Dr. Ernst Volgenau, Founder and Chairman of SRA International, Talks about General Atlantic’s Role as a Pre-IPO Investor

10.17.06

Dr. Ernst Volgenau, Founder and Chairman of SRA International, Talks about General Atlantic’s Role as a Pre-IPO Investor

In April 2002 General Atlantic (GA) invested in SRA International, which provides IT services for national security, healthcare, public health and civil government markets. At that time, Steve Denning, now GA Chairman, joined the SRA board of directors, and Phil Trahanas, now a Managing Director at GA, served as an observer. SRA completed its IPO in May 2002, raising $103.5 million in capital at a market value of $372 million. By February 2006, SRA market value had grown to $1.8 billion. Dr. Ernst Volgenau, Founder and Chairman of SRA, discusses GA’s investment and support to SRA over the last four years.

General Atlantic invested in SRA after you filed your Registration Statement with the SEC but before you went public in May 2002. What was the rationale behind bringing in an investor at that particular time, and why did you choose General Atlantic?

Dr. Ernst Volgenau: I first met Steve Denning through a friend in January 2002. At that time, our company had decided to have an initial public offering. Steve suggested that an investment by General Atlantic would be useful to us. I initially rejected the idea because I felt that we would raise the money we needed through the IPO, which at that time was only four months away. Then I spoke with a number of CEOs whose companies had benefited not only from General Atlantic's financial investment but also from its strategic advice and continued involvement. All of these executives made compelling arguments that we could benefit from GA’s experience and expertise. After getting this input, I spent more time with Steve and came to the conclusion that SRA could indeed benefit from GA’s investment and expertise.

How did GA support SRA through the IPO process and what were your expectations at that point in time?

EV: When GA joined us, Steve and his team already understood our operations so they were able to hit the ground running. They helped out on a broad range of issues related to our IPO -- developing financial strategy, providing suggestions for the road show, advising us on interactions with analysts and investors, making suggestions on broader communications issues related to the IPO and helping us prepare SRA to operate as a public company.

What kind of feedback did you get from the market on having GA as an investor?

EV: GA’s reputation was helpful with certain investors, while frankly, others were puzzled by why we would accept a private equity only a few months ahead of an IPO. However, there was no question that having GA as a long-term institutional investor on board at the IPO helped us with the investment community. Overall, investors believed that it was a plus for our company to have Steve Denning, an experienced private equity investor, serving on our board of directors. SRA was much smaller at the time of the IPO than it is now, so it was particularly helpful to have General Atlantic’s name behind our company.

Once the IPO was complete, how did GA help in terms of pursuing your growth objectives and operating as a public company?

EV: Steve Denning joined SRA as a Director, and he and Phil Trahanas helped us in a variety of ways. GA was particularly helpful with financial strategy and the process of raising capital publicly. As we went through the process of completing a secondary offering about a year after our IPO, GA supported us as they had with the IPO, and once again we benefited from the firm’s expertise and guidance. We also made a number of acquisitions while Steve was on the Board, and GA provided guidance and judgment on those transactions, they provided astute insight with regard to investor relations and the intricacies of communications and disclosure.

Steve and Phil were always available to provide any kind of advice that I might ask for or that others in our organization needed. Steve Hughes, our Chief Financial Officer, worked closely with Phil, and I often called on Steve Denning. GA was involved in our search for additional directors, and we added several during GA’s time as an investor.

How was GA helpful with disclosure issues and corporate governance?

EV: Even as a privately-held firm, SRA operated somewhat like a public company; for example, we had independent outside audits and published an annual report. But of course, as a public company, we have many more disclosure and regulatory requirements than as a private company. On top of that, the requirements related to Sarbanes-Oxley were new. Given these broad demands on our finance and accounting people, we sometimes got advice from Steve, Phil or other people at GA. GA specialists gave us advice on compliance, disclosure and corporate governance. GA’s functional expertise was very useful to us.

Was GA’s sectoral expertise helpful to you?

EV: GA brings a deep understanding of the IT industry, and at the time it was an investor in SRA it had several investments in the IT services and outsourcing. While GA did own one company with public sector clients, the government sector was generally new to GA. When they first approached us, they said that they wanted to invest in a premier professional technical services company in the government sector. It wasn’t so much that GA brought expertise in our market but rather that it provided insights and depth of understanding from other markets that were relevant to what we do.

What advice would you give to other CEOs as they consider a private equity investor, especially if their companies are planning to go public in the near-term?

