DOJ lawsuit against Booz Allen acquisition of EverWatch shows strong opposition to defense sector consolidation, says GlobalData

The Department of Justice’s (DOJ) anti-trust lawsuit to Booz Allen Hamilton’s acquisition of EverWatch Corp shows that federal opposition to mergers and acquisitions (M&A) in the defense supply chain remains strong. The opposition in this case is grounded on the potential to negatively affect the National Security Agency (NSA), which relies on Booz Allen and EverWatch for operational modelling and simulation services, says GlobalData, a leading data and analytics company.

William Davies, Associate Defense Analyst at GlobalData, comments: “The  move comes on the heels of the DOJ’s opposition to Lockheed Martin’s attempt to acquire Aerojet Rocketdyne, which ultimately failed because of its potential to damage the missile production market. The DOJ has become increasingly active in pursuing anti-trust cases in recent years and this is yet another example of its attempts to shield competitive practices in defense and security procurement.”

The DOJ is particularly concerned because the announcement of the acquisition came in March just before a contract proposal for the NSA was scheduled for release for which the two companies are expected to bid. Since they were the only companies expected to apply for the contract, the concern rests on potential anti-competitive behavior. This contract – titled ‘Optimal Decision’ – was delayed pending the news of the planned acquisition, though the two companies remain the only ones likely to bid for the contract.

Davies continues: “The DOJ has expressed clear concern that not only will this potential acquisition harm future contracts, but also the bidding for current contracts as both companies are less motivated to out-bid the other pending potential consolidation. This indicates that the DOJ’s opposition even to potential mergers between companies that are key to national security is likely to remain a feature, with the agency taking repeated aggressive action to prevent market consolidation in the defense sector.”

Cybersecurity deals have declined in recent years with key companies consolidating their positions, and, as in any sector deemed critical to national security, this is a point of concern for the federal government.

Davies concludes: “GlobalData expects more anti-trust lawsuits in future as the DOJ attempts to stop monopolistic behavior. However, the outcome of this case will be an interesting trial as to how effective these cases are in the cybersecurity sector.”

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