ManTech International Corp. last week spelled out some bottom-line damage created by the post-Sept. 11, 2001, merger mania in the government contracting field, as companies scrambled to buy their way into the booming intelligence and anti-terrorism field.
For the first time since becoming a publicly traded company in early 2002, ManTech reported a money-losing quarter. The problem, the Fairfax contractor said, stemmed not from its core technology services business but from unexpected complications with the security clearance business it entered through the purchase of MSM Security Services Inc. of Greenbelt last spring.
Interrogation services provided by Premier Technology Group propelled its purchaser, Arlington-based CACI International, into the public spotlight.
(Joe Skipper -- Reuters)
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Other local companies have had unpleasant surprises from acquisitions. Among them are CACI International of Arlington and Lockheed Martin Corp. of Bethesda.
Contractors embarked on acquisition sprees in the past two years to keep up with shifts in government spending priorities toward anti-terrorism and intelligence initiatives and the war in Iraq.
Last year government technology companies completed 85 acquisitions, up from 47 in 2001. Defense contractors bought 71 companies last year, compared with 38 in 2001, according to Houlihan Lokey Howard & Zukin, a McLean investment banking firm.
And the pace has not slowed. In the past 12 months, technology and defense contractors have completed nearly 200 acquisitions -- more than all the deals in 1998 and 1999 combined.
Before the Sept. 11, 2001, attacks, many government contracting firms provided information technology and other products and services that did not involve sensitive intelligence work. Breaking into that secretive and specialized world on their own could have taken the companies years, so many of them set out to gobble up firms already doing such work.
However, the number of companies in the intelligence or anti-terrorism world was limited. So was the number with large staffs of employees holding the necessary high-level security clearances. Competition for firms with either characteristic was intense. Due diligence was complicated because deals were done in such quick succession and portions of the work done by acquisition targets were classified. Beyond the usual challenge of checking out the finances of a potential acquisition, purchasers were faced with imponderables, such as the future course of federal spending and international geopolitics.
Executives with ManTech and CACI have said they exercised proper due diligence before making acquisitions that later proved problematic. A Lockheed spokesman declined to comment for this story.
Others involved in the area's contracting business said red flags raised during the due diligence process were not always incentive enough for contractors to call off a proposed purchase. "Maybe they saw some of the problems but felt the business opportunities were enough to cushion whatever problems they saw," said Claude P. Goddard, a government contracting lawyer with Wickwire Gavin in Vienna.
