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High Ticket Prices to get on Government Gravy Train

The Washington Post's Steve Pearlstein has a column today looking at the success of entrepreneur Ken Bajaj had in selling out at the right time. This includes the sale last year of DigitalNet, which develops network systems for the Pentagon and other U.S. government departments, to BAE Systems last year for $595-million – at the height of the government IT consolidation frenzy. Pearlstein's supports his belief the government IT space is still hot by pointing to Nortel's $448-million acquisition of PEC Solutions Inc., which he describes as a “desperate move to get Nortel back on the offensive”. Nortel, he contends, over-paid by coughing up 15 times PEC's EBITDA – compared with “normal” multiples of 10 times. Perhaps the deal will start to demonstrate dividends when Nortel posts its second-quarter results on Monday. The key for Nortel PEC will be its ability to leverage Nortel's size and customer base to rise above PEC's status as a mid-tier systems integrator to secure major contracts. In many ways, PEC was an expensive way for Nortel to get into the U.S. government contracting game. Irregardless of whether Nortel too much or just enough for PEC, the deal will be assessed on whether enough business comes in the door

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