Caxton-Iseman Adds Federal IT Contractor –

Caxton-Iseman Capital is mining the arcane world of government contracting for deals. The firm this month will acquire all of the outstanding stock of information technology service company Analysis & Technology for $26 a share, or $115 million-$22.5 million of that in equity.

Credit Suisse First Boston will provide senior and high-yield debt. The deal is expected to close in June.

Analysis & Technology, a Nasdaq-listed company, will be the third acquisition for Caxton-Iseman’s platform Anteon Corp. should the deal close. The firm acquired Anteon in April 1996 for $10 million in equity (BUYOUTS May 27, 1996, p. 9). In 1997, Caxton-Iseman added Vector Data Systems, and last May it acquired Techmatics Inc, both companies that provide services to the government.

With the acquisition of Analysis & Technology, based in North Stonington, Conn., Anteon should see 1999 revenue just shy of $500 million, according to Frederick Iseman, a managing director at Caxton-Iseman.

Analysis & Technology provides IT services on contract for the federal government, with its biggest client being the U.S. Navy. Anteon works extensively on surface ships and submarines, the latter of which Mr. Iseman said was beginning to receive increased funding from the federal government.

About 65% of Anteon’s business comes from the defense industry. Mr. Iseman said the market for federal IT contracting currently is $30 billion and growing and he hoped to build the Fairfax, Va.-based Anteon into a $1 billion company by the end of 2001. Caxton-Iseman likely will spend an additional $50 million to $60 million this year on Anteon add-ons.

Federal Contracting Changes

Mr. Iseman said the changing nature of how federal contracts are awarded has increased consolidation within industries that provide services to the government. Whereas companies used to compete for exclusive service contracts, now the government will award a service contract to a group of companies, and they in turn must compete with one another as individual projects become available. This new system is called indefinite delivery, indefinite quantity (IDIQ).

Anteon is well-positioned to compete in this new environment, Mr. Iseman said, because the company was formed and grown in a post-IDIQ world. Two of its board members helped develop IDIQ and implement it as federal policy-Paul Kaminski was undersecretary of defense for acquisitions, and Gil Decker was assistant secretary of the army for acquisitions.

Mr. Iseman said smaller federal contracting companies, which he defined as having revenue of less than $100 million, are less able to compete on a job-by-job basis under IDIQ policies. These companies are therefore ripe for acquisition, he said.

Mr. Iseman said companies which provide services to the federal government are desirable because they are not as affected by downturns in the economy, and have predictable cash flows.

Caxton-Iseman is a New York buyout firm whose sole limited partner is Caxton Corp., a New York investment firm with more than $2.2 billion invested in limited partnerships. Caxton-Iseman usually invests $100 million of Caxton Corp.’s money per year, but this figure may increase, Mr. Iseman said. Proceeds from Caxton-Iseman investments are sent up to the parent company.