With recent acquisitions, CACI seeks a broader pivot

With recent acquisitions, CACI seeks a broader pivot

With recent acquisitions, CACI seeks a broader pivot


As the U.S. military works to shift its resources away from counter-terrorism and towards competing with so-called “near-peer” nations like Russia and China, some of the Washington area’s biggest government contractors are pivoting their business accordingly.

Arlington-based defense services giant CACI announced in late January it would spend $975 million to acquire LGS Innovations and Mastodon Design, both niche research and development companies serving defense and intelligence agencies. The $225 million Mastodon acquisition closed Jan. 29, and the $750 million LGS Innovations acquisition closed March 1, according to company announcements. They follow an $820 million acquisition of intelligence contractor Six3 Systems in 2013.

The recent deals are part of a broader shift in business strategy at CACI, which is better known for helping the U.S. military fill staffing gaps as it waged expensive wars in Iraq and Afghanistan. In a recent interview at CACI’s headquarters in Ballston, Va., Chief Executive Ken Asbury described a long-planned retooling of the company’s business to focus on products and technology in lieu of the labor-intensive government services.

He says he wants the company to pursue fewer “staff augmentation” contracts – the “butts-in-seats” business of renting out specific staffers to fill the government’s staffing shortfalls – and instead focus on technology-centered work. That could mean pursuing larger contracts for things such as IT infrastructure, in some cases taking on larger competitors.

“I would prefer that my team select that they’re going to be in outcome-based things where we’re helping the mission,” Asbury said. “That drives us into contracting mechanisms that maybe put a little bit more risk on us … but we’ll only bid those if really know the work very well, and the customer has really well-defined requirements.”

Its two most recent additions bring it deeper into the military technology industry. Mastodon, a little-known government contractor based in Rochester, N.Y., specializes in advanced radio frequency and cyber-security work.

And LGS Innovations is a government contractor focused on research and development for U.S. defense and intelligence agencies. It grew out of Bell Labs, a longtime incubator for Nobel Prize-winning innovations as a research and development unit within AT&T. It is engaged in advanced military communications work, including drone-based signals intelligence.

Asbury says the company’s recent acquisitions are the culmination of a long-planned shift in business that started in his earliest days at the company. Asbury joined the company in early 2013 after a long career at Lockheed Martin.

He joined the company at a time when the Obama administration was sharply drawing down the U.S. troop presence in Iraq and Afghanistan, forcing military contractors to seek out new sources of business.

The industry experienced another shockwave in 2013 when a congressional budget impasse imposed new cuts on defense spending, creating the so-called “sequestration” defense spending limits that were not lifted until 2017.

The sequestration cuts went into effect just a week after Asbury joined CACI, leading to plunging revenues, depressed stock prices and staff cuts for many Washington-area government contractors.

“I think I probably hid under my desk for the first six months,” Asbury recalled in a recent interview. “We knew the company had a lot of business associated with supporting the U.S. interest in both Afghanistan and Iraq … at that time Iraq was coming down, and Afghanistan was at the beginnings of getting to sort of where we are today.”

Today CACI is operating in a decidedly different environment. The Trump administration has achieved modest increases in defense spending in recent years. It has promised to send fewer troops to Iraq and Afghanistan, while using the windfall of new spending to rebuild U.S. military assets.

CACI’s competitors have been completing high-stakes mergers at a breakneck pace, as they pursue greater organizational scale that allows them to outbid competitors for major awards.

In late 2017 Northrop Grumman bought Dulles, Va.-based Orbital ATK for $7.8 billion. In 2018 United Technologies bought aircraft parts manufacturer Rockwell Collins for $30 billion.

More recently L3 Technologies and Harris, both publicly traded companies, announced a colossal $33.5 billion deal. And SAIC, a close competitor to CACI, made a big bet on the government IT industry with a $2.5 billion acquisition it completed in January.

At the risk of appearing late to the party, CACI tried to engineer a merger with CSRA, a large government contractor, attempting to steal the company away from General Dynamics, which agreed to merge with CSRA for $6.8 billion in cash and $2.8 billion in debt. General Dynamics bested CACI in a bidding war last year.

“I think we won the hearts and minds, but I couldn’t come up with an all-cash offer for, you know, $7 billion,” Asbury said in a recent interview. “From an investor, shareholder point of view they did the absolute proper thing.”

Next, Asbury says the newly constituted CACI will focus on building the products and technologies the military needs to wage a so-called “great power competition,” aligning itself with recent strategy changes at the top levels of the Pentagon.

In its most recent national defense strategy the Pentagon promised to concentrate on competing with so-called “near-peer competitors” including China and Russia for technological preeminence, sidelining counter-terrorism pursuits in favor of building the military arsenal.

He says the broader geopolitical changes taking place worldwide portend a growing need for his company’s services.

“I’ve been in this business for 34, 35 years now ever since I was 18 years old. I’ve not seen the world have more potential strife than now,” Asbury said. “The world is not a safe place at the moment, and I love being able to do everything we can do … to make sure we protect what is really valuable to the United States.”


This article was written by Aaron Gregg from The Washington Post and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.



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