Keane, Inc.

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Keane, Inc.

100 City Square
Boston, Massachusetts 02129
U.S.A.
Telephone: (617) 241-9200
Toll Free: (800) 365-3263
Fax: (617) 241-9507
Web site: http://www.keane.com

Public Company
Incorporated: 1965
Employees: 7,331
Sales: $873.2 million (2002)
Stock Exchanges: American
Ticker Symbol: KEA
NAIC: 541511 Custom Computer Programming Services; 541512 Computer Systems Design Services; 541611 Administrative Management and General Management Consulting Services

As a consulting firm offering customized software services, Keane, Inc. enjoyed phenomenal growth in the late 1990s by providing Y2K-related software solutions. Its annual revenue surpassed $1 billion in 1998 and 1999. Following the loss of Y2K-related business, Keane planned to achieve annual revenue of $3 billion by 2005 primarily through acquisitions. The company’s diversified software services include outsourcing, application development and integration, and business consulting. Keane has more than 1,400 clients, with separate divisions devoted to serving the healthcare industry and government agencies as well as Global 2000 companies across every major industry. The company has implemented a global delivery strategy that includes offshore development centers in India and a near-shore development center in Canada. Although Keane is a public company, it has remained a family-run business since its inception in 1965.

Providing Software Services: 1965–85

Keane, Inc. was founded in December 1965 in a small office above Nichols Donut Shoppe in Hingham, Massachusetts, by John F. Keane, a former programmer at IBM. Keane established his software services company to help businesses better utilize the power of computer technology. He recognized that computers often have more processing power than businesses know how to use. Keane offered to provide custom software for a business’s computer and improve its productivity.

Keane, Inc. went public in 1970. The following year saw the company experience several project overruns. After analyzing the problems associated with these cost overruns, Keane developed a new approach to project management called Productivity Management. This tool helped Keane survive in a highly competitive industry. It became the foundation for all of the company’s application development and outsourcing methodologies. Productivity Management seminars were held over the years to train thousands of Keane’s employees.

Keane established its Healthcare Services Division in 1975 under the name KeaMed Hospital Systems. This unit focused on marketing information services to hospitals and other healthcare clients and was soon offering turnkey software solutions.

Refocusing on Core Business: 1986–90

After enjoying steady growth for the first 20 years, Keane experienced its first quarterly operating loss in the second quarter of 1986. The loss was attributed to the company’s diversification into packaged software and other software products. It served as a wake-up call; Keane dropped the software products and refocused its efforts on its core business of providing custom software services. The company returned to profitability in the next quarter. In 1989 Forbes named Keane one of “The Best Small Companies in America.”

In 1987 Keane formed an alliance with Boston University that resulted in Keane’s intensive Accelerated Software Development Program. The program combined Keane’s business expertise with the university’s technical training experience. The result of Keane’s emphasis on internal training, begun earlier in the decade, the Accelerated Software Development Program provided important training for entry-level personnel in the company’s software development and project management methodologies.

In 1988 Keane developed its Application Management Methodology (AMM) to bring greater efficiency to the way the company managed its production systems. AMM was an application maintenance process that grew out of a contract that Keane had to support the system software of a major hardware vendor. AMM later became the basis of the company’s Application Outsourcing solution.

By the end of the 1980s Keane had begun to standardize its approach to software development. Previously, the company had relied on areas of individual expertise to develop software solutions. With newer technology becoming more complex, Keane established frameworks to provide clear and disciplined guidelines for developing business application software.

Enjoying Growth During the 1990s

By 1990 Keane was known as a custom programmer of computer mainframes, minicomputers, and workstations. Its biggest client was IBM, which accounted for about 24 percent of its sales. For 1990 Keane reported net income of $5 million on sales of $93 million. Sales were up 20 percent over the previous year, while net income rose by 46 percent.

