CACI seeks scale and depth in acquisitions

Consolidation strategy opens new doors for integrator

CACI International is back on the acquisition track. The company had been missing from the acquisition market since inking a deal in May 2004 to purchase the defense and intelligence operations of American Management Systems for $415 million.

But lately CACI has revved its engine again. It has purchased two companies and is in the process of buying a third.

In October 2005, CACI completed the purchase of National Security Research (NSR), a company specializing in homeland security and command and control. Two months ago, the company closed the acquisition of Information Systems Support (ISS), a solutions provider pursuing communications and logistics projects.

Also in March, CACI agreed to purchase AlphaInsight, an information technology services firm. That deal is expected to close by the end of June.

“We consider ourselves, at this point, a strategic consolidator,” said Jack London, president, chief executive officer and chairman of CACI. He called the company’s merger and acquisition program a key component of its growth plan, adding that half the company’s expansion during the past five years can be attributed to acquisitions.

Industry watchers said CACI and similar companies that operate below the top-tier firms in the systems integration universe want the ability to undertake larger projects.

Other companies trying to grow through acquisitions lately include NCI Information Systems, SI International and Anteon, which General Dynamics is now acquiring, said Larry Yanowitch, a partner in the Northern Virginia office of Morrison and Foerster and co-leader of the law firm’s Mergers and Acquisitions Group.

“All of those companies are thinking that they need to get to a certain size to be going after the largest procurements,” he said.

“The government is consolidating more and more opportunities and shifting more of the responsibility for managing programs to vendors like CACI,” said Bob Kipps, a managing director at Houlihan Lokey Howard and Zukin, an investment banking firm that specializes in middle- market mergers and acquisitions.

Kipps, who oversees the firm’s aerospace, defense and government group, said contractors need to get bigger to keep up with their government customers’ procurement approaches. Kipps places CACI at the top of integration’s second tier. The top tier includes Computer Sciences Corp., EDS, Lockheed Martin and similarly sized firms, he said.

Wall Street also emphasizes growth, Yanowitch said. Publicly traded companies are under constant pressure from shareholders to grow and thereby increase investment returns. Acquisitions let the companies achieve higher growth rates than they could if they limited themselves to expanding their existing operations. Such organic growth rates typically fall in the 8 percent to 12 percent range. In contrast, CACI reported revenue growth of 44 percent in the fiscal 2005 quarter that ended last March, citing its AMS acquisition.

The AMS deal, the largest acquisition at CACI, lifted the company to the $1 billion revenue mark. The deal also caused the company to put its acquisition efforts on hold temporarily in order to integrate the AMS operations into the firm, Kipps said.

But CACI officials signaled renewed interest in acquisitions a year ago, particularly of companies involved in warfighter support, homeland security and intelligence.

London said CACI considers a company’s market niche and client base when choosing targets. NSR and ISS complement CACI’s national security focus.

Yanowitch said consolidators generally aim to achieve greater depth with a particular customer set, rather than breadth, as they make acquisitions. “Consolidators don’t want to be spread too thinly among customers,” he said. “In most cases they are going for more depth.”

Projects in the national security arena require contract employees with security clearances. CACI’s most recent acquisitions bring in hundreds of such employees.

The majority of NSR’s 100 employees have clearances, while more than 70 percent of ISS’ 1,000 employees hold clearances at the secret level or above. AlphaInsight employs 360 people, and 94 percent of them hold clearances.

“We continue to brand ourselves as a national security government IT services contractor,” London said, adding that companies with a “high content of security clearances” are in demand.

CACI is a buyer of small and midsize companies, London said. Its latest transactions involve companies spanning a revenue range from $17 million to more than $200 million.

The recent string of deals may give CACI an edge at the negotiating table. A potential buyer’s transaction history ranks among the factors a seller considers, Kipps said. Buyers request confidential information from acquisition candidates during the due diligence process.

Buyers with a record of closing deals gain credibility among sellers, who are wary of suitors that are merely fishing, Kipps said.

Click here to enlarge chart (.pdf).


The Fed 100

Read the profiles of all this year's winners.


  • Then-presidential candidate Donald Trump at a 2016 campaign event. Image: Shutterstock

    'Buy American' order puts procurement in the spotlight

    Some IT contractors are worried that the "buy American" executive order from President Trump could squeeze key innovators out of the market.

  • OMB chief Mick Mulvaney, shown here in as a member of Congress in 2013. (Photo credit Gage Skidmore/Flickr)

    White House taps old policies for new government makeover

    New guidance from OMB advises agencies to use shared services, GWACs and federal schedules for acquisition, and to leverage IT wherever possible in restructuring plans.

  • Shutterstock image (by Everett Historical): aerial of the Pentagon.

    What DOD's next CIO will have to deal with

    It could be months before the Defense Department has a new CIO, and he or she will face a host of organizational and operational challenges from Day One

  • USAF Gen. John Hyten

    General: Cyber Command needs new platform before NSA split

    U.S. Cyber Command should be elevated to a full combatant command as soon as possible, the head of Strategic Command told Congress, but it cannot be separated from the NSA until it has its own cyber platform.

  • Image from Shutterstock.

    DLA goes virtual

    The Defense Logistics Agency is in the midst of an ambitious campaign to eliminate its IT infrastructure and transition to using exclusively shared, hosted and virtual services.

  • Fed 100 logo

    The 2017 Federal 100

    The women and men who make up this year's Fed 100 are proof positive of what one person can make possibile in federal IT. Read on to learn more about each and every winner's accomplishments.

Reader comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

More from 1105 Public Sector Media Group