- Dec 1, 2005Dear Friends,
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Love and Light.
How homeland security became the biggest market opportunity since the dotcom boom.
By Evan RatliffPage 1 of 4 next »
A terrorist would kill for this view. The 11th-floor office of Fortress America, an Arlington, Virginia, company located at the heart of the disaster economy, is surrounded by opportunities for mayhem.
To the west, the suburbs of Washington, DC, sprawl toward Dulles International Airport, the transit point for 63,000 passengers a day. The Pentagon lies a few miles southeast, and still higher-profile targets - the White House, Capitol Hill - are just east, across the Potomac. At the base of the building, a DC Metro station handles thousands of commuters every day.
But when Tom McMillen looks out these windows, he sees different opportunities - for baggage screening machines, biological and nuclear sensors, data analysis software, video surveillance, and high tech gear for emergency personnel. McMillen founded Fortress America last winter as a corporate shell, or so-called blank check company. In July, with no product, no revenue, and certainly no profits, he managed to raise $46.8 million in an IPO based on a simple promise: to spend at least $30 million acquiring a company in the business of preventing, deterring, or cleaning up after a disaster. Now he's looking for somewhere to invest the money.
At 611, McMillen is a commanding presence with white hair and an imposing baritone. His résumé is a fantasy combination of sports, politics, and business: Rhodes scholar, NBA first-round draft pick, 11-year career as a center on four teams, three-term US representative from Maryland, successful Beltway businessman. But on a September afternoon in Fortress America's offices, crammed into an ergonomic chair, he's basically a team of one. "We're still staffing up in here," he says, waving a long arm toward a room of vacant cubicles. Actually, McMillen has no plans to hire anybody. There wouldn't be much to do anyway.
So how does someone raise millions in the public market with nothing more than a vague pledge to buy something? The answer to that question stretches back to 1972. "I was very young, 20 years old," he says. He was playing for the US basketball team at the Munich Olympics when 11 Israeli athletes were taken hostage by Palestinian terrorists. All of the hostages died, two in their room, the rest in a bungled rescue attempt at the airport. "At the time I said to myself, it won't be long before this comes to America," McMillen recalls. "It took 30 years."
During that time, he says, as Europe and Israel began fostering strategies to defend themselves against terror, the US failed to develop the mentality - or technology - to protect its citizens. After 9/11, McMillen decided it was time to suit up. Fortress America is one of three ventures he founded to capitalize on a society increasingly preoccupied with disaster. Global Secure, which he helped start in 2003 by combining three smaller companies that sell first-responder training, technology, and equipment, filed for a $100 million IPO in August. (McMillen now has no official role with the company but remains one of its largest shareholders.) The company's prospectus says it anticipates more than $15 billion in federal spending in the "critical incident response marketplace" in the next year. In August, McMillen took over a company called Celerity Systems, turned it into a Fortress America-style outfit focusing on acquiring startups for less than $30 million, and promptly renamed it
Homeland Security Capital.
To run Fortress America, McMillen, a Democrat, has assembled a team of advisers that includes former Republican senator Don Nickles and former Republican representative Asa Hutchinson, who also served as an undersecretary at the Department of Homeland Security for two years. About $40 million of the IPO money sits in an escrow account, while McMillen and the company's CEO, a tech industry veteran named Harvey Weiss, sift through acquisition targets. "There were probably a thousand new companies on September 12 that didn't exist on September 10, repackaging what they knew as an antiterrorist or homeland security initiative," says Weiss. "A lot of those failed. But the government has spent a lot of money in research and development, giving very bright PhDs and laboratories a lot of dollars to develop new things quickly."
McMillen and Weiss aren't the only ones combing the homeland security landscape. In fact, Fortress America isn't even the only blank check corporation in the building. Richard Clarke, former counterterrorism czar and author of Against All Enemies: Inside America's War on Terror, has a firm called Good Harbor Partners that's headquartered eight floors down. Clarke is taking Good Harbor public even though, like Fortress America, it's little more than a promise to be a holding company. The firm's prospectus says it plans to use its cash to acquire a firm that specializes in areas like "threat management, crisis management, and risk mitigation."
Welcome to the homeland security industrial complex, a world where doomsday scenarios double as marketing pitches, patriotism mingles with capitalism, and the spoils go to whoever can placate a skittish society. "The best thing that will happen is that we will never have a nuclear event in the United States, never have a sarin gas event," Weiss says. "But do you know how much money is going to be spent" preparing for such events? "It's only a matter of time before someone finds something bad in a container coming through the port of Baltimore, Charleston, or Long Beach."
A decade ago, optimism about how technology would connect the planet, reinvent commerce, and revolutionize society gave rise to the dotcom boom. When optimism turned into fevered speculation, the economy crashed. Now another mania is taking hold. It's predicated on fear and funded by a drive to defend against, prepare for, and recover from perils both man-made and natural, real and imagined. For every nightmare scenario - a nuclear weapon in a shipping container, a suicide bomber in the subway, an avian flu pandemic, another killer hurricane - there are entrepreneurs and venture capitalists and consultants promising to help. And the government is ready to spend money to confront these problems - or at least to look like it's doing so.
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