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By Nick Wakeman

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Will NSS make CACI bigger and better?

CACI International executives shared some insights yesterday into their reasoning behind its $550 million deal for L-3’s National Security Solutions business, and the success will hinge on three things:

  • CACI’s ability to bring NSS’s cost structure down so it can compete with other pure play IT contractors
  • Winning more large complex projects that leverage solutions and services
  • Leveraging NSS past performance on large managed IT services projects

The company’s first challenge will be NSS’s cost structure.

“The margins aren’t below expectations for CACI,” said John Mengucci, CACI’s chief operating officer and president of U.S. operations. “We have plans to drive synergies of 3 percent through program performance, operational efficiencies and reduced corporate costs.”

NSS should see immediate benefits, CACI CEO Ken Asbury said. “The market has settled to where this is a competitive set of rates,” he said. “Those of us free of manufacturing have adjusted more quickly. The benefit for NSS will be the ability to compete with new rates.”

L-3 has a heavy manufacturing component for its aerospace, electronics and communications businesses, which affected the rates for its IT business.

“We should see a bump in competitiveness almost immediately as we enact the synergies,” he said.

While the company didn’t offer specific examples of where it find the synergies, they were optimistic that they would have NSS margins comparable to the rest of CACI’s by the time the company’s fiscal 2017 begins on July 1.

“They have a great mix of solutions and services that will support improved margins,” Mengucci said.

Those solutions and services, especially around enterprise IT, were a major attraction for CACI.

“NSS fills very specific capability gaps,” Mengucci said.

The company has a number of large managed IT services projects that CACI sees as platforms for growth. Mengucci cited as an example NSS’s work providing classified and unclassified network services for 30,000 deployed warfighters. This includes 8,000 network devices and 25,000 work stations.

The long-term trend in the market is toward more managed services and cloud solutions. “NSS market credentials will put us in a strong position for these opportunities,” Asbury said. “NSS’s scale with next generation IT puts us at a level where there is no program size we can’t pursue.”

Other enterprise IT areas Mengucci mentioned included Agile software engineering and development capabilities, systems integration and development, operation and maintenance transformation.

NSS also brings cyber capabilities such as high-performance computing, network protection, mobile security and network virtualization.

In the intelligence area, CACI is picking up new capabilities in intelligence collection, data fusion, training, mission support and staffing and knowledge management.

NSS work on large enterprise IT programs was what first drew CACI to NSS, Asbury said.

“NSS carries high strategic value for CACI,” he said. “The combined capabilities strengthen our ability to compete and win next generation IT projects.”

Mengucci and Asbury pointed to NSS high win rate on recompetes as another important factor, and they plan to use NSS’s past performance to pursue larger projects.

“They have significant long-term intelligence and national security relationships,” Asbury said.

Particular skills that CACI hopes to leverage include NSS expertise designing global markets, cloud security architectures and complex computing solutions.

“They will help us pursue higher value solutions and services opportunities across DOD, intelligence, national and civilian customers,” he said.

The deal is expected to close between now and the end of March. L-3 has told CACI there are certain parts of NSS that it will likely keep. Asbury also said there are parts that CACI will need to divest because of organizational conflict of interest concerns.

But even with those so-called puts and takes, CACI still expects to pick up about $1 billion in new revenue. Once combined, CACI will have total revenue of close to $4.4 billion.

Posted by Nick Wakeman on Dec 09, 2015 at 1:02 PM


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