Keane made several acquisitions in the first half of the 1990s to fuel its growth. In 1992 it acquired Ferranti Healthcare Systems Corp. of Maryland, which was in Chapter 11 bankruptcy protection. In 1993 it purchased GE Consulting Services and Professional Healthcare Services (PHS). Keane’s acquisitions helped boost the company’s revenue from around $100 million to $350 million.

In early 1994 Keane acquired several software companies from Nynex Corp., which was in the process of divesting all of its software service businesses. The businesses that Keane acquired from Nynex included AGS Information Services and associated businesses, such as Tremblay & Associates of Canada, AGS Federal Systems, AGS Management Systems, and Lamarian Systems. These acquisitions gave Keane a presence in such cities as Seattle, Houston, Phoenix, and Columbus, Ohio. They also gave Keane a stronger foothold with government clients, and the company established Keane Federal Systems to service public sector clients. Later in 1994 Keane was again named to Forbes’ list of the 200 best small companies in the United States. The company reported net income of $16.2 million for the year.

By the end of 1995 Keane had 4,500 employees, 40 sites, and annual revenue approaching $400 million. Its software services included software application development, outsourcing, and integration services. A new contract with Microsoft called for providing a 500-person help-desk support center for Windows 95 customers. Keane provided similar support for IBM’s AS/400, PC, and OS/2 Warp systems. Keane also had a $13.5 million contract with AT&T to support 25 human resources applications on AT&T’s personal, midrange, and mainframe computers.

By 1996 companies were beginning to assess the extent of their possible problems with Y2K, or the millennium bug. By the second half of the year Keane was winning three to four Y2K contracts a week, including a $107 million contract from the U.S. Department of Justice. To address the Y2K concerns of potential clients, Keane developed a Year 2000 Compliance Methodology through a partnership with Viasoft, Inc. For 1996 Keane reported revenue of $467.1 million and net income of $25.4 million. In the first half of 1997 Keane hired an additional 1,000 employees because of Y2K contracts. Its workforce reached 7,500 people in 40 locations in North America, and the company planned to hire another 1,000 employees by the end of 1997. Revenue for 1997 rose to $654 million.

Largely as a result of its Y2K business, Keane’s revenue soared above $1 billion in 1998 and 1999. The company was extremely profitable during those two years, reporting net income of $96.3 million in 1998 and $73.1 million in 1999. Keane also continued to expand through acquisitions. In 1998 it acquired GSE Erudite Software Inc., a software services company based in Salt Lake City, Utah, with revenue of $18 million. Keane also acquired Omega Systems, a Pittsburgh-based consulting firm with about 100 employees and annual revenue of $6 million. In August 1998 Keane made its first acquisition in the United Kingdom, when it purchased Icom Systems Ltd. of Birmingham, England. Icom provided IT services to U.K. corporations, especially financial services and utilities.

Another acquisition in 1998 gave Keane management consulting capabilities, when it purchased Chicago-based Bricker & Associates Inc. for $110 million. Bricker had annual revenue of $15 million in 1997 and was expected to post $26 million in revenue in 1998. The firm also enjoyed a healthy profit margin of 26 percent, compared to Keane’s average operating margin of 9.1 percent. Toward the end of 1998 Keane acquired Fourth Tier Inc., a Los Angeles-based provider of front-office applications for customer service, sales and marketing, technical support, and product development, in an all-stock transaction valued at $26.7 million.

Company Perspectives:

Keane develops long-term client relationships and recurring revenues through its broad range of services, multi-year outsourcing contracts, and an unwavering commitment to customer satisfaction. Keane delivers its services with world-class processes, management disciplines, and performance metrics via an integrated network of branch offices in North America and the United Kingdom, and Advanced Development Centers (ADCs) in the United States, Canada, and India. This global service delivery model offers customers the flexibility and economic advantage of fluidly allocating work between a variety of delivery options including on-site at a client’s facility, off-site at a remote location, near-shore in Halifax, Nova Scotia, and offshore in India. Branch offices work in conjunction with Keane Consulting Group, the Company’s business consulting arm, and are supported by centralized Strategic Practices and Quality Assurance Groups.

