Anteon Makes Play in Federal Services Niche

By Nick Wakeman, Staff WriterAnteon Corp.'s plan to acquire Analysis & Technology Inc. is one of several buys the company is chasing as it rolls itself into a multibillion-dollar engineering and technology services company.By the end of the year, Joseph Kampf, Anteon president and chief executive, said he expects to close on one more deal in the range of the $104 million acquisition of Analysis & Technology, North Stonington, Conn.Kampf is on the lookout for strong technology services companies that can bring new customers and new capabilities. About 80 percent of Fairfax, Va.-based Anteon's business is with the federal government, much of it centered on defense.The deal with publicly traded Analysis & Technology, subject to shareholder approval, is expected to close by June 30. Anteon will pay $26 per share for Analysis, or 19.5 times the 1999 consensus earnings per share estimate and 22.6 times 1998 earnings per share.With its latest acquisition, Anteon will grow by 1,700 employees to 4,000. It will also get about $170 million in additional annual revenue, pushing Anteon's yearly revenue to about $500 million."Because of that size, they have really catapulted themselves into the next tier of IT services companies," said Jon Kutler, president of Quarterdeck Investment Partners, Los Angeles, the company that helped seal the deal.Anteon's bid for Analysis & Technology, which provides engineering and technology services to defense and intelligence agencies, bested those of Affiliated Computer Services Inc. of Dallas, DynCorp of Reston, Va., and Titan Corp. of San Diego, according to sources. All three losing bidders have been on an acquisition spree, as has Anteon, one of several roll-up platforms that have formed in the federal market during the last several years. The roll-ups have become widespread as investment groups try to take advantage of consolidation forces in the federal IT market, said Thomas Meagher, a director with investment banking firm Boles, Knop & Co. of Middleburg, Va. Others using this strategy include the Carlyle Group of Washington, which owns Federal Data Corp. of Bethesda, Md.; Fontenac of Chicago, which is backing SI International Inc. of Vienna, Va.; Golder, Thoma, Cressey and Rauner of Chicago, which owns systems integrator Vista Information Systems of Herndon, Va.; and CM Equity Partners of New York, which is backing Averstar Inc. of Burlington, Mass.Caxton-Iseman Capital Inc. of New York is the majority shareholder of Anteon. Anteon, a privately held company, was formed in April 1996 when Caxton-Iseman bought Ogden Professional Services, a $145 million-a-year systems integrator in Fairfax, and changed the named to Anteon. Since then, Anteon has acquired Vector Data Systems of Alexandria, Va., in August 1997 and Techmatics Inc. of Fairfax in May 1998.Many other IT players not backed by large equity groups also are in the hunt for acquisitions, including Nichols Research Corp. of Huntsville, Ala., which closed a deal March 10 to pick up Murray and West Inc. of Chadds Ford, Pa., for an undisclosed amount. Nichols executives said they have at least two more deals in the works for this year.Kampf said he will consider filing for an initial public offering once revenue nears $1 billion, the level that tends to get the right support on Wall Street. Anteon should break $1 billion in annual revenue by the end of 2000 and hit the $1.5 billion to $2 billion range four years later, said Kampf."It isn't necessary that we be public now," Kampf said. "We have plenty of resources available, we have a good team and our business is growing."Bill Loomis, managing director of the technology research group with Legg Mason Inc. of Baltimore, agreed."The farther north you are of $500 million, the easier it is for you [to go public]," he said. A federal company also needs margins of at least 6 percent and a growth rate of at least 20 percent to be attractive in the public market, Loomis said.Kampf said his goal is to grow the company internally by 10 percent to 15 percent a year with acquisitions pushing growth up to 30 percent a year.The company hopes to end 1999 approaching "the $700 [million] or $800-million-a-year run rate," he said. "That is pretty much on target from when we bought Ogden Professional Services almost three years ago." Like Anteon, Analysis & Technology has a strong defense base. More than 80 percent of the company's business is with defense and intelligence agencies, particularly with the Navy, said Gary Bennett, Analysis & Technology's chairman and chief executive. He will run Analysis & Technology as a wholly owned subsidiary of Anteon."We liked the strategic fit we have with them," said Bennett, who noted that while both firms have strong defense businesses, "there is no overlap in the markets we serve."Anteon has a strong base with the Army and Air Force as well as civilian agencies, such as the Federal Emergency Management Agency, Department of Justice, Census Bureau and the National Imagery and Mapping Agency.Analysis & Technology, which provides engineering, information technology and command, control, communications, computers and intelligence services, had been making its own acquisitions up until last April, when it closed a deal to buy Cambridge Acoustical Associates Inc., a Medford, Mass., company with $1.2 million in revenue."Acquiring companies in small, bite sizes was not going to get us to the size we needed to be in this market," Bennett said. "So we decided to look at other alternatives."In September 1998, Analysis & Technology hired Quarterdeck Investment Partners, which ran a limited auction for the company, he said. Anteon was represented by CS First Boston."This deal really pushes Anteon into a position as a market leader in a short period of time," said Kutler, whose company sold Ogden Professional Services to Anteon in April 1996.