DOJ files lawsuit to block merger of National Security Support Services
On June 29, 2022, the US Department of Justice (DOJ) filed a lawsuit seeking to block the proposed acquisition of EverWatch Corp. (EverWatch) by Booz Allen Hamilton Holding Corporation (Booz Allen’s).1 The DOJ lawsuit is unique in that it alleges a claim under Section 1 of the Sherman Act (prohibiting trade restraint agreements) as well as a typical claim under Section 7 of the Clayton Act (prohibiting mergers that substantially lessen competition). The DOJ challenge is the latest example of the Biden administration aggressively seeking to promote competition within the defense industry.
Booz Allen and EverWatch are two professional services companies that provide a range of services to the defense and intelligence community. The DOJ alleges that the proposed merger would eliminate competition for an upcoming National Security Agency (NSA) contract award for signals intelligence operational modeling and simulation support services, as well as permanently eliminate all competition. future between the parties. The NSA uses signals intelligence to collect foreign intelligence from communications and information systems. Due to the ever-changing communications and information technology landscape, the NSA relies heavily on companies like Booz Allen and EverWatch for their sophisticated expertise and resources to help meet any challenges. Company service contract offerings consist of a multi-year preparation process that includes building a team of contractors with specialized capabilities.
Assistant Attorney General Jonathan Kanter of the DOJ’s antitrust division said the proposed acquisition “would jeopardize competition in a market vital to our national security.”2 A spokesperson for Booz Allen has publicly stated that the company disagrees with the DOJ’s characterization of the transaction as harmful to the government or taxpayers, and that it believes the transaction will bring significant benefits.3
The complaint alleges:
- First, the merger agreement eliminated the incentive for the two companies to aggressively bid against each other for the next NSA contract. Whichever company the NSA chooses, the combined company would ultimately provide the service and take advantage of the post-merger offering. The merger agreement therefore effectively removed any incentive to bid the NSA with the best terms, the most talented staff, or the highest quality service. The DOJ alleges that the agreement violates Section 1 of the Sherman Act, 15 USC § 1, prohibiting agreements that unreasonably restrict trade.
- Second, Booz Allen’s decision to acquire EverWatch — which the DOJ alleges Booz Allen has recognized as a significant threat to his business — would directly and permanently end the rivalry between the two companies. The DOJ therefore alleges that the merger violates Section 7 of the Clayton Act, 15 USC § 18, prohibiting mergers that substantially lessen competition and “tend to create a monopoly” (which is a more typical ground for which antitrust agencies challenge the proposed mergers).
- Third, EverWatch attempted to evade antitrust scrutiny of the deal by stepping back from its lead role as prime contractor and handing over the lead role to a much smaller contractor. The DOJ alleged that this “game of shells” would not solve the competition problems, because the smaller subcontractor could not recreate the multi-year effort that EverWatch had already put into preparing a bid.
This complaint is noteworthy for two reasons:
- First, the DOJ advanced a new argument that the proposed merger agreement violated Article 1 because it removed any incentive for the merging parties to compete against each other during an appeals process. current offers. Indeed, the complaint notes that the merger “is a unique situation that merits immediate action” by the DOJ. Due to the protracted nature of the government’s review of contract offers, the DOJ alleges that the merger agreement would give Booz Allen ample opportunity before and after the merger closes to affect the competing supply of EverWatch for the NSA. These opportunities may result from certain provisions of the merger agreement requiring EverWatch to obtain Booz Allen’s approval before entering into contracts valued at more than $500,000 or Booz Allen’s ability to withdraw an offer after completion. of the merger. Defense or public procurement companies evaluating potential acquisitions should consider whether an upcoming contract award will create similar risks for their transaction.
- Second, this complaint follows the directive to federal agencies under President Biden’s executive order in July 2021 to vigorously enforce antitrust laws in the defense industry, among other industries.4 The Department of Defense (DoD) noted in its report to the White House that the defense industry has consolidated significantly since the 1990s, leading the DoD to become increasingly dependent on a small number contractors for critical defense capabilities.5 The DoD argued that such reliance on a small number of contractors could pose a national security threat. In this vein, the Federal Trade Commission also challenged Lockheed Martin’s proposed acquisition of Aerojet Rocketdyne, a supplier of key missile propulsion inputs, resulting in the termination of Lockheed Martin’s acquisition more early this year.6
For more information on the DOJ complaint, please contact Scott Sher, Jamillia Ferris, Michelle Yost Hale Ben Labow, or another cabinet member antitrust and competition practice.
 Complaint, United States v Booz Allen Hamilton Corp., et al, No. 1:22-cv-01603-CCB, (4d Cir. June 29, 2022), available on In the Matter of RWJ Barnabas Health and Saint Peter’s Healthcare SystemFile No. 9409 (FTC filed June 2, 2022), available at https://www.justice.gov/opa/press-release/file/1516576/download; News Release, “Justice Department Sues to Block Booz Allen Hamilton’s Proposed Acquisition of EverWatch,” Department of Justice (June 29, 2022), available at https://www.justice.gov/opa/pr/justice-department-sues-block-booz-allen-hamilton-s-proposed-acquisition-everwatch.
 Dan Papscun, “DOJ sues Booz Allen to end deal with defense firm EverWatch,” Bloomberg Law (June 29, 2022), https://news.bloomberglaw.com/antitrust/doj-sues-booz-allen-to-stop-acquisition-of-defense-firm-everwatch.
 Press Release, “Executive Order on Promoting Competition in the American Economy,” The White House (July 9, 2021), available at https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/.