — the expert on a certain Oracle application or really good at helpdesk services with five ITIL certified people — it makes teaming with a prime so much easier. And if it’s in an area where there is a shortage of talent or could be a discriminator in a bid, I guarantee that small business will move to the front of the line.
Why after 20 years — why this job and why now?
Mike Fox: That’s simple. It’s key to achieving our strategic goal of reaching $5 billion in revenue and 10 percent operating margins. I want to do my part to help. Stan asked me and I’m a firm believer in his plan. I’ll do whatever I can to help SRA succeed. Also, I’ve been leading Marketing and Sales for almost ten years and this gives me a chance to focus almost solely on the part of that job – strategic planning and new initiatives – that I’ve always enjoyed the most.
What do you think you bring to the table that will make you the right person for this role?
Mike Fox: It’s a combination of things. I’ve always thought very strategically about the business. I’m constantly thinking about new ways to grow the Company; where we are and where we want to be and how best to get there. And I know SRA inside and out. I’ve been here twenty years, I know our strengths, and I know how best to position the company for success. I also have firsthand knowledge of the external market, I’m out and about, I have the contacts and the network on the customer side and with partners. Right now I think it’s one of the best jobs at SRA and I’m very lucky to have it.
What is the last book you read?
Mike Fox: I’m so glad you asked! I just finished a great book. It’s called The Art of Racing in the Rain by Garth Stein. It’s a terrific story with a twist; it’s told from a dog’s point of view. If anyone out there owns a dog, this book is a must read.
Interview with Mike Fox was conducted by JD Kathuria
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