General Dynamics is working to finalize a deal to acquire CSRA, a government IT services conglomerate. (Jeffrey MacMillan for The Washington Post)

Arlington-based defense contractor CACI International said Wednesday that it has withdrawn an earlier $7.2 billion bid for government IT services conglomerate CSRA, ending a brief bidding war and clearing the way for General Dynamics to become a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

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.

A CACI executive said in a statement Wednesday that the company would look for other acquisition opportunities that are more affordable.

“CACI continues to believe that CACI and CSRA would be the superior strategic and financial business combination,” CACI chief executive Kenneth Asbury said in a statement announcing the news. “We will continue our aggressive pursuit of strategic opportunities, judiciously and without engaging in auctions at uneconomic levels.”

[Deal-making accelerates as government contractors jockey for new spending]

CSRA had been looking to be acquired since early 2017, and spoke with three companies including General Dynamics about a potential merger, the company disclosed in a March 13 corporate filing. The company did not disclose the identity of the other two firms due to nondisclosure agreements.

The bidding war burst into the public eye last month when General Dynamics said it sought to swallow up CSRA for $6.8 billion cash and $2.8 billion debt, offering $40.75 a share for the company. Weeks later, CACI announced its own competing offer for $44 a share. CACI’s stock price dropped 7.5 percent on news of the counter-bid, suggesting investors would not be as supportive of the move as executives might have hoped.

General Dynamics then upped its offer to $41.25 per share, increasing the overall value of the deal to $9.7 billion, and the board of directors at CSRA rejected CACI’s earlier bid. 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.

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

The shake-up comes at a time when the federal IT services market appears to be at an inflection point following years of stagnant growth.

[Congress boosts funding for fighter jets, missile defense in military spending spree]

The defense budget is poised to grow significantly under the recent omnibus federal spending deal, and companies like CSRA could benefit from new efforts to modernize federal IT systems. The Pentagon is moving forward with a plan to move its computing networks to the cloud in a winner-take-all contract that could be worth billions of dollars over many years. CSRA is involved in a separate effort to move Defense Department systems to the cloud through a $500 million contract known as milCloud 2.0.

The new federal spending plan promises to breathe fresh life into the federal IT services industry, which was hit hard by the “sequestration” budget cuts that emerged from a 2011 budget deal. CSRA itself was created as part of a wave of consolidation that followed, as what was then known as SRA merged with the government services unit of Computer Sciences Corporation.

[For government contractors, no end in sight to budget uncertainty]

Falls Church, Va.-based General Dynamics, which has relied on big hardware programs such as the Columbia-class nuclear submarine and the M1 Abrams tank, surprised many in the industry last month with its attempt to move more aggressively into the IT services market. General Dynamics’s own IT business, which is based in Fairfax and operates as a unit within the broader company, has registered revenue declines in recent quarters.

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

An analysis by the government contracting market research firm Govini found that the combined company will have $22.7 billion in total unclassified contracts from fiscal years 2014 through 2017. The combined company captured 22.1 percent more than Reston-based services company Leidos, making it easily the largest recipient of federal IT services dollars.

In a call with analysts shortly after the bid was announced, Phebe Novakovic, chief executive of General Dynamics, said it made sense for the company, “making it [a] better, stronger, more viable competitor over time — immediately, frankly, we believe — in that IT services space.”

Christian Davenport contributed to this story.

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