GSE Systems targets $4.5 billion market


In 1993, S3 Technologies was a mess.

Its parent company was in Chapter 11 bankruptcy proceedings. Many of its best and brightest had jumped ship to a new firm. S3's own business -- making software for nuclear power plant simulators -- was bleeding red ink and the company itself was ripe for a foreign takeover.

What a difference two years makes.

Now, S3's successor, GSE Systems Inc., based in Columbia, is mapping out a strategy for expansion.

Shored up by an initial public offering in July that raised about $20 million, GSE is nearly debt-free, is making a profit and is moving into what it sees as a potential $4.5 billion market. It has a work force of about 545, with 220 in Columbia, 180 in Hunt Valley and the rest scattered among locations in Sweden, the United States and the rest of the world.

"It was truly an effort of a number of others who believed in our vision," said William E. Kuhlmann, GSE's chairman and chief executive officer, sitting in the company's imposing 155,000-square-foot brick and glass building in a Columbia business park. "One reason I'm here is to fulfill that vision."

The saga of GSE started in 1988 when S3's parent, the 140-year-old Singer Co., a defense contractor that had sold off its famous sewing machine operation in 1986, succumbed to a hostile takeover by Paul A. Bilzerian, a 37-year-old Tampa, Fla., corporate raider who planned to make a profit by selling off the company piecemeal.

S3, part of Singer's Link simulator division, specialized in making the software for multimillion-dollar replicas of nuclear power plant control rooms. These control systems, which stretch for 60 to 90 feet and cost from $6 million to $19 million, are not connected to reactors but to computers that simulate them.

But Mr. Bilzerian's plans went awry, and the company, renamed Bicoastal Corp., filed for Chapter 11 bankruptcy in 1989. Mr. Bilzerian was convicted of securities fraud in other deals not connected to Singer.

Unhappy with developments, some of S3's key employees bailed out to set up a competitor, GP International Engineering & Simulation at General Physics Corp., another Columbia company that provides professional services to utilities and government agencies.

And S3, now contending in a tougher international market, started cutting its bids -- to the detriment of its bottom line. At the same time, potential customers shied away because of the )) financial problems of its parent company. By 1993, S3 was ripe for picking by a foreign competitor.

Then ManTech International Corp. and Mr. Kuhlmann stepped into the picture.

ManTech, a privately held consulting and technical company in Fairfax, Va., with annual sales of about $300 million, was looking to expand its simulator business, then limited to desktop models. It retained Mr. Kuhlmann, 52, to give S3 the once-over, and he came away impressed.

ManTech went ahead with the deal, buying S3 for $5 million and installing Mr. Kuhlmann, a former consultant and chief executive of General Physics, as chairman and chief executive.

Critical to the deal was a state guarantee of $2 million worth of loans and its help getting financing from the Export-Import Bank of the United States.

"We probably couldn't have done it without the help of the state," Mr. Kuhlmann said.

ManTech then brought in the parent of General Physics, National Patent Development Corp., and EuroSim AB, a subsidiary of the Swedish government-owned utility Vattenfall AB, as partners in the newly named GSE Systems, with ManTech and National Patent each holding 45 percent and EuroSim 10 percent of the company's stock.

Rolf M. G. Falkenberg, the former president of engineering and executive vice president of Vattenfall AB, was installed as president and chief operating officer.

Strategic acquisition

Secure in its new ownership, GSE, mindful of the nuclear power industry's cloudy prospects, set its sights on building simulators for other industrial operations, ranging from oil pipelines to steel making.

To crack these markets, GSE acquired the process solutions division of Texas Instruments Corp. in December for $8.8 million.

Based in Hunt Valley, this division makes software for the control panels of industrial operations -- known as process controls. Now, the division will be able to offer software for both real and simulated operations -- something that is offered by few of its competitors, Mr. Kuhlmann said.

The acquisition also nearly doubled GSE's revenues to $41.8 million for the first six months of the year, compared with sales of $23 million for the same period a year ago.

With cost cutting -- including laying off 30 to 40 workers -- and the completion of money-losing contracts, the combined operations went from a pro forma loss of $7 million in 1993 to a profit of $1.6 million last year.

The company's balance sheet, however, still showed the effects of years of losses, with a corporate net worth, or stockholders' equity, of minus $3.5 million.

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