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DOJ Sues Booz Allen to Stop Deal for Defense Firm EverWatch (3)

June 29, 2022, 10:15 PMUpdated: June 30, 2022, 2:12 PM

The Department of Justice sued to block Booz Allen Hamilton from acquiring defense firm EverWatch, citing concerns that the deal would harm competition for federal intelligence contracts.

The deal, if completed, would violate federal antitrust law and hurt competition in the market for the National Security Agency’s contracts for modeling and simulations services for signal intelligence, the DOJ’s Antitrust Division said in the complaint filed Wednesday against the companies in the US District Court for the District of Maryland.

“The merger must be blocked in order to restore the competition that NSA—and the Americans that it defends—rely on for innovative and high-quality signals intelligence modeling and simulation support services at fair prices,” according to the complaint.

McLean, Va.-based Booz Allen Hamilton and Reston, Va.-based EverWatch are the only competitors for the upcoming NSA contract for signals intelligence support, according to the complaint. The companies spent years working on their bids, it said.

Instead of continuing their competition, Booz Allen opted to buy EverWatch months before the NSA released its request for proposals, the complaint alleged.

The merger agreement reduced the incentive to submit a competitive bid and would leave the NSA facing a single bidder, according to the complaint.

Before the merger agreement, the companies had been recruiting top talent and were preparing to offer the NSA the “best value” for the project, the complaint said. “When the companies agreed to merge, it no longer made sense to bid aggressively against each other,” it said.

“We strongly disagree with the DOJ’s characterization of the proposed transaction,” a spokesperson for Booz Allen said in a statement.

The deal would bring together two companies with “complementary capabilities,” according to the statement.

“We continue to believe the transaction would deliver significant benefits to our government clients in an industry that is highly competitive,” the statement said. “We refute any suggestion that the proposed transaction would harm government agencies or taxpayers, and are ready to vigorously defend ourselves against any allegation of anticompetitive behavior.”

Booz Allen announced the deal in March, seeking to expand its investment in the national security and cyber industries. The transaction was expected to close by the end of June, according to Booz Allen’s statement at the time.

Booz Allen did not reveal the terms of the deal in its statement, and the deal price was redacted in the DOJ’s complaint.

The acquisition’s unreasonable restraint of trade violates Section 1 of the Sherman Act, and a resulting monopoly would be in violation of Section 7 of the Clayton Act, the complaint alleged.

“Booz Allen’s agreement to acquire EverWatch imperils competition in a market that is vital to our national security,” said Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division in a statement. “Both the acquisition agreement and the underlying transaction violate federal antitrust law.”

Analysis, Computing & Engineering Solutions Inc. and EC Defense Holdings LLC—EverWatch’s subsidiary and owner, respectively—also were named as defendants.

EverWatch didn’t immediately reply to a request for comment.

The case is United States v. Booz Allen Hamilton Inc. et al, D. Md., no. 1:22-cv-01603, 6/29/22.

(Updated with statement from Booz Allen Hamilton.)

To contact the reporter on this story: Dan Papscun in Washington at dpapscun@bloombergindustry.com

To contact the editors responsible for this story: Roger Yu at ryu@bloomberglaw.com; Meghashyam Mali at mmali@bloombergindustry.com