Veritas Capital's deal Wednesday to buy MZM Inc., whose founder is under federal investigation, illustrates the value of two of the local defense contractors' prized assets -- security clearances and intelligence contracts, industry analysts said yesterday.

The billions of dollars being poured into intelligence programs since the Sept. 11, 2001, terrorist attacks and the backlog of security clearance applications made the District-based firm an attractive target, despite the controversy surrounding the company, analysts said.

The intelligence market is "the most valuable place to be right now," said Robert D. Kipps, director of investment bank Houlihan Lokey Howard & Zukin's D.C. office. "If it works out, it could be a diamond in the rough for Veritas."

A majority of the company's 420 employees previously worked for the government, said Sam Dunkle, MZM's chief of staff, noting that 85 percent of them have top-secret security clearances. "A lot of the personnel are on second careers," Dunkle said. "Obviously the top-secret [clearance] is a very marketable issue."

MZM's contracts have included support for an intelligence database for the Army's National Ground Intelligence Center in Charlottesville, collecting information about foreign firms supplying equipment to the military, and working for a Pentagon counterintelligence program in Crystal City.

Mitchell J. Wade started MZM in 1993 and stepped down in June after news reports suggested he did financial favors for Rep. Randy "Duke" Cunningham (R-Calif.) while the lawmaker pushed funding in Congress for programs on classified military intelligence programs on which MZM worked. Wade bought Cunningham's home near San Diego in late 2003 and resold it several months later at a $700,000 loss without ever living there. Some publicly traded companies may have shied away from bidding on MZM because of concerns about tarnishing their image, analysts said. As a private-equity firm, Veritas can better weather any bad publicity, and it could structure a creative deal that shields it from liability for Wade's potential legal problems, they said.

Terms of the deal, including the price, were not disclosed. Veritas said it will move the MZM employees and existing contracts into a new company, Athena Innovative Solutions Inc.

"Because of Veritas's credibility, they have an opportunity to move quickly, reestablish credibility and create substantial value," said Jon Kutler of Jeffries Quarterdeck, an investment banking firm that specializes in defense mergers and acquisitions.

New York-based Veritas has been making acquisitions in the defense sector for several years. Last year, it bought Springfield-based McNeil Technologies Inc., an intelligence and security firm; and Wornick Co., which provides military food including MREs (meals ready to eat). Then earlier this year, it closed a deal to buy portions of DynCorp that provide security to foreign leaders and train international police.

MZM's employees considered buying the firm, but that was "not a viable option" because of the cost, said MZM's Dunkle.

No layoffs are expected as the result of the acquisition, but the company may move from its current location in Dupont Circle, Dunkle added. "We're all very excited about the prospects and about where we're headed and feel very confident about our success."