Nortel Buys Government Solutions Provider For $448 Million

Nortel U.S. subsidiary Nortel Networks is buying VARBusiness 500 firm PEC Solutions (No. 156 on the VARBusiness 500) for $448 million and plans to use it as the centerpiece of a new company, U.S. Nortel PEC Solutions, to become a major player in the solutions, services and integration categories serving federal, state and local government, according to Chuck Saffell, president of Nortel Federal Network Solutions.

"This acquisition has been part of our thought process for some time," Saffell told VARBusiness during an interview. "We were looking for just the right partner, and when a broker we had been working with suggested PEC about four months ago, it was love at first sight."

Saffell says the deal speeds the process by which Nortel can bring government solutions to the U.S. market. In addition, as a Canadian company, Nortel must create a U.S. entity to compete in this market and the purchase of PEC, a company already there, satisfies that requirement.

Nortel already works with the federal government in voice, video and data solutions. With PEC, Nortel acquires a 1,700-employee firm with 30 offices that posted roughly $203 million in annual sales last year and expects to record about $64 million in its first quarter of 2005, Dr. David Karlgaard, PEC chairman, told VARBusiness during an interview.

Karlgaard said he decided to do the deal because "PEC has been in there for 20 years. And while we have grown to be a major player, we are not in the top tier. You have to be a big player [to get the best clients]. This pushes us into the top. And it gives us the strength to pursue deals that are larger than we [could pursue] on our own.Karlgaard and two additional PEC founders will have as yet unspecified major management roles in U.S. Nortel PEC Solutions.

Saffell said that there is very little employee redundancy, making the deal "very exciting from a synergy point of view." Although both companies extract at least 25 percent of their annual revenues from the Department of Defense, the employees work in different offices, he explained.

The deal is expected to close in June with the official creation of the new company occurring shortly thereafter, Saffell said.

"Nortel is playing to win, and the acquisition of PEC is another example of Nortel's unwavering commitment to strategic business initiatives in the government, services and security arenas," said Bill Owens, Nortel vice chairman and CEO, in a statement. "This acquisition will aggressively position Nortel in the U.S. federal government IT market."