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The company:

Fortress International Group, Inc. (OTC:FIGI) consults, plans, designs, builds and maintains mission critical facilities, such as data centers, call centers, network operation centers, communication facilities, where security is critical and where redundant electrical, telecommunication and mechanical systems are necessary to ensure 24X7 on line availability. It offers knowledge for electrical, mechanical, telecommunications, security, fire protection and building automation systems. The services offered by the company include technology consulting, design and engineering/planning and programming, construction management, and facilities management. The company has a broad, diversified, blue chip customer base in both public and private sectors.

Investment thesis:

I think that the company has huge opportunity as the rapid growth in cloud computing creates increasing capital investments in data centers (because aging legacy centers cannot accommodate new technology).

Because of its improved business model, I think that FIGI stands a very good chance of capitalizing on these trends. Recurring business is growing in absolute and relative importance. The company closed 2010 with 37 service agreements, providing annual recurring revenues of $6 million. There is a dramatic shift in revenues underway from the lower-margined construction management business to higher-margin facility management and consulting/engineering. Through better expense management, the company was able to turn profitable in 2010 after many years of losses.

Company finances are excellent. FIGI has no bank debt and a growing cash balance, currently $11.2 million.

Recent developments support the thesis:

During the second quarter, the company booked over $29 million in new business. More recently, FIGI announced a design win for a 399K square foot mission critical facility owned by Westplan. Both of these developments pave the way for substantially more - and more profitable - business over time.

Takeover appeal:

On April 5th, international energy management giant Schneider Electric (OTCPK:SBGSY) ($15 billion in revenues) acquired privately-held Lee Technologies, a company comparable to FIGI. This acquisition confirms the growing interest, and the desirability of participation, in this space. Although no financial details of the transaction were released, based on my conversations with industry contacts and applying an estimated comparable valuation, my "guesstimate” is that FIGI could be worth over $3 a share in a buyout scenario.

Disclosure: I am long OTC:FIGI.