After General Dynamics sweetened the deal, the board of directors at CSRA rejected CACI’s bid in response. General Dynamics is set to become a market-leading behemoth in government IT. (Mike Blake/REUTERS)

Beltway defense giant General Dynamics is flexing its considerable financial muscle as the industry prepares for a windfall of new defense spending.

Arlington-based defense contractor CACI International said last week that it had withdrawn an earlier $7.2 billion bid for CSRA, a government information technology services conglomerate, ending a brief bidding war and clearing the way for General Dynamics to become a market-leading behemoth in government IT.

The announcement put an end to weeks of speculation about which government contracting giant would acquire CSRA, which had been engaged in discussions with suitors for more than a year. It also was a reminder of the power wielded by the “Big Five” defense manufacturers, whose sheer scale allows them to outflank even the fastest-growing midsize companies.

CACI executives said they would not stop looking for opportunities to consolidate.

“We will continue our aggressive pursuit of strategic opportunities, judiciously and without engaging in auctions at uneconomic levels,” CACI chief executive Kenneth Asbury said in a statement announcing the news.

The tie-in with CSRA could immediately propel General Dynamics into a market-leading position in federal IT services.

An analysis by Govini, a government contracting market research firm, found that the combined company will have $22.7 billion in federal technology services contracts from fiscal years 2014 through 2017, 22.1 percent more than its nearest competitor.

For some observers, seeing CSRA prepare to be swallowed up by General Dynamics was another example of how a handful of defense giants are starting to dominate the market. The top five contractors by federal sales — Lockheed Martin, Boeing, General Dynamics, Raytheon and Northrop Grumman — got more money from taxpayers last year than the next 50 companies combined, each of them topping $10 billion.

Federal regulators from previous administrations have expressed concern over the issue.

“If a transaction threatens to harm innovation, reduce the number of competitive options needed by [the Defense Department] or otherwise lessen competition . . . [regulators] will not hesitate to take appropriate enforcement action,” the Justice Department and Federal Trade Commission said in a joint statement in 2016.

Frank Kendall, the Pentagon’s top procurement official in the Obama administration, said in 2015 that he fears a future in which the military “has at most two or three very large suppliers for all the major weapons systems that we acquire.” And Bill Greenwalt, a former procurement official in the George W. Bush administration who now works as a consultant, said Thursday that he thinks consolidation is already slowing the pace of innovation.

“From a government perspective, the more competitors you have, the more solutions you get,” Greenwalt said. “When you end up narrowing the bands where one company is dominating one part of the market, it becomes very difficult for others to break in.”

The current situation is in some ways a side effect of federal budgeting.

CSRA can trace its roots to a wave of consolidation that followed the “sequestration” budget cuts after 2013, which capped defense spending for years and made the IT services business less profitable.

That period of depressed revenue did little to diminish the biggest firms’ relative power, however. The Big Five saw their share of total Defense Department contract dollars increase slightly from 28 percent to 30 percent over that period, the Center for Strategic and International Studies found.

Midsize and large contractors lost market share by comparison. CSRA was created as part of that wave of consolidation, as an IT contractor called SRA merged with the government services unit of Computer Sciences in 2015.

Then in early 2017, less than two years into CSRA’s life as a stand-alone company, the firm started looking for merger opportunities. It struck up conversations with three potential suitors and bought Super Bowl ads to boost its profile.

In February, the bidding war became public when General Dynamics said it sought to swallow up CSRA for $6.8 billion in cash and $2.8 billion in debt, offering $40.75 a share for the company.

CACI countered with its own offer of $44 a share. But CACI’s stock price dropped 7.5 percent on news of the counterbid, suggesting investors would not be as supportive of the move as executives might have hoped.

General Dynamics then sweetened the deal to $41.25 per share and an overall value of $9.7 billion, and the board of directors at CSRA rejected CACI’s bid in response. It wasn’t until days later that CACI formally withdrew its earlier bid, implying it would not try to one-up General Dynamics.

Unless another bidder emerges, the deal is all but finalized.

For some analysts, the brief spat was a reminder of how much influence the top players have. At $4.4 billion in federal sales, CACI is actually smaller than the company it sought to acquire, suggesting it stood little chance of outbidding its larger competitor.

“General Dynamics probably all along had more firepower,” said Byron Callan, a defense market analyst with Capital Alpha Partners. “It’s a tough battle to get into with a company with those financial resources and that size.”

General Dynamics has historically relied on big hardware programs, such as the Columbia-class nuclear submarine and the M1 Abrams tank, while its own Fairfax-based IT business has registered revenue declines in recent quarters.

But executives have argued that they are buying into the federal IT market at a time when more defense spending is on the way. The move could also give General Dynamics a crack at the Defense Department’s cloud computing efforts, where hints of a multibillion-dollar, winner-take-all contract is attracting interest from Beltway government contractors and West Coast tech giants.

General Dynamics chief executive Phebe Novakovic told investors last month that the deal made sense for her company, “making it [a] better, stronger, more viable competitor over time — immediately, frankly, we believe — in that IT services space . . . we’re adding to our core.”

“Makes a lot of sense to me,” she said.