WT Business Beat

By Nick Wakeman

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A modest M&A proposal

A thought occurred to me as we worked on our annual M&A special report.
If taken from a size standpoint, the biggest deal was General Dynamics Corp.'s acquisition of Anteon International Corp.

Like many large defense companies, General Dynamics has been an active buyer of information technology services companies over the last 10 years or so. General Dynamics, Lockheed Martin Corp., Northrop Grumman Corp. and others have made large acquisitions that changed their DNA.

But here's my theory ? the General Dynamics-Anteon deal will be the last really big one we see. By big, I mean more than $1 billion.

From this point forward, the major defense contractors don't need to bulk up on large amounts of new IT capabilities since they now have IT businesses with revenue measured in the billions.

Not that they are going to stop making acquisitions. Lockheed Martin made five last year. But now they are looking for deals with niche capabilities and hard-to-reach customers.

Another force working against more mega-deals by General Dynamics and other companies is regulatory hurdles. While General Dynamics and Anteon executives knew from the start that there likely would be some part of Anteon that would be sold off, it took five months of haggling with the government to satisfy regulators.

And big deals are inherently risky. Since these companies have such large technology services business already, the risk-versus-benefits analysis has got to tip toward not doing the mega deal.

I bounced this idea off officials at one of the large defense companies and their response was "Never say never." I received a similar reaction from some investment bankers.

So I could easily be eating my words sometime in the next year. We'll just have to wait and see.

Where I do think mega-deals could happen, and should happen, are among the "pure-play" government services companies.

This is an idea I've kicked around in my head for several years. Why doesn't a ManTech International Corp. and a CACI International Inc. join forces or SRA International Corp. and CACI? Why not Multimax Inc. and RS Information Systems Inc. or Stanley Inc. and SI International Inc.?

Of course, there are objections mainly around cultural and leadership issues, but these could be some powerful combinations.

So I'll make a prediction ? and maybe take on a few more words to eat later ? that we'll see a major merger of equals sometime in the next 18 months.

Posted by Nick Wakeman on Feb 27, 2007 at 9:54 AM

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