Should CACI be your role model?
By
Nick Wakeman
CACI International's track record of making acquisitions to drive growth is one of the more alluring promises of an aggressive M&A strategy.
If you want to understand the allure of making acquisitions in the government, just look at CACI International’s second quarter results.
Revenue is up 27.3 percent, going from $830.4 million to $1.058 billion. Operating income is up 44.6 percent, from $55.5 million to $80.3 million. Net income is up 39.3 percent, going from $30.5 million to $42.4 million.
The increase in revenue is almost entirely from its acquisition of L-3 Communication’s National Security Services business, which added $270 million in revenue. That $550 million deal closed in February 2016.
The NSS acquisition also gave boost to operating and net income, but CACI also benefited from the absence of a one-time expense in the second quarter of 2016.
In its quarterly report, CACI also touts $1.6 billion in contracts, 85 percent of which were for new business. One of those new business wins was huge – a task order with a $1.8 billion ceiling to support the Joint Improvised-Threat Defeat Organization. CACI only recorded $875.6 million from that contract towards its backlog.
The company lists several other wins that were helped by the NSS acquisition, even though the company doesn’t identify them that way. NSS brought significant C4ISR, cyber and intelligence capabilities and many of the company’s wins relied on those types of capabilities.
CACI definitely has shown over the years that it knows how to use acquisitions to build its business, but its quarterly numbers also hint at the challenge.
The company ties $260 million in its increased revenue to the NSS acquisition. So if you back that out, the company’s revenue actually shrank. CEO Ken Asbury told investors that the lack of organic growth is from the company walking away from lowest price competitions.
With the acquisition of NSS and early Six3, CACI has been using acquisitions to add revenue but also to add capabilities to pursue higher end work. The contract wins seem to be validating that strategy.
But the real validation will come when organic growth kicks in. The company is expecting that and has increased its fiscal 2017 guidance to the $4.1 billion to $4.3 billion range. And if CACI makes organic growth happen, it will indeed be the M&A model to emulate.