Kevin Kelly of LGS Innovations Talks Strategic Acquisitions and Local STEM Enrichment Programs

WashingtonExec spoke with Kevin Kelly, CEO of LGS Innovations, about positioning the organization as a niche, mid-tier contractor in the intel, defense and R&D marketplaces. We also discussed Kelly’s view on the dos and don’ts for small business leaders looking to be acquired, as well as the security vulnerabilities brought with the adoption of internet of things applications.

As a local STEM (science, technology, engineering and mathematics) leader, Kelly has built his business around STEM education, spending countless hours teach and mentoring students of all levels. For him, STEM mentorships are more than just a business recruitment, it is an investment in the generation. Kelly went on to talk about his approach to helping improve the local STEM pipeline as well as why he and his team made the employee STEM-engagement a part of individual’s professional evaluations.

WashingtonExec: LGS Innovations has an interesting history and mission, what projects are you all working on currently?

Kevin Kelly: LGS used to be Lucent Government Solutions serving the Federal Government under Lucent Technologies, and has contracts that date back to the War Department. When Alcatel and Lucent merged, LGS formed a separate LLC with its own governance, Board of Directors, and financial structure until March 31st of 2014 when it was divested to the private equity group.

The divestiture from Alcatel-Lucent to a private equity firm led by Madison Dearborn in Chicago and Covant in McLean, Virginia occurred in March 2014. We are now held as a privately-owned company and configured as a platform on which we hope to acquire more technology companies and services companies that are germane to our overall vision and strategy.

As we stand today, we are just under 800 employees headquartered in Herndon, VA and we do three main things; the first and most significant is the research & development. This is about 550 engineers and scientists within the company that are dedicated to solving some of our government customer’s most challenging problems in the areas of laser based communications, radio communications, cybersecurity, and cellular technology. The second line of business is a commercial products reseller. We are the exclusive reseller of all Alcatel-Lucent products to the U.S. Federal Government. Thirdly, services – we have a suite of services that wrap around the technology so that we can deliver full sustaining life cycle support, signal analysis, intelligence analysis, and the like – all for our U.S. Government customers.

WashingtonExec: Do you consider LGS a mid-tier contractor? Have you all ever felt restraints as a mid-tier contractor?

Kevin Kelly: We are definitely a mid-tier company. Even when we were 220 employees we were never able to be qualified as a small business because we were always part of or owned by a large corporation. We had to fight it out in full and open competitions as a small business without any of the benefits usually associated with that status and work our way up through the system. It has actually been a blessing for us because this company has never had an easy time of it. If you look at the $8 billion Netcent-2 program that was recently awarded to Raytheon, Northrop Grumman, Lockheed Martin, SAIC and Booz Allen you are going to see LGS in there as well. We’re very able to compete and win in a full and open environment with the larger players in the market because we are technologically differentiated.

In terms of market size and market presence, we fulfill a niche as a mid-tier company that has a long history of innovation, inventing solutions and solving large problems – many of which get integrated into larger platforms that are more aptly managed by a large system integrator.

WashingtonExec: How significant of an impact do you see the Internet of Things having in the defense and intelligence space? Many agencies have announced working and exploratory groups on the subject.

Kevin Kelly: Certainly more and more things are able to be connected to a broadband network and have very interesting attributes associated with reporting metrics– whether it be a cell site or a refrigerator, the ability to pull real intelligence data off of these systems is valuable. This of course presents a brand new threat to all of our systems. My vehicle used to not be connected to any network and I wouldn’t have to worry about a cyberattack. The more convenience I built into that vehicle the more I’m opening the door to vulnerabilities and the more I need to understand how to protect those systems. Our cybersecurity researchers find vulnerabilities that need to be cared for long before they are incorporated into a weapon’s system or some other mission critical communications system so that our operators can utilize that commercial technology in a safe way.

WashingtonExec: Moving on to the topic of M&A, what is your advice to small business leaders looking to potentially sell to a company like LGS? What are some missteps you have seen small business leaders make when they are looking to be acquired?

