G.P. News – Caxton-Iseman Sets Sights on CACI –

Competition among buyers and sky-high valuations have brought Caxton-Iseman Capital’s information technology portfolio company, Anteon Corp., to a developmental glass ceiling. The IT service company has been trying to break through this barrier through a merger with CACI International, a publicly traded concern that has expressed strong resistance to merger proposals.

Caxton-Iseman general partner Fred Iseman said Anteon has made one add-on acquisition per year since his firm bought the platform in 1996. Iseman said each of Anteon’s acquisitions – Vector Data in 1997 and Techmatix a year later – is more than double the size of the previous buy in terms of revenue.

The company’s most recent deal was a public-to-private buyout of Analysis & Technology, (which was double the size of Techmatix), a company whose biggest client is the U.S. Navy. (BUYOUTS March 22, 1999, p. 11) Iseman said Anteon paid 8.5 times trailing earnings before interest, tax, depreciation and amortization (EBITDA) for Analysis & Technology.

A merger with CACI would bring the combined company to a $1 billion valuation, said Anteon chief executive Joseph Kampf, making it more attractive to a customer base that prefers larger contractors. “Together, I think we’d be a strong force in the marketplace,” Kampf said.

But over the last year, Anteon has asked for the hand of CACI only to have its offer repeatedly rebuked.

CACI and Anteon, both based in Arlington, Va., provide IT services to federal government clients. CACI, which was founded in 1962 and has been listed publicly since 1986, had fiscal 1999 revenue of $441.7 million.

Caxton-Iseman bought Anteon in April 1996 for $10 million in equity. Anteon had 1999 pro-forma sales of $490 million compared with $110 million in 1995.

Observers say Anteon will likely be disciplined on the premium it is willing to pay for CACI. However, a letter reportedly sent by Anteon management to CACI in August 1999 offered 19.5 times earnings, or $27 per share, for a buyout. CACI turned down the proposal, but Anteon has not given up, proving that unrequited love dies hard.

Anteon has been trying to “find the right way to approach CACI” for a long while, Kampf said. CACI, which has been headed by Jack London for some 30 years, remains unwilling to talk with Anteon, or anyone else, about merger terms.

“We were interested in CACI and we are still interested,” Kampf said.

An effort to wrangle control of the board, led by 5% owner and former board member Alan Parsow went nowhere as shareholders re-elected CACI board members at the most recent shareholders’ meeting. In November Parsow and other shareholders filed a 13-D – a filing which outlined Parsow’s intention to seek board representation – with the SEC against CACI management.

Although Kampf declined to comment on the current state of merger discussions between Anteon and CACI, he suggested that his company is looking at acquisition opportunities other than CACI. “[CACI] has not led us where we wanted to go,” Kampf said.

“Anteon is actively looking for additional acquisitions or a series of acquisitions that would take the company’s revenue to between $800 million and $1 billion,” Iseman said. He added that the firm invested an additional $22.5 million in equity in Anteon last spring and “we are prepared to invest substantially more for further acquisitions.”

A CACI-Anteon marriage is far from a certainty, but so long as Anteon carries a torch for CACI, there may be a white wedding yet. “I don’t think any kind of transaction is a foregone conclusion from the Anteon perspective,” a source said.