Rumors swirl around BAE buy of CACI

If the rumors prove true and BAE Systems Plc buys CACI International Inc., the deal would push the British aerospace and defense conglomerate into the top tier of U.S. government IT companies, analysts said.

BAE Systems has been holding talks with CACI for the last few months about a possible acquisition, a British business newspaper reported May 14.

CACI is No. 13 on Washington Technology's 2006 Top 100 list of federal IT prime contractors with more than $1 billion in revenue from government IT contracts in 2005. BAE Systems Inc., the American unit of the British company, is No. 11 with almost $1.4 billion in revenue from federal IT contracting.

Acquiring CACI, which had overall 2005 revenue of $1.6 billion, would give BAE the IT capabilities to compete head on with General Dynamics Corp., Lockheed Martin Corp. and Northrop Grumman Corp., said Jerry Grossman, a managing director of the Washington office of Houlihan Lokey Howard & Zukin. He also is co-head of the firm's aerospace, defense and government group.

CACI and BAE would be a good match, and BAE would get "a well-run, profitable company with a lot of people with security clearances," said Paul Lombardi, president of InPower LLC, a local consultancy that advises executives about strategic planning and merger and acquisition strategies. CACI reported net earnings of $85.2 million in 2005.

The deal also would continue the surge of major platform providers looking to get into the defense and intelligence IT markets, said Paul Serotkin, president of Minuteman Ventures LLC, a mergers and acquisitions advisory firm that specializes in the federal market.

Several other large companies that are typically focused on aerospace and defense in recent years have been gobbling up IT companies in the federal market. L-3 Communication Inc. of New York bought Titan Corp. last year, and General Dynamics is in the process of acquiring Anteon International Corp. of Fairfax, Va.

BAE Systems has publicly discussed its strategy to expand the company's presence in the United States through acquisitions. It doubled its size in March 2005 when it bought United Defense Industries for $4.2 billion.

The U.S. unit, based in Rockville, Md., is looking at up to 20 prospective acquisitions at any one time, Lucy Reilly Fitch, vice president of corporate development, told Washington Technology last month.

BAE Systems declined to comment on whether it has been holding talks to possibly acquire CACI International Inc.

"We don't comment publicly on speculation regarding acquisitions, divestitures or merger," said John Measell, director of public relations at BAE Systems North America.

CACI issued a statement May 15 that it "does not comment on the existence of nonexistence of potential merger and acquisition transactions in the market place."