Kevin Kelly: We are looking for other technology companies or services companies that are highly technologically differentiated, so if it’s a services company they need to be 75%+ engineering services as opposed to commodity services. They need to be able to operate and integrate our systems. They need to be able to process data that comes off of our systems. There are companies that claim they are a “technology company”, but when you do a deep dive into their contracts and personnel, you see a lot of English majors and psychology majors that are working on IT systems. I really am looking for the hard core STEM degrees that can add value to the systems that we bring to market. That’s one pitfall; I think bankers are quick to label companies that are for sale as technology companies because it suggests that it is a high value entity but when you dig down into it there are certainly some on the market but fewer than advertised.

One of the difficulties when you are a company like ours looking to acquire a business is the threat that the acquired company will lose 40-50% of their business once we acquire them because it was set aside business. It doesn’t happen overnight, but when the contract term expires and is recomepted they are no longer qualified to compete for that business. It’s much better for a small business to graduate and compete full and open first before going through a sale process which will make them a lot more attractive to a buyer.

There are also aspects around the financial performance and whether or not small or mid-tier companies have set up all of the infrastructure that larger companies need for governance, ethics and compliance. Smaller companies don’t suffer as much the audit and inspection regime that larger companies do. That’s just ordinary business concerns as you go through an acquisition – making sure that you’ve got enough infrastructure to take on a whole group of people, contracts and commitments that maybe don’t have as sophisticated ethics and compliance regime.

WashingtonExec: What would you say is your particular passion for STEM? Is it the local STEM pipeline, more women in STEM, more minorities in STEM, better trained teachers etc?

Kevin Kelly: You are hitting all of my hot buttons. When you’re running a company like I am, you are trying to find that diverse workforce that offers diverse thinking. Different approaches and different ideas bring about a much healthier debate. You have a much richer background of experience to draw from to come up with truly innovative ideas.

For me, personally, it starts at the middle school level and follows all the way through the collegiate level. One of the confusing dynamics that I personally have noticed is when you’re at the middle school science fair, which most every middle school has, you see some really innovative ideas. When you talk to the students you will find those who are very passionate about science, math or some physical discipline and the majority of them, in my observation at the middle school level, are young women. When you transition to high school there is a change, though. I am personally involved with a local high school robotics program; we plan to sponsor a CyberPatriot team as a part of the cyber defense initiative at the high school level. You see a transition and these young ladies end up focusing more on the marketing aspect of it or just falling out of STEM entirely. It becomes dominated by young men at that point. When it gets to the collegiate level it becomes even more prevalent.

Finding those kids who are passionate about STEM and finding those teachers who are passionate about promoting STEM programs and helping students achieve their goals makes it easier for the teacher to bring that group to a national robotics championship competition. Sometimes that’s with money, sometimes that’s with mentorships or sponsorships.

I have been involved at the middle school, high school levels and when it gets to the collegiate level I’m on the National Advisory Council for George Washington University School of Engineering and I’m a student mentor for Penn State’s electrical engineering program – all of which give me opportunities to interact directly with the students and encourage them, coach them, help them make connections in the industry.

One of the disturbing factors I see is that young women lose interest in STEM. There may be many reasons why this occurs and people make individual decisions for individual reasons. We are trying to change that by showing them all of the wonderful things they can work on that eventually could be a part of their career if they just stick with it and follow it through. We look at it as building a pipeline of future employees who will take on the future of this industry. Every time we bring in a new batch of college interns (this year we are going to bring in about 30 college interns) or when we bring in our college hires we get access to a whole host of ideas and thinking – and even technology – that many of our senior scientists have never been exposed to. It’s a great way to back fill a workforce and it’s also a great way to infuse a technology company with brand new technology that is being invented every day.

WashingtonExec: Does LGS have a STEM mentorship program? There have been many studies that state that girls are more likely to stick with a STEM degree if they have a proper mentorship.

Kevin Kelly: While we don’t have a formal mentorship program, we do make it a part of our personnel evaluation at the end of every half year. Every six months we evaluate our employees performance and while doing so we ask them to identify programs that they are involved with on their own time that are providing some type of enrichment or value to the STEM community. This year we are asking the managers to consider what they are giving back to the community as a part of their value as an employee to the company.