EV: My advice to management teams that are considering an equity partner is to think carefully about the contributions that such a firm can offer beyond simply its financial resources. There is a lot of money available; many people are willing to invest it in a good firm. A more important question concerns what else they will bring to the table. We didn’t really need the additional funds, and yet we decided to partner with GA because of the strategic support they could offer to help SRA grow successfully.

Is there any other particular aspect of SRA’s relationship with GA that you think is worth commenting on?

EV: It is certainly nice to have the friendship of Steve Denning. We had an excellent professional partnership with GA and through this relationship we have become good friends as well.

Dr. Ernst Volgenau Founder and Chairman, SRA International

Dr. Ernst Volgenau founded SRA in 1978 and served as its President and CEO until 2005. Under his leadership, the Company grew rapidly from one person to more than 4,000 and was profitable every year.

Dr. Volgenau has several decades of experience analyzing, designing, and developing large technological systems of all types. During 20 years in the U.S. Air Force, he helped develop space boosters and satellites and taught in the field of astronautics. He also served as a team leader in the Office of the Secretary of Defense, conducting large-scale analyses of weapon systems and command structures. Dr. Volgenau later served as director of data automation for the Air Force Logistics Command.

From 1976 to 1978, he was director of inspection and enforcement for the U.S. Nuclear Regulatory Commission, managing an office of 700 engineers and physicists who inspected all U.S. commercial nuclear power plants under construction and in operation.

Dr. Volgenau received a PhD in engineering from UCLA and is a graduate of the U.S. Naval Academy. He taught graduate courses in electrical engineering, computer systems, and operations research at UCLA, American University, and George Washington University for eight years.

In 2005, Dr. Volgenau received the Executive of the Year Award from Northern Virginia GovCon, an initiative of the Fairfax County Chamber of Commerce, the Professional Services Council, and Washington Technology. In 2006, he received the Lifetime Achievement Award from the National Capital Chapter of the Association for Corporate Growth, and Ernst & Young’s Master Entrepreneur of the Year Award (Washington region).

Steven A. Denning Chairman, General Atlantic

Steven A. Denning is the Chairman of global private equity firm General Atlantic LLC. He joined the firm in 1980 and has built the organization into one of the leading global private equity investment firms focused exclusively on investing in companies that provide or use information technology to deliver the underlying value proposition. He is currently actively involved in a number of private and public information technology companies in the United States and Europe including Eclipsys Corporation (NASDAQ: ECLP), Hewitt Associates (NYSE:HEW), IHS, Inc. (NYSE: IHS), Genpact and Liberata. He is also a director of The Thomson Corporation (NYSE: TOC; TSX: TOC).

Mr. Denning joined General Atlantic after working with McKinsey & Company as a consultant. He received an MBA from Stanford Business School in 1978. Prior to business school, Mr. Denning served for six years in the U.S. Navy, where he also obtained an MS degree from the Naval Postgraduate School in Monterey, California. He received a BS from the Georgia Institute of Technology in 1970.

Mr. Denning is a member of The Board of Trustees of Stanford University, the Advisory Board of the School of Economics and Management at Tsinghua University, and the Board of the American Museum of Natural History. He is Vice Chairman of the Board of the National Parks Conservation Association and Chairman of the Stanford Graduate School of Business Advisory Council. He is also a member of the Board of Governors of the Partnership for Public Service. He was formerly a member of the Board of Trustees for the Georgia Tech Foundation.

Philip P. Trahanas Managing Director, General Atlantic

Philip P. Trahanas is a Managing Director at General Atlantic LLC. Mr. Trahanas has a combination of experience in operating, investment banking and private equity roles. He is currently responsible for the Firm’s investment activities in the embedded systems and communications sectors and is a member of the Firm’s Investment Committee. Mr. Trahanas holds director positions at Ai Metrix, A-Max Technology and PowerDsine, and was an observer on the SRA International board of directors from May 2002 to January 2006.

Mr. Trahanas joined General Atlantic in 2000 from Morgan Stanley. During his tenure within Morgan Stanley's Investment Banking division, Mr. Trahanas worked on the High Technology Corporate Finance team, was a Merger and Acquisition specialist and was a member of the division's operating management team. His experience includes a wide array of financing and strategic M&A transactions across a broad range of industry sectors. Prior to joining Morgan Stanley, Mr. Trahanas was an electrical engineer at General Electric, where he specialized in communications equipment and semiconductor design.

Mr. Trahanas holds a B.E. in Electrical Engineering from the Cooper Union for the Advancement of Science and Art. He attended the University of Pennsylvania for his advanced studies and earned an MBA from the Wharton School, where he graduated as a Palmer Scholar, and an M.S. in Engineering from the Moore School of Engineering.

_{Interview conducted by Pat Hedley, General Atlantic}