Investors in 1998 appeared pleased with Keane’s performance and business strategy. Wall Street Journal named Keane the number one ten-year performer on its Shareholder Scoreboard, noting the firm’s stock had risen some 1,500 percent during the previous ten years. Analysts were predicting 40 percent growth for Keane in 1998. In fact, the company exceeded those expectations by posting revenue of $1.07 billion for 1998, an increase of nearly 65 percent over 1997. An estimated 35 percent of Keane’s revenue in 1998 came from Y2K-related work. In 1999 Keane was named Company of the Year by the Boston Globe, an honor it had achieved once before in 1990.

Developing Initiatives and Making Acquisitions to Replace Y2K Business: 1998–2000

As early as the final months of 1998, Keane was looking to increased applications outsourcing to replace lost Y2K business. Some new business came from companies for which Keane had performed Y2K work, which then gave Keane contracts for applications outsourcing. Keane’s acquisitions in 1998 were also designed to give it entrée into higher-margin businesses, such as management consulting and front-office applications.

Keane continued to acquire companies in 1999 to broaden its expertise. In January it acquired Emergent Corp., a business consulting firm and systems integrator that specialized in providing scalable data warehousing solutions. Emergent, which had revenue of $4 million in 1998, was expected to strengthen Keane’s enterprise relationship management (ERM) solutions. In March Keane acquired Advanced Solutions Inc., a New York-based IT solutions and applications development firm that specialized in electronic commerce and advanced technologies as well as enterprise resource planning and supply chain management. Keane acquired Boston-based Amherst Consulting Group, Inc. in May 1999 and merged it with Bricker & Associates. The acquisition strengthened Keane’s management consulting business and added a Boston office to Bricker’s practice. Also in May, Keane bolstered its presence in the United Kingdom by acquiring Parallax Solutions Ltd., a software services consulting firm based in Coventry, England. Parallax had about 150 employees and projected annual revenue of $14.7 million, and it had strong ties to large automotive companies, including BMW AG, Rover, and Ford Motor Co. Ltd., as well as to retail finance and capital market companies.

In June 1999 Keane acquired Jamison/Gold, LLC, an Internet consulting firm based in Marina del Rey, California. Company founders and principals Brian Jamison and Josh Gold were expected to assume management positions within Keane’s e-Solutions practice. Together the two had written a well-known book on electronic commerce, Electronic Selling: 23 Steps to E-Selling Profits.

During 1999 Keane also signed new outsourcing contracts and developed new initiatives to diversify away from Y2K business. Among the new contracts was a five-year outsourcing agreement for application management and development with SuperValu Stores, Inc., worth more than $20 million, and a five-year, $10 million outsourcing contract with Dominion General Insurance Co. of Canada. In April 1999 Keane launched a new full-service customer relationship management (CRM) solution that helped clients plan, build, and manage a customer-oriented focus. Through a strategic partnership with CRM applications vendor Siebel Systems, Inc., Keane offered clients help in implementing Siebel’s applications as part of its CRM solution. At the time its CRM solution was introduced, Keane announced it planned to generate $75 million in CRM-related revenue in 1999.

In spite of its efforts, Keane was forced to revise its revenue forecasts downward in mid-1999. Noting a softening in non-Y2K revenue that began in June, Chairman and CEO John F. Keane announced the company’s year-over-year revenue growth would fall below the anticipated 30 to 35 percent range it had enjoyed in the past few quarters. For the next three to five years, Keane forecast that the company would post an average revenue growth of 20 to 25 percent.

