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Intelligence Work Comes to CACI Via Acquisitions

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By Ellen McCarthy
Thursday, July 8, 2004; Page E01

In January 1998, CACI International Inc.'s chief financial officer, James Allen, talked about the company's plans for growth. "We're not in the intelligence community right now," Allen told an MSNBC reporter, but he predicted that the sector would eventually be a "great marketplace for us."

One acquisition and 10 months later, the Arlington government contractor put out a press release trumpeting its surge in revenue from its intelligence business. CACI followed up by buying more intelligence companies, hiring intelligence experts as executives and putting them on its board.

Soon CACI became a significant player in the sector, holding among other things a contract to provide interrogators for the military. That contract drew CACI into the Abu Ghraib prison controversy, subjecting the company to intense scrutiny by the government, investors and the media. But CACI says that despite the controversy, it remains committed to the intelligence market, which it expects to grow.

Federal intelligence agencies spend about $32 billion a year on information technology, but to the uninitiated, breaking into the market and establishing a solid presence can seem like the murkiest of endeavors.

"It's such a tight community that it is tough to break in from the outside. It's difficult to get visibility unless you know who to talk to and what their interests are," said Gwyn Whittaker, chief executive of Mosaic Inc., an Oak Hill consulting firm that helps companies develop business with intelligence agencies.

There is no secret code to open the door, Whittaker and others said. Companies like CACI get in by hiring executives, appointing board members and buying smaller companies that already have been inside. CACI's experience, she said, is a classic example of how most companies do it.

In the late 1990s, information technology services and software development were CACI's major offerings to its government clients. In May 1998 the company announced plans to acquire QuesTech Inc., a 700-employee engineering and research firm based in Falls Church. It was a $42 million deal that positioned CACI "for very important information warfare and intelligence markets," chief executive J.P. "Jack" London said in a prepared statement at the time.

"I just wanted to be part of a growing market. I could see there were areas where the intelligence community would have some needs and requirements to augment their staff," London said in a recent interview.

In March 1999, CACI told shareholders it had been awarded intelligence contracts worth $29 million. In November that year, the company said it would acquire XEN Corp., a Fairfax engineering and design firm whose clientele included national intelligence organizations, for an undisclosed price.

"The easiest way for a company to get into this line of work is to buy a company that's already in this line of work," said John E. Pike, director of GlobalSecurity.org, a defense and intelligence think tank in Alexandria. Acquisitions provide immediate access to intelligence customers and a workforce with experience in the sector, he said.

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