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Acquisition Positions Software Firm for Expanding Its Services

The $20,000 of credit card debt that served as the catalyst for DefenseWeb Technologies has paid for itself long ago.

A decade after launching in 1998, the San Diego-based company was acquired last month by Humana Inc. for an undisclosed amount, and Chief Executive Officer Doug Burke says the company will operate as it has in the past.

“We were looking for a company that would allow us to be a subsidiary and continue to do what we do well , build software,” said Burke, who remains as CEO.

DefenseWeb makes software for the Department of Defense’s quality of life programs.

The software lets military members do everything from find a plumber to get credit card debt counseling or manage health care information. It’s different than searching the Web, Burke said, because the answers and information come directly from the government.

The technology was developed internally and the company took no venture capital, he said.

DefenseWeb has 70 full-time employees, including 55 in San Diego and some in Washington, D.C., and San Antonio.

The firm doubled its revenues each year for the past three years. Burke estimates revenues of $23 million this year , again, nearly double the prior year.

Kevin Carroll, executive director of the San Diego chapter of the American Electronics Association, known as the AeA, said the acquisition will allow Louisville, Ky.-based Humana to access advanced technology. Humana sells health insurance coverage to the government, employer groups and businesses.

“The military is ahead of the private sector in many aspects of the electronic health care industry,” Carroll said. “The government has put a lot of money into it. Humana is able to buy a real electronic leader and pick up all these best practices.”

Several financial analysts who cover Humana said they either hadn’t heard about the transaction, which became final March 1, or didn’t feel knowledgeable enough on it to comment for this story. Humana said it will have no material effect on its earnings for 2007.

DefenseWeb competes with giant defense contractors like San Diego-based SAIC and HNC Software Inc.

Burke said DefenseWeb is the only company that works exclusively with the Defense Department’s health care, quality of life and family support organizations.

He said it’s that narrow focus that has allowed the company to become so competitive.

“No matter how you feel about the war, we’re doing great things for Department of Defense families,” he said. “It’s a really good mission that everyone is extremely proud of.”

Burke joined DefenseWeb in 2003 with the goal of growing and selling the company.

Upon his arrival, he reviewed options for expanding services to the private sector, but the company decided there was too much risk.

The technology would have to be significantly modified, a separate sales force and marketing team would need to be added, and there is more competition in the private sector, Burke said. He wrote about the decision for Chief Executive magazine in 2006.

DefenseWeb will operate under Humana’s Humana Military Healthcare Services. Humana ranks No. 150 on the Fortune 500 list with revenue of $14.4 billion.

DefenseWeb founder Paul Cavanaugh left with the acquisition, the company said.

The acquisition means DefenseWeb will have the resources to take a bigger risk , expanding its services to other government departments. But marketing to corporate America will have to wait, Burke said.

“We will broaden services to Veterans Association, Health and Human Services and Homeland Security,” he said.

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