Key Dates:

1965:: John F. Keane founds his company to provide software services to businesses.
1970:: Keane’s company goes public.
1971:: Keane develops a productivity management process to avoid project overruns.
1975:: Keane establishes its Healthcare Services Division under the name KeaMed Hospital Systems, to provide software services to hospitals and other healthcare facilities.
1986:: After experiencing its first-ever quarterly loss, the company refocuses on its core business of delivering software services.
1987:: Keane forms an educational alliance with Boston University and establishes an Accelerated Software Development Program for students there.
1988:: Keane develops its Application Management Methodology (AMM), an application maintenance process that evolves into the company’s Application Outsourcing solution.
1996:: Keane begins offering Y2K solutions.
1997:: Keane launches its first Advanced Development Center (ADC) in Halifax, Nova Scotia, to provide near-shore outsourcing.
1998:: Company revenue surpasses $1 billion for the first time.
1999:: Strategic acquisitions include Jamison/Gold in Los Angeles, Parallax Solutions Ltd. in the United Kingdom, and ANSTEC, Inc. in Washington, D.C.
2000:: Keane consolidates its consulting subsidiaries and forms Keane Consulting Group; key acquisitions include Denver Management Group and Care Computer Systems.
2001:: Keane acquires Metro Information Services, Inc.
2002:: Keane acquires SignalTree Solutions Holding, Inc. and gains two ADCs in India.

In the second half of 1999 Keane made two more acquisitions and announced a change in management involving the next generation of Keanes. After receiving the Albert Einstein Technology Medal in conjunction with a senior-level high technology mission to Israel, company founder John F. Keane reported that his two sons, Brian and John Keane, Jr., would become CEO and president, respectively, of Keane, Inc. John F. Keane, Sr., retained his position as chairman. For the prior two years Brian, 38, and John, Jr., 39, had served in the office of president and were responsible for the company’s operations and corporate functions. At the time of the announcement at the end of November 1999, Keane had 10,500 employees.

Keane completed two acquisitions before the end of 1999. One involved ANSTEC, Inc., an IT company based in McLean, Virginia. Keane announced it would combine ANSTEC’s capabilities and client base with Keane Federal Systems, which allowed Keane to compete for larger government contracts. Some 90 percent of ANSTEC’s client base consisted of federal agencies. The other acquisition involved First Coast Systems, Inc., a leading developer of integrated software solutions for the healthcare industry. Operations of the Jacksonville, Florida-based company would be combined with Keane’s Healthcare Solutions Division.

Struggling to Remain Profitable: 2000–03

Celebrating its 35th year in business, Keane began the new millennium as a recognized leader in computer and software services. The company was active in several high-growth sectors, including electronic commerce, customer relationship management, data warehousing, and application management. In January 2000 Forbes recognized Keane by placing it on its Platinum 400 list of America’s Best Big Companies. The selection was based on Keane’s five-year performance, which included an average return on capital of 25 percent, sales growth of 37.6 percent, and net income growth of more than 54 percent.

At the beginning of 2000 Keane formed a new division, Keane Interactive, to provide Internet design and development services. The recently acquired Jamison/Gold, LLC was renamed Keane Interactive and formed the core of the new division. Keane Interactive’s first contract was with 3M of St. Paul, Minnesota, to develop web sites for 3M’s customer centers.

In April 2000 Keane consolidated two of its management consulting groups, Bricker & Associates and Amherst Consulting, to form Keane Consulting Group (KCG). KCG would help clients establish new business models, transform business processes to leverage the Internet, and identify e=busincss opportunities.

Another management change occurred at Keane in July 2000, when John F. Keane, Jr., left the company to pursue his interests in wireless technology. Upon his departure Brian Keane assumed the duties of president in addition to those of CEO.

Keane made two additional acquisitions in the second half of 2000. The first involved Denver Management Group, a Denver-based consulting firm specializing in supply chain management and integrated distribution for Fortune 1000 companies. The second acquisition involved Care Computer Systems, Inc., a leading provider of software solutions for the long-term care industry. Based in Bellevue, Washington, Care Computer Systems had 225 employees, annual sales of $17.6 million, and some 3,200 software installations in the United States. Its operations would be combined with Keane’s Healthcare Solutions Division. As a result, Keane’s Healthcare Solutions Division became the leading provider of software services to the long-term care industry with a 26 percent market share in the United States.

