WASHINGTON — Booz Allen Hamilton, the 22nd largest U.S. defense contractor by revenue in the latest Defense News ranking, said it needs to buy cyber firm EverWatch to compete with larger rivals like Lockheed Martin and Raytheon Technologies.
In court filings tied to a U.S. Department of Justice antitrust lawsuit that seeks to block the merger, Booz Allen said it identified 14 opportunities to unseat competitors and win lucrative government contracts alongside EverWatch, whose services are used by intelligence and defense agencies.
The Justice Department alleges the combination would jeopardize market competition, harm taxpayers and crimp services supplied to the National Security Agency. The merger, the government said in its June complaint, would specifically imperil a signals intelligence and simulation contract known as Optimal Decision. Booz Allen and EverWatch are thought to be the only serious bidders, meaning a merger would produce a monopoly, the government said.
But attorneys for Booz Allen told the court the merger would actually stimulate competition and allow it to take on bigger, entrenched companies.
“The government’s narrative is not only inaccurate — it makes no sense,” the attorneys said in documents filed Aug. 1 in Maryland federal court. “As a matter of basic math, the government’s suggestion that the proposed transaction is a ‘scheme’ to buy off competition for OD is bizarre.”
The 14 potential procurements are worth “billion of dollars” and are the driving force behind the proposed transaction, not the “relatively small” Optimal Decision work, they said.
EverWatch, owned by Maryland-based investment firm Enlightenment Capital, supplies artificial intelligence, cloud capabilities, data science, insider-threat analysis and other products and technologies. It is smaller than Booz Allen, which employs some 30,000 people.
Booz Allen ranked No. 22 in overall defense revenue in 2021, at $5.5 billion, according to the Defense News ranking, developed using information provided by the companies as well as annual reports, analyst expertise and outside research.
Lockheed and Raytheon sat at No. 1 and No. 2, respectively, on the Defense News list. Lockheed recorded roughly $64.5 billion in defense revenue in 2021; Raytheon, $41.9 billion.
An inquiry made to EverWatch on Aug. 8 was not immediately answered. To what degree the merger would effect revenue was not clear.
Top 100 for 2022
The defense sector has substantially consolidated over the last three decades, forcing the Pentagon to rely on fewer and fewer contractors, according to a report published in February. Having only one or just a few sources to fulfill needs, it added, is risky.
Booz Allen and EverWatch, both located in Virginia, have rejected the antitrust accusations. A spokesperson in June told C4ISRNET the transaction would “bring together two companies with complementary capabilities” and vowed to “vigorously defend” against “any allegation of anticompetitive behavior.”
The potential joining of Booz Allen and EverWatch was announced in March. Terms were not publicized. The deal was expected to close in the first quarter of Booz Allen’s fiscal 2023.
And while many financial and contractual details are redacted in court documents, and some items have been sealed, it appears the revenue generated by Optimal Decision pales in comparison to the price Booz Allen was willing to pay for EverWatch.
“The proposed transaction aims to combine the complementary skills and assets of the two companies,” the firms said in their filing, adding, “The truth makes much more sense.”
Colin Demarest is a reporter at C4ISRNET, where he covers military networks, cyber and IT. Colin previously covered the Department of Energy and its National Nuclear Security Administration — namely Cold War cleanup and nuclear weapons development — for a daily newspaper in South Carolina. Colin is also an award-winning photographer.