This is part two of our chat with Kevin Kelly, LGS Innovations‘ CEO. Click here for part one.
ExecutiveBiz: How would you describe the current state of the GovCon M&A market? What do LGS and other companies look for in potential targets?
Kevin Kelly: It is very active. In the course of the last twelve months, LGS has looked at almost 100 companies. Some are divisions of other companies that are being sold or spun off because they are not core business functions and the current parent companies are not willing to focus their time and effort on them while others are already independent and looking for a platform company to attach themselves to.
Most of them are small businesses that grew up in a financial frenzy market during the Iraq and Afghanistan wartime period are now finding it difficult to succeed alone in a fiscally austere environment because of lack of diversity. Good companies, good people, and good solutions that lack diversity in the current environment will have a hard time staying afloat.
A majority of the companies we are looking at fall into that latter category. They are good niche solutions that need to be a part of another company's strategy; otherwise they just don't make sense. To that end, LGS maintains a five-year strategic plan that we update and adjust with our plans for technology and investments in order to meet our market demands.
We look at those investments in two ways. We can invest in ourselves to develop new solutions and give us technological differentiation against our competitors or look to invest outside in an acquisition of another company or portion of a company that gives us the same technological advantage. Everything we look at seriously must fit within our strategic vision.
In our five-year plan, we've explained where we want to be with each offer, technology, service and product. We examine where we are today, develop a path to get there and come up with areas for internal or external investment. The good news is that there are some companies that can help LGS achieve our strategic vision. A great many of them can't.
We may look at 100 companies, have serious management meetings with five of them and end up buying one of them. It is an awful lot of work to get down to that one – but you are talking about large capital investments. These are important decisions to make and you can find that needle in the haystack with a fair amount of analysis and due diligence.
ExecutiveBiz: How should companies, agencies and academia work together to build the STEM workforce?
Kevin Kelly: Supporting STEM workforce development is a high priority for LGS as a company. During annual performance reviews we ask each employee to identify areas where they are supportive of STEM programs at the middle school, high school or collegiate levels. Many of our employees are involved in local science fairs or volunteer for the Air Force Association's national youth cyber education program, CyberPatriot.
We also encourage employees to get involved in robotics programs, which teach many mechanical, electrical, computer science and programmatic skills. STEM core curriculum includes physics, chemistry, mathematics, and calculus classes, however inspiring the next generation of engineers is all about application.
At agencies, one of the biggest challenges from an engineering standpoint, particularly as it relates to classified work, is finding cleared engineering students. Engineering is currently the hottest curriculum being pursued by some of the best and brightest globally. When you look at the best engineering schools and meet with the dean and top students, you find that many of their bright, energetic and hardworking students come from a global environment.
Companies like LGS can't use these students or put them on a defense program without a path providing them with government clearances. Two solutions come to mind.
First, agencies could partner with these universities, try to recruit those kids early on and get involved in their college education through senior projects and sponsor programs. Some in our intelligence community partner with top-notch engineering schools and provide clearances for these undergraduate students,who are of high value for companies like LGS.
That is one area where I wish more government agencies beyond the intelligence community would partner. It takes money, people and involvement but by partnering more with academia, we can identify and attract more U.S. students into those curricula and programs.
Second, on a policy-level, it seems short-sighted to look past citizenship for some of these students. I was the graduation speaker at George Washington University's commencement last year. It is a great school with a phenomenal program. I have utmost respect for the dean, who built a top-notch engineering program. But the majority of top students graduating with engineering degrees were international, and few of them had U.S. citizenship.
We bring the best and brightest international students here. We admit them into engineering programs and give them student visas. They get a bachelor's, master's or Ph.D, become absolutely top-notch in their field and then we send them back to their country. We have the best higher education system in the world. We must attract and retain that talent and put them on a path to citizenship so we as a nation can maintain a technological advantage.
That's not something that an engineering company like LGS is going to solve but something that the policymakers need to take a hard look at.
ExecutiveBiz: Where can all the collaborative efforts that you mentioned go into the security clearance process for future engineers?
Kevin Kelly: Students are usually accepted into engineering programs in their fifth semester of school, based on GPA, class rank and so on. You need to look at students in their fourth semester to determine which are likely to obtain an engineering degree from an accredited program, and then enter them into an honors program.
Upon graduation, engineering students looking for a clearance must fill out paperwork and undergo a background investigation that typically goes back to their 18th birthday. That is why agencies should partner with students and academic institutions sooner — it is arguably less expensive for the agencies to start clearing engineers in their 20s than their 30s or 40s.
At that early age, whether they work for the CIA or a defense contractor, our industry and nation benefit from holding onto those individuals by giving them a clear path forward. It also gives the individual the potential to earn more money than their peers who are going to graduate without any background or any clearance.
Real world experience with senior projects, practice solving real problems and at least some level of security clearance make recent graduates very attractive to companies like ours. We pay a premium for those students, although there aren't many of them. There are only a handful of willing schools participating in these student sponsorship programs.
Every level of government and every agency should participate in these programs, not just the intelligence community. For example, the Agriculture Department has top-secret, cleared individuals who have real technical challenges to be solved.
I'd love to see them get involved with some of the big land grant schools and sponsor some of these students with a level of clearance to keep them in the system, as opposed to them working for small startups and bouncing around from company to company.