Keane expanded its off-site development and management capabilities at the end of October 2000 with the opening of a new Advanced Development Center (ADC) in Rochester, Minnesota. Similar to the ADC in Halifax that was launched in 1997, the ADC in Rochester enabled clients based anywhere in North America or Europe to speed delivery and improve the cost-efficiency of software application development and management.

Although Keane’s revenue for 2000 declined to $872 million, the company remained profitable with net income of $20.4 million. The decline continued in 2001, when the company reported revenue of $779.2 million and net income of $17.4 million. In early 2001 Keane divested its help-desk business, which provided call center support for a wide range of software applications. Convergys Corp. paid $15.7 million for the technical support centers, which employed about 1,000 people and were located in Tucson, Arizona, and Kirkland, Washington. Around this time Keane also cut about 2 percent of its workforce.

Keane made one significant acquisition in 2001 went it acquired Metro Information Services, Inc. of Virginia Beach, Virginia, in a stock-for-stock transaction valued at $135 million. Founded in 1979, Metro Information Services provided a wide range of IT consulting services and solutions to Global 2000 companies. It employed nearly 2,000 consultants and had offices in 33 metropolitan markets, 26 of which overlapped with markets served by Keane. As a result, Keane anticipated increasing its average branch size from $22 million to $27 million in annual revenue. The acquisition significantly increased Keane’s customer base. Metro had about 600 clients. Of the company’s top 300 accounts, 236 were brand new to Keane. Keane expected the acquisition of Metro Information Services to increase its annual revenue by a factor of 10 percent. Following the acquisition, Metro Chairman and CEO John H. Fain became a member of Keane’s board of directors.

Although Keane made only one acquisition in 2001, the company planned to achieve annual revenue of $3 billion in five years through a program of strategic acquisitions. In the first quarter of 2002 the company acquired SignalTree Solutions Holding, Inc., a U.S.-based corporation headquartered in Irvine, California. SignalTree had two software development facilities in India as well as operations in the United States. Founded in 1982, SignalTree had about $50 million in annual revenue in 2001; some 400 of its 750 employees worked at its software development facilities in Hyderabad and Delhi, India. Keane acquired SignalTree for $62 million. Following the acquisition Keane formed Keane India Ltd. and announced plans for additional investment there, including plans to open a third ADC, or software development center. By September 2002 Keane India Ltd. had hired 85 additional people and planned to expand its workforce there to 700 employees.

Although the acquisition of SignalTree did not affect Keane’s 2002 revenue, its 2001 acquisition of Metro Information Service helped the company achieve a 12 percent growth in revenue for the year to $873.2 million. Net income for 2002 was $8.2 million, down from $17.4 million in 2001, due in part to costs associated with acquisitions.

In February 2003 Keane formed a strategic alliance with The Unilog Group, a European IT consulting firm with operations in Austria, France, Germany, Italy, Luxembourg, Spain, and Switzerland. Together, Keane and Unilog could offer clients the combined resources of more than 18,000 business and IT professionals. In addition, Keane planned to make its offshore ADC’s in India available to Unilog clients and leverage India as part of its global delivery strategy.

Principal Subsidiaries

Keane Federal Systems, Inc.; Keane Ltd. (U.K.); Keane India Ltd.

Principal Divisions

Keane Consulting Group; Keane Healthcare Solutions; Project Management Services Group; Keane Interactive.

Principal Competitors

Accenture Ltd.; American Management Systems, Inc.; Computer Sciences Corp.; Electronic Data Systems (EDS); IBM Global Services; KPMG Consulting, Inc.; LogicaCMG plc; Sapient Corp.