Private or Public? To Be Or Not To Be

Nearly every industry is undergoing revolutionary changes--changes fueled by the capabilities of Internet technologies and driven by the potential of e-business economics. Today's race to use technology for profit potential is acting as an unprecedented catalyst in business transformation. And this race is resulting in tremendous opportunity for Internet professional service companies such as The Allied Group. According to Forrester Research Inc., the Internet professional service industry will expand to an estimated $64.8 billion in the year 2003 from $4.1 billion in 1998.

That revolution places new demands on a company's IT infrastructure, applications, people and processes. Companies must effectively meet those new demands--not only to gain competitive advantage, but also to ensure survival. Those new demands have given birth to a new class of integrator that solves business problems using both appropriate technologies and processes.

As a member of this new class of integrator, The Allied Group is skilled in the latest technologies and proven processes. Those strengths allow us to provide e-business services, including enterprise systems integration and networking, Internet application development, and data management. Due to the rapid change inherent in the industry, we partner with those leading companies that set the pace of transformation, including Cisco Systems Inc, Microsoft Corp., Oracle Corp and Sun Microsystems Inc. Our services and methodologies, coupled with our partners' products, enable us to provide clients with timely and complete solutions. With this approach, we are uniquely positioned to take advantage of opportunities that the market provides, ensuring our customers project success.

In 1984, the founding goal of The Allied Group was to provide total solutions for the engineering and technical computer workstation market using advanced application integration. It became apparent, however, that the technical markets--while profitable--offered only limited possibilities for continued growth. At that point, The Allied Group made a strategic decision to focus on the commercial market; we would support client-server technology by designing and implementing enterprise infrastructures. That market provided a higher growth potential and allowed us to generate value-added sales with higher profit margins. In 1994, the management team had the vision to expand our operation to the Dulles region Netplex based on the need to service a burgeoning market opportunity in systems integration. That expansion has entrenched us in the Washington, D.C. area, and has positioned us as one of the leading e-business solution providers.

The Allied Group prides itself in evolving wisely to adapt to the technologies of the future. While starting out solely as a VAR, we then had the foresight to partner with the best-of-breed technology vendors. Also realizing that the Internet was going to transform business, we began to integrate service offerings into our mix. With this integration, we moved from a two-tier distribution model to a single supply chain that leveraged our core competencies. That led to the development of productized services and methodologies for our clients. The Allied Group's history of delivering advanced technology solutions on time and within budget illustrates mastery of our core competencies.

As we evolve from a product-based company to a service-based company, we are not abandoning what made us successful. Instead, we are combining our years of experience with our vision of where technology is going. We continue to leverage our extensive knowledge base, our customer relationships and our highly complex deployment experience to further expand our professional services reach and evolve beyond tactical implementation and integration to a more strategic mode of delivering e-business solutions.

In September 1994, the company generated $4.3 million in revenue and was located in a single office in Glastonbury, Conn. Today, we operate offices all along the Eastern seaboard and employ more than 200 people. We closed out 1999 with $108 million in revenue, exceeding our original goal for the year and representing a 90 percent increase from 1998. The Allied Group's service revenue for 1999 increased dramatically from the previous year, with monthly average service revenue of $1.8 million. Our average annual growth rate from 1993 through 1999 is 93 percent; the total growth in that period is 5,060 percent.

Amid all this growth, The Allied Group remains a privately held company. Working capital today comes from an asset-based lending facility. As companies like ours transition from selling products to selling services, asset-based lending becomes a less effective way to finance the business since there is less collateral to secure the lender. Although we have no immediate plans to go public, that option is being explored, along with mergers and acquisitions and/or a sale to a public company. Aligning ourselves with a public company seems to be the most attractive route right now.

Market conditions, unrealistically high valuations, the high cost of going public, the defocusing of management and long-term "lock-ups" make a public offering risky. While the risk is high, if you are in the right space (dot com) and your timing is right, you can do very well. The stock market dip is indicative of the pending correction of over-valued companies. However, we feel that the value of e-business infrastructure companies is increasing dramatically and could bring high valuations in the public markets. Thus, we will continue to consider the IPO alternative.