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Kuchera Group Goes Softly Into The Night

Six months ago one of the big stories in defense contracting was the activities of Congressman John Murtha (D-PA). He had through his role as the either the Chairman or Ranking Member of the Defense Appropriations Sub-Committee single-handedly built up the defense industry in the Johnstown, PA area. His work had been the subject of investigation by the Ethics Committee although recently he was cleared by the Committee.

One of the companies he had heavy involvement with and that had led to some complaints was The Kuchera Group. Like many other small companies in the area Murtha made sure that funding was earmarked to them. Kuchera Defense Systems, part of the Group, has been banned by the Navy from receiving work since April of 2009. The company along with its two owners, William and Ronald Kuchera, were accused of paying kickbacks to a prime contractor to get sub-contracts. In December the ban was extended as further allegations of kickbacks were alleged by an executive for another defense contractor. The investigation into those specific allegations are continuing.

Murtha has accepted several thousand dollars in campaign contributions from the Kucheras and their companies. One of the ethics complaints against him was that he attended a party in his honor held by the Kucheras held on company property. Murtha because of these ties and his practices has long been held up as the poster child for misuse of earmarks to benefit friends and campaign contributors. The Citizens for Responsibility and Ethics in Washington (CREW) consider him their "Most Corrupt" Congressman. Although there have been many investigations and call for punishment it is hard to prove direct ties between campaign donations and earmarks especially when the Services continue to award work and keep contracts going.

Yesterday it was announced that API Technologies Corporation (ATNY) would purchase The Kuchera Group of Companies. API will pay a total cost of $24 million in cash, a note financed by the sellers and 3.2 million shares of API stock. The two Kuchera brothers are leaving the company for other pursuits.

API is buying the Group due to some synergy in their product lines and the hope that it will cement their place as a major defense contractor. API said that " the new combined entity will be better positioned to serve our global clients, including General Dynamics, Raytheon, Northrop Grumman and governments around the world". Kuchera had $65 million in revenue last year while API did $21.4 million in revenue between May and November last year while having a net loss of $2.7 million. Kuchera as a private company did not report a profit or loss.

API did not address the issues with Kuchera Defense Systems or their status as a defense contractor although they are included in the acquisition. It is not uncommon for private companies to be sold to other defense contractors when they reach a certain size of their founders want to move on to other things. This case is more interesting due to the ties to Murtha and the issues with the Navy. Based on the size of the companies involved Kuchera should form a whole division within API but it could be broken up and absorbed by their existing organizations.

The story of Murtha and this company illustrates some of the issues with defense contracting and government spending in general. Right now it looks like there will be no issues for Mr. Murtha continuing his career and The Kuchera Group will now disappear as part of API.