On June 29, 2022, the U.S. Department of Justice (DOJ) filed a lawsuit seeking to block Booz Allen Hamilton Holding Corporation's (Booz Allen's) proposed acquisition of EverWatch Corp. (EverWatch).¹ The DOJ's suit is unique in that it alleges a Sherman Act Section 1 claim (prohibiting agreements in restraint of trade) as well as a typical Clayton Act Section 7 claim (prohibiting mergers that substantially lessen competition). The DOJ's challenge is the latest example of the Biden administration aggressively seeking to promote competition within the defense industry.

Booz Allen and EverWatch are both professional services companies that offer 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 signal intelligence operational modeling and simulation support services, as well as permanently eliminate any future competition between the parties. The NSA uses signal intelligence to collect foreign intelligence from communications and information systems. Due to the ever-changing landscape of communications and information technology, the NSA relies heavily on companies like Booz Allen and EverWatch for their sophisticated expertise and resources to help address any challenges. Service contract bids by companies consist of a multi-year preparation process that includes assembling a team of subcontractors with specialized capabilities.

Assistant Attorney General Jonathan Kanter of the DOJ's Antitrust Division said that the proposed acquisition would "imperil competition in a market vital to our national security."² A spokesperson for Booz Allen publicly stated the company disagreed with the DOJ's characterization of the transaction as harming the government or taxpayers, and that they believe the transaction would deliver significant benefits.³

The complaint alleges:

• First, the merger agreement eliminated both companies' incentive to bid aggressively against each other for the NSA's upcoming contract. Regardless of which company the NSA selects, the combined firm would ultimately provide the service and profit from the bid after the merger. The merger agreement thus effectively removed any incentive to offer a bid to the NSA with the best terms, most talented personnel, or highest-quality service. The DOJ alleges the agreement violates Section 1 of the Sherman Act, 15 U.S.C. § 1, prohibiting agreements that unreasonably restrain trade.
• Second, Booz Allen's decision to acquire EverWatch—which the DOJ alleges Booz Allen acknowledged as a significant threat to its business—would directly and permanently end the rivalry between the two companies. The DOJ thus alleges the merger violates Section 7 of the Clayton Act, 15 U.S.C. § 18, prohibiting mergers that substantially lessen competition and "tend to create a monopoly" (which is a more typical ground on which the antitrust agencies challenge proposed mergers).
• Third, EverWatch attempted to evade antitrust scrutiny of the deal by withdrawing from its leadership role as the prime contractor and transferring the prime role to a much smaller subcontractor. The DOJ alleged this "shell game" would not remedy competitive concerns, because the smaller subcontractor could not recreate the multi-year effort EverWatch had already spent on preparing a bid.

This complaint is noteworthy for two reasons:

1. First, the DOJ put forth a novel argument that the proposed merger agreement violated Section 1 because it eliminated any incentives for the merging parties to compete against each other during an ongoing bidding process. Indeed, the complaint notes the merger "is a unique situation that merits immediate action" by the DOJ. Due to the prolonged nature of the government's review of contract bids, the DOJ alleges the merger agreement would give Booz Allen ample opportunities before and after the merger is completed to affect EverWatch's competing bid for the NSA. These opportunities may result from certain provisions in the merger agreement requiring EverWatch to seek Booz Allen's approval before entering into contracts valued at more than $500,000 or Booz Allen's ability to withdraw a bid following the completion of the merger. Companies in the defense or government contracting space evaluating potential acquisitions should consider whether an upcoming contract award will create similar risks for their deal.
2. Second, this complaint follows the directive to federal agencies under President Biden's executive order in July 2021 to enforce antitrust laws vigorously within the defense industry, among other industries.⁴ The Department of Defense (DoD) noted in its report to the White House that the defense sector had consolidated substantially since the 1990s, resulting in the DoD becoming increasingly reliant on a small number of contractors for critical defense capabilities.⁵ The DoD argued such reliance on a small number of contractors could pose a threat to national security. In that vein, the Federal Trade Commission similarly brought a challenge against Lockheed Martin's proposed acquisition of Aerojet Rocketdyne—a supplier of key missile propulsion inputs—which resulted in the termination of the acquisition by Lockheed Martin earlier this year.⁶

For more information on the DOJ's complaint, please contact Michelle Yost Hale, Ben Labow, or another member of the firm's antitrust and competition practice.

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[1] Complaint, United States v. Booz Allen Hamilton Corp., et al, No. 1:22-cv-01603-CCB, (4d Cir. June 29, 2022), available at In the Matter of RWJ Barnabas Health and Saint Peter’s Healthcare System, Docket No. 9409 (FTC filed June 2, 2022), available at https://www.justice.gov/opa/press-release/file/1516576/download; Press 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.

[2] See Id.

[3] Dan Papscun, “DOJ Sues Booz Allen to Stop Deal for Defense Firm EverWatch,” Bloomberg Law (June 29, 2022), https://news.bloomberglaw.com/antitrust/doj-sues-booz-allen-to-stop-acquisition-of-defense-firm-everwatch.

[4] 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/.