CACI's $1.3B purchase of Azure Summit born out of familiarity

CACI International has prioritized electronic warfare and the electromagnetic spectrum in the current iteration of its strategy and vision for the company, which should not surprise given ongoing conflicts in the world.

Back in July, the technology-centric nature of those conflicts and CACI’s approach for tech investments were featured in a Q&A with their chief executive John Mengucci. That conversation with WT’s boss Nick Wakeman headlined our event focused on the 2024 Top 100 rankings.

“Anything in the electromagnetic spectrum, anything electronic warfare related, cyber. We are always looking for those capabilities,” Mengucci said in that Q&A.

Reston, Virginia-headquartered CACI has taken a massive step in that direction with its agreement announced Monday to acquire Azure Summit Technology for $1.275 billion in cash.

Azure Summit opened for business in 2007 as a provider of radio frequency hardware and software-centric technologies for use in platforms such as uncrewed and crewed aircraft, along with maritime systems. The company employs approximately 300 people today.

During a conference call with investors also Monday, Mengucci described Azure Summit as having grown from being a tier-two supplier to original equipment manufacturers into a now-tier one prime for programs of record.

Case in point: Azure Summit is the prime contractor on the Navy’s Ship’s Signal Exploitation Equipment Transition Production program. The company booked that five-year, $697.4 million award in the spring of 2022.

SSEE is a cryptologic system that the Navy uses to carry out real-time signals intelligence analysis and acquire geo-location data. Azure Summit’s portion of the work covers SSEE’s Increment F, which covers the manufacturing and installation of the technology onto vessels.

The Army and Air Force also represent core customers of Azure Summit.

Mengucci told analysts Azure Summit is also a partner for Spectral, a $1.2 billion Navy contract that CACI is the prime on, which focuses on software development for shipboard systems.

“It’s safe to say that they would have bid on programs that we were ramping up on,” Mengucci said. “Part of competing against each other is where you get to understand the depth and breadth of what another acquisition could be bringing to us.

“You also have to always be listening, always be thinking, that’s what flexible and opportunistic capital deployment is, that’s what a strategic acquirer does,” Mengucci added.

Which means CACI had something of an early look at what Azure Summit is doing now and an idea of potential directions to go in if an acquisition ever materialized.

“I really wanted to fill that gap of making sure that from kilohertz and gigahertz across every domain -- land, air sea and space -- we have this area covered,” Mengucci added.

CACI sees Azure Summit as contributing approximately $440 million in revenue and $110 million in EBITDA (earnings before interest, taxes, depreciation and amortization) over the next 12 months, according to an investor presentation.

The timing of this CACI announcement follows what Army Secretary Christine Wormuth told a Stimson Center audience on Thursday. During a talk there, Wormuth said the Army planning to seek a “a significant increase in investment” for electronic warfare and other related capabilities such as UAS.

For that particular Army customer: Mengucci said Azure Summit is involved in programs of record focused on intelligence, surveillance and reconnaissance.

With Azure Summit about to be in its fold, CACI is also looking to further accelerate how it gets software onto the systems and platforms fielded by military service branches. Mengucci cited software for radars, sensors and uncrewed systems as examples to consider.

Many of those efforts are funded through the operations-and-maintenance pieces of the budget as opposed to those more focused on new development.

“Think modernization through sustainment, think easier, think able to do a lot with a lot less oversight, but much more punch,” Mengucci said. “Not only can we bring our capabilities to platforms we're not on they can bring their hardware also to the platforms that we reside on today.”

CACI expects to close the acquisition in the fourth quarter of this calendar year, which is the second quarter of the company’s current fiscal year.

Prior to Azure Summit, CACI's most recent acquisition was that of ID Technologies for approximately $225 million in January 2022. That transaction was all about secure communications and enabling commercially-built mobile devices to work on classified networks.

Macquarie Capital acted as the lead financial adviser to Azure Summit.