Post-9/11 Mergers Brought Problems

Interrogation services provided by Premier Technology Group propelled its purchaser, Arlington-based CACI International, into the public spotlight. (Joe Skipper -- Reuters)

"We have a very detailed financial approach to this. . . . We run all the 'what if' models. The issue here is not the acquisition, it's that the whole market changed," Pedersen said. But that doesn't mean Pederson is immune from buyer's remorse. "Would I like to have back the decision to enter that business? Yes."

CACI has been an even more aggressive acquirer. It has made seven purchases in the past three years. Recently it has struggled to deal with the fallout from Premier Technology Group Inc., a small Fairfax company focused on intelligence analysis service that it bought in May 2003. The following August, CACI's new subsidiary was awarded a contract to supply interrogators in Iraq.

The deal catapulted the 42-year-old company into the international spotlight when one of its employees was implicated in an Army report on prisoner abuses at Abu Ghraib prison outside Baghdad. In the four months since the abuse allegations surfaced, CACI has been the subject of numerous government investigations.

CACI executives contend that they fully researched Premier Technology Group before buying the firm and maintain that its employees acted properly in Iraq. And the scandal, they say, will not prevent them from using acquisitions to increase CACI's reach.

"There is no intent to go outside the boundaries of where we're currently playing, but there are ample opportunities and target companies to acquire," Stephen L. Waechter, chief financial officer, said in an interview last week. "We're constantly looking at opportunities. . . . At any time there are probably six to eight companies that we're looking at."

Lockheed Martin's November 2003 purchase of some assets of ACS Defense Inc. has also subjected it to scrutiny. Lockheed paid $585 million for ACS's federal units, a division with 5,800 employees that specialized in back-office computer support to intelligence agencies.

ACS provided interrogation support for the U.S. military at Guantanamo Bay, Cuba, under a contract designed for the purchase of information technology products and services. As with CACI's contract in Iraq, the General Services Administration is reviewing whether its contracts were misused to complete the deal.

Lockheed also aggressively pursued Titan Corp., of San Diego, for its long list of intelligence agency customers. But in June, Lockheed called off the acquisition because Titan could not settle a bribery investigation with the Justice Department.

After the cancellation of the merger, Thomas J. Jurkowsky, a Lockheed spokesman, said it was not a decision the company's executives took lightly.

"We did not want the uncertainty that surrounded the transaction to continue indefinitely. We concluded that terminating the agreement was in the best interest of Lockheed Martin and its stockholders," Jurkowsky said at the time.

Executives with government contractors draw differing conclusions from the recent acquisition spree.

SRA International Inc. of Fairfax has bought one company a year for the past three years, a healthy acquisition pace. But chief executive Ernst Volgenau said he resisted pressures to buy more and bigger ones, thinking that the safest way to expand is to grow the company organically.

"It only takes one or two bad apples to do you serious damage," Volgenau said. "The bigger you get, the greater the chances that somebody who appears to be honest and ethical and competent really isn't that way."

But ManTech's executives said the turmoil that resulted from its MSM acquisition will do little to deter it from future purchases.

"We continue to aggressively look for acquisition targets -- particularly in high-end defense and high-end intelligence," Pederson said. In fact, he added, "we're talking as I speak to several firms."