CACI to chase bigger deals

CACI International

Headquarters: Arlington, Va.

Leadership: Jack London, chairman and CEO

www.caci.com

WHAT CACI HAS

2003 revenue: $843.1 million

2004 revenue projection: $1.4 billion

Washington Technology Top 100 rank: 19

Employees: 7,500

Lines of business: Homeland security, systems integration, managed network services, information assurance, engineering and logistics, intelligence solutions, knowledge management, and vision and solution centers

Major customers: Army, Navy, Coast Guard, Justice Department, defense and intelligence agencies.

WHAT CACI IS GETTING FROM AMS

Revenue: $250 million

Employees: 1,667, including 900 with security clearances

Lines of business: Acquisition and procurement software, financial management tools, engineering and logistics

Major customers: Major defense agencies and the Air Force, Army and Navy

"The logistics for this is going to require a lot of sophisticated contracting, purchasing and procurement systems, and that's why I'm acquiring AMS ? because they are at the center of that." ? Jack London, CACI chairman and CEO

Olivier Douliery

London will use AMS buy to expand defense logistics business



Systems integrator CACI International Inc. plans to compete for federal contracts two to three times larger than those it has won in the past, after it completes its acquisition of American Management Systems Inc.

The deal to buy the IT consulting and service firm is the largest to date for CACI, and is only the latest in a long string of acquisitions for the Arlington, Va., company.

CACI's purchase of the assets of AMS' Defense and Intelligence Group for $415 million is part of a complex deal in which CGI Group Inc. of Montreal is buying AMS' commercial and nondefense government business for $858 million.

The deal, announced in early March and slated to close in May, will make CACI one of the largest information technology services providers for government defense and intelligence agencies.

"It moves CACI into a different plateau," said Jack London, CACI's chairman and chief executive officer. "We're out in front of the market again in the area of technology that is going to support outsourcing and transformation, and it will be a good, strong business for us."

London said the company will bid on contracts that are double or triple the amount of previous wins, such as last September's $154.7 million Army contract to help combat commanders collect intelligence and organize countermeasures to enemy communications and intelligence systems.

With AMS' defense group on board, CACI will be better positioned to compete for military projects related to network-centric warfare, which calls for the use of tactical intelligence, IT and logistics information as weapons.

As the Defense Department morphs into an agency that can move assets and resources more quickly to battle zones around the globe, the military services will outsource functions such as logistics, inventory and transportation support, leaving troops to concentrate on combat, London said.

"The logistics for this is going to require a lot of sophisticated contracting, purchasing and procurement systems, and that's why I'm acquiring AMS -- because they are at the center of that," London said with all the zeal of a four-star general planning the attack of a lifetime. CACI is now raising capital from bank lenders to make the purchase, London said.

With AMS' defense group, CACI will add 1,667 employees -- about 900 with security clearances -- to its base of 7,500 workers.

The deal also will bump up CACI's defense business to 71 percent from 64 percent, while its federal civilian agency business will drop from 29 percent to 23 percent, and its commercial and state and local business will hold at around 6 percent, London said.

In total, CACI is eyeing more than $3 billion in deals at present in the intelligence community and in areas of the Defense Department where it has business, as well as network communications contracts and large-scale systems integrations contracts, London said.

The contracts CACI has received so far this year include:

*An estimated $31 million contract March 24 to provide the Air Force with technical support and systems integration

*A $70-million subcontract last month from EG&G Technical Services Inc. of Gaithersburg, Md., to integrate logistics for the Navy's Fleet Technical Support Services Center

*A $30-million contract in February to integrate data and develop a data production repository for the Navy

*$60 million in new contracts in February from national security clients for technical support for systems integration, information assurance and command and control systems.

For fiscal 2003, ended June 30, 2003, CACI had $843 million in revenue, a 24 percent increase over $681 million for fiscal 2002. Absorbing AMS will push CACI to about $1.4 billion in annual revenue and help it move toward a goal of $2 billion in 2008, London said. The company hopes to maintain its long-term growth rate, now at around 20 percent.

Increased government spending on defense-related IT has boosted much of that growth, as the Sept. 11 terrorist attacks and other acts of global terrorism have made new technologies a priority in this area.

To satisfy the demand, CACI has snapped up companies with $20 million to $80 million in revenue, which offer distinctive technologies and employees with much-coveted U.S. government security clearances.

The AMS buy, CACI's 26th acquisition, aligns with the company's program of expansion through mergers and acquisitions.

Deals from earlier this year include CACI's purchase March 1 of CSM Information Services Inc., a Vienna, Va.-based IT consulting firm for government agencies. In January, CACI purchased MTL Systems of Dayton, Ohio, a provider of engineering and integration services primarily to the Defense Department. Both deals were for undisclosed amounts.

But don't look for CACI to make further purchases during the rest of 2004. The company will spend the next six to nine months integrating AMS before actively soliciting other takeover prospects, London said. Should the deal fall through, however, CACI has its sights set on two or three other defense-related firms, he said.

Industry analysts said that after the AMS integration, CACI undoubtedly will -- and must -- resume its ongoing acquisition spree to maintain its double-digit growth rate.

CACI "did grow easily during the last couple of years while the federal spending spigot was open; but going forward, it will require a significant amount of growth, meaning acquisitions," said Jon Kutler, chairman and chief executive of Jeffries Quarterdeck, an investment banking firm in Los Angeles.

But for CACI, getting bigger might enhance its own appeal as an acquisition target.

"Once you hit the $1 billion market, you're in the prime acquisition candidate category," said Alex Hamilton, an equities analyst at Advest in New York.

Staff Writer Roseanne Gerin can be reached at rgerin@postnewsweektech.com.

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