Anteon Merger Sets Off Deal Talk

More Activity in Sector Predicted

In a market that's become accustomed to a steady pace of pricey deals and high-profile mergers, General Dynamics Corp.'s proposed $2.1 billion purchase of Anteon International Corp. pushed up the stock of other likely acquisition targets and touched off a new round of speculation about which firm would be sold next.

On Wednesday, when the deal was announced, stock prices of four of the Washington area's largest independent technology contractors -- CACI International Inc., SRA International Inc., ManTech International Corp. and SI International Inc. -- rose significantly. Executives of the companies have hardly hung "For Sale" signs out their windows, but investors and analysts are already betting that there are more deals to come.

"They all make an attractive acquisition," said Joseph A. Vafi, an analyst with Jefferies & Co. "This government area, nothing is like it in terms of the transaction activity and ongoing speculation about future activity."

There is no one combination that analysts see as an inevitable pairing. Just as the Anteon deal seemed to fall together quickly, recent talks between Lockheed Martin Corp. and Computer Sciences Corp. ended without an agreement.

Yet analysts say virtually any of the large technology contractors would be valuable additions to defense companies trying to diversify.

SI International's broad information-technology business and ManTech's contracts with intelligence agencies make them both attractive to larger companies, according to industry analysts. CACI International could reach $2 billion in revenue soon, making it the largest among the mid-tier players and an especially tempting merger target, they said. Even San Diego-based Science Applications International Corp., which has filed for an initial public offering, is not out of the running as a merger prospect for a defense firm, some analysts added.

Companies such as CACI and ManTech have been active acquirers themselves, and some industry experts predict it is this mid-tier set of technology contractors that will be the biggest buyers in the months ahead as they look typically for smaller firms that add expertise, employees with security clearances and existing contracts.

"Everybody pays attention to the $1 billion deal, but the activity has been much more brisk for the smaller companies," said Thomas Meagher, a government technology analyst for Friedman, Billings, Ramsey & Co.

ManTech's spokesman said the company thinks of itself "as an acquirer, not as a company to be acquired." And SI International's chief financial officer, Thomas E. Dunn, said that while his firm is "not for sale," the company's board serves its shareholders and would consider a sale if it was in their best interest.

"Most companies in the market today either think of themselves as potential buyers or potential sellers or both," said Stan Z. Soloway, president of the Professional Services Council, an industry organization. "And all of them are having that internal strategic discussion constantly." Since 2002, 280 government-technology firms have been snapped up in acquisitions, 39 in the Washington area just this year.

The dealmaking is not limited to publicly traded companies.

Shiv Krishnan, chief executive of Indus Corp., a Vienna firm that provides software engineering and data-mining services to federal agencies, said rarely a day goes by without a call from a larger contractor or private equity firm interested in buying his company.