Alion CEO remakes company to zero in on technology

August 25, 2020

By Marjorie Censer

With a major acquisition and a key divestiture under its belt, Alion has reshaped to focus on high-tech areas and significantly change its customer base.

Alion was long known as a Navy contractor that specialized in systems engineering and technical assistance. But in 2015, private-equity company Veritas Capital bought the company; in 2017, it installed contracting veteran Steve Schorer to serve as chief executive.

Schorer quickly moved to make key changes, promising to grow Alion's work with the Army and Air Force and to focus it on growing markets. Later that year, he named former colleague Todd Borkey chief technology officer.

In 2018, Alion acquired MacAuley-Brown, a contractor focused on engineering and cybersecurity work, and last year, the company sold off its naval systems business.

Now, Alion has about $1 billion in annual sales, according to Schorer, up from about $800 million when he joined in 2017.

Its customer base also looks different. Before the MacAuley-Brown purchase, more than half of Alion's annual sales were to the Navy and only 8% to intelligence agencies, DOD and classified customers. Now, Navy sales make up about 19% of Alion's work. About 38% of its sales today are to the Air Force, 26% to intelligence agencies, DOD and classified customers and 12% to the Army.

In an interview with Inside Defense earlier this month, Schorer said Alion had "no strategy" when he arrived.

But the purchase of MacAuley-Brown -- dubbed MacB -- added 600 employees, many with needed security clearances, and gave the company new access to intelligence agencies. It increased Alion's experience in electronic warfare and artificial intelligence work.

"We restacked the whole firm after we bought it," Schorer said. "We did a complete integration and reorganization."

He told Inside Defense the acquisition – as well as the divestiture -- has helped the company make the move from lower-margin acquisition support work to more profitable technology work.

The previous portfolio "was a whole series of little contracts," he said. "I wanted to focus on growth and not on solving a thousand little contracts."

Now, Alion specializes in C5ISR; live, virtual and constructive training; artificial intelligence; cybersecurity; and big data, among other areas.

Earlier this month, for instance, Alion announced it has won a nearly $900 million contract with the Navy to provide LVC training for the operations and maintenance support for the Navy Integrated Training Environment.

"Now, we're a much more balanced firm from a DOD perspective and [intelligence community] perspective," Schorer said.

Schorer said he and Borkey, Alion's CTO, have established an R&D program at Alion. The company has sought to invest seed money in areas where it can quickly move to client investment.

"We are not a Lockheed Martin where I have a massive R&D" budget, Schorer said.

He noted he's been considering multiple potential acquisitions and is particularly interested in space, Army aviation and C5ISR, among other areas. Hypersonics, Schorer said, is also a market of interest.

Schorer noted that several services contractors, such as CACI International, have recently bought product companies.

Product companies "have legs and they can drive profitability," he added. "I'm of the same mindset."

Meanwhile, Schorer told Inside Defense the ongoing COVID-19 pandemic has had a "minimal" effect on the company.

Many of Alion's employees are now working from home; in other cases, the company has set up rotations.

"We had some significant upside this year that probably ebbed because of COVID," Schorer said. "I think we would have probably had a bigger year."

He said the company's hiring has even benefited from COVID-19.

"We have been hiring at a very high rate," Schorer said. "Part of it is we have positions where people can work from home or work part-time from home and then come to the office. The COVID thing has not been a big impact for us."

He acknowledged that the company's private-equity ownership means there will eventually be an exit strategy. Typically, private-equity firms look to end ownership, potentially by selling the business or taking it public, after about five to seven years.

"I won't determine the exit of this firm," Schorer said, noting that decision will be up to Veritas. "I'm here to focus on growth, which I'm doing, [and] M&A, which I know how to do."