General Dynamics to Buy Anteon

By Renae Merle and Ellen McCarthy
Washington Post Staff Writers
Thursday, December 15, 2005

General Dynamics Corp. announced yesterday that it would buy Fairfax-based Anteon International Corp. for $2.1 billion in cash, capping a year in which 39 local companies have been gobbled up as traditional weaponsmakers transform themselves into technology-oriented hybrids.

The deal is the fifth for General Dynamics just this year, a sign that the Falls Church firm now values defense computer networks and software as much it has traditionally regarded tanks, ammunition and submarines. While Pentagon spending on major weapons is expected to slide in coming years, spending on information technology -- including building computer networks and designing battlefield simulation software -- is on an upward trend, with $200 billion in contracts expected to be awarded next year.

Old-line defense firms have taken note. Nationally, 75 government technology and technical-services firms with a combined value of $8.2 billion have been bought this year, absorbed into companies such as General Dynamics, Bethesda-based Lockheed Martin Corp. and mid-tier players such as Arlington-based CACI International Inc., according to investment bank Houlihan Lokey Howard & Zukin.

"We, in particular, are focused on some areas that we believe are faster moving," said Jerry DeMuro, General Dynamics' executive vice president of information systems and technology. "Anteon brings us the ability to compete and have a greater probability of winning market share in those areas."

The growth of government technology spending and the success of companies such as Anteon have fueled the region's economic boom, buoying the area in recent years even as local telecommunications and Internet companies were hit by the collapse of the stock market. The recent spate of mergers has added a coda of additional wealth to that process -- pumping hundreds of millions of dollars in cash into the hands of local entrepreneurs as their companies combined into larger concerns.

Joseph M. Kampf, Anteon's president and chief executive, for example, held close to 1 million shares of stock and options as of the company's most recent proxy filing in March, which would be worth about $59.6 million under the current deal.

"I believe there is champagne flowing in the homes of more than a few people around Washington tonight," said Anirban Basu, an economist at the Sage Policy Group Inc. who studies the Washington area. "At the end of the day, what it means is there's more cash floating around the Washington area economy, and that can't be a bad thing for business."

Demonstrating the popularity of the technology market and the upper hand held by firms such as Anteon, General Dynamics agreed to pay $55.50 per share in cash, a 36 percent premium on Anteon's closing price Tuesday that some analysts said may not be justified if information technology spending slows. General Dynamics will also assume $100 million in Anteon's debt.

"Like every transaction, I . . . wish I got it a buck and a half cheaper, but Joe wasn't letting me off the hook, and here we have it," said Nicholas D. Chabraja, General Dynamics' chairman and chief executive.

Officials from both companies said they expect the deal to close by the middle of next year, but it first must be approved by Anteon's shareholders and regulators. General Dynamics' local workforce would grow to more than 8,000 with the addition of 2,400 from Anteon. There are no plans for layoffs, according to General Dynamics. Kampf said he would stay with the company.

The deal ends a fast ride for Kampf, 61, a veteran of the government-contracting industry who started Anteon in 1996 with the help of New York private-equity firm Caxton-Iseman Capital Inc. In nine years, the company became one of the Washington region's most well-known local firms, attracting a star-studded board that included former defense secretary William J. Perry and Hugh Shelton, former chairman of the Joint Chiefs of Staff.

It developed a specialty in designing military technology, consolidating 900 Army data centers into a single system, and developing an urban warfare simulator. Anteon also gained a reputation for being an aggressive acquirer, buying a company a year on average.

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