CACI to Expand High-Security Force

By Zachary A. Goldfarb
Washington Post Staff Writer
Tuesday, September 25, 2007

CACI International, an Arlington government contractor, said yesterday it was buying Athena Innovative Solutions, an intelligence-analysis firm with a coveted supply of employees with security clearances but also a controversial past.

The acquisition, valued at $200 million, would give CACI, a developer of technology systems for the Defense Department, intelligence agencies and civilian agencies, a company in which 95 percent of the 600 employees hold top-secret security clearances.

The deal also represents a new phase for Athena, which was known as MZM and ran into trouble after it was linked to the bribery scandal of Randy "Duke" Cunningham, a former Republican congressman from California who is serving eight years and four months in prison.

MZM's founder, Mitchell J. Wade, stepped down in June 2005 after reports suggested he did financial favors for Cunningham while the lawmaker pushed funding for military intelligence programs on which MZM worked. MZM was bought for an undisclosed sum in August 2005 by Veritas Capital, a New York private-equity firm that invests in contractors and defense companies. The company was renamed Athena. Wade pleaded guilty in February 2006 to four criminal counts in connection with the scandal.

"Nobody wanted to touch the company because of its cloud of problems," said Jon B. Kutler, chief executive of Admiralty Partners, a merchant bank in the aerospace and defense industry. Veritas "came in to take that risk and transformed the image of the company."

CACI, like other big contractors, has been on a buying binge, acquiring at least 20 companies since 2004 in the hunt for top-secret security clearances. "You can't duplicate the type of people that Athena has and the clearances it has," said Robert B. McKeon, president of Veritas. "It's a very tight market for these types of clearances. In one fell swoop to be able to buy a company with 600 of them is quite an achievement."

Since Sept. 11, 2001, the demand for such clearances has grown fast as the government outsourced more classified intelligence work. At the same time, the process for obtaining security clearance has grown arduous. A government report in February found that it took, on average, more than a year for top-secret clearance and six months for a lesser clearances. The report said it was "a totally unacceptable length of time" for the 1.9 million clearance requests each year.

CACI said its purchase of Athena is expected to close in November. Company officials declined to comment beyond a news release.

CACI, which had revenue of $1.8 billion in 2006, experienced an unexpected drop in business from the Pentagon and other federal agencies last year. Athena is expected to have revenue of $110 million this year.

CACI shares closed yesterday at $50.98, up 8 cents.

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