Oct. 4 (Bloomberg) -- Veritas Capital, the second-largest private equity firm targeting U.S. defense contracts, is seeking $4.6 billion in Army translation business in Iraq, giving L-3 Communications Holdings Inc. its first competition for the work.

Veritas bought two companies with language-services expertise in the past two years, McNeil Technologies and DynCorp International Inc. They are leading the bid for the contract, DynCorp spokesman Gregory Lagana said.

Demand for linguists has soared because of the Iraq and Afghanistan wars. The Army next month will award $5.52 billion in translation contracts worldwide, mostly in Iraq, up from $10 million in the last bidding in 1999. L-3 is making a joint bid for the Iraq business with Northrop Grumman Corp., the Army's second-biggest translator.

``Anyone competing against L-3/Northrop is up against formidable competitors and an incumbent who has linguists on the ground,'' said Myles Walton, a CIBC World Markets analyst in Boston. He rates L-3 and Northrop ``sector perform'' and DynCorp ``sector outperformer'' and doesn't own them. CIBC has done investment banking work for Dyncorp.

New York-based Veritas was founded in 1992 by Robert McKeon, the former chairman of Wasserstein Perella Management Partners. Veritas-owned companies had $493.8 million in Pentagon sales last year, second among private-equity firms to Carlyle Group's $1.78 billion, according to the department's Web site.

Waiting to Hear

Veritas ranked among the top 35 U.S. defense contractors in four of the past five years, the only private-equity firm besides Washington-based Carlyle to do so.

``Everyone is waiting to hear the results,'' McKeon, 52, said in an e-mail. He declined to comment further.

L-3 spokesman Rick Kiernan and Northrop spokesman David Apt confirmed the team submitted a bid for the Iraq work. They declined to provide details or comment on competitors.

Army spokesman James Barham said he didn't have information on how many companies are bidding for the Iraq work.

Fighting in the Middle East is spurring demand for people fluent in languages such as Arabic, Pashto and Farsi. DynCorp is offering $176,000 a year for Arabic linguists in Iraq, according to a Sept. 7 ad posted on jobs Web site Monster.com.

Translation work is New York-based L-3's biggest business, generating $295 million in revenue in the first half of this year, or almost 5 percent of the company's total of $6 billion. L-3, which also makes battlefield communications systems and explosives detectors, acquired the Iraq translation contract in its $1.97 billion purchase of Titan Corp. last year.

`Going Forever'

That contract expired in September 2004. The Army had to scrap the competition for its replacement after a protest by closely held REM Holding Group of Wilmington, Delaware, which said terms unfairly excluded small businesses.

Since then, the Army has awarded three extensions, the last one to L-3 in March valued at $840 million for up to 12 months.

``This thing has been going forever,'' McNeil Chief Executive Officer Ronald Thomas said in an interview. ``After several years, we're finally getting close to the point where a decision will be made.''

The new awards would split the translation work into four portions, with three set aside for businesses with annual sales no greater than $6.5 million and not more than 500 employees. The Iraq part is the largest, valued at as much as $4.6 billion.

The awards for small business include work in Afghanistan worth as much as $703 million; in Guantanamo Bay, Cuba, where terrorist suspects are detained, worth up to $66 million; and for a support contract worth as much as $104 million.

Veritas's Bid

Los Angeles-based Northrop in March 2004 won a translation- support contract for U.S. troops in the Balkans with a potential value of $97 million over three and a half years.

Veritas acquired McNeil for an undisclosed price in 2004 and bought DynCorp for $850 million in 2005. DynCorp raised $375 million in an initial public offering on May 3, and Veritas now owns 56 percent of the company, according to data compiled by Bloomberg.

``We provide high-quality linguist services,'' McNeil CEO Thomas said. ``Our reputation is known in the Middle East with the U.S. military.''

McNeil, founded in Springfield, Virginia, in 1985, has 1,300 employees, including translators for the U.S. military, Thomas said. The work isn't part of the current L-3 contract, he said, declining to provide details.

DynCorp, based in Irving, Texas, provides translators to the military and trains police officers in Iraq. The company received a nine-month contract extension from the U.S. State Department for the work valued at $318 million this month that includes language services.

Shares of L-3 rose 70 cents to $78.75 in New York Stock Exchange composite trading. Northrop rose 32 cents to $69.43. DynCorp fell 16 cents to $11.40. L-3 is up 5.9 percent for the year and Northrop 16 percent. DynCorp had dropped 24 percent from its IPO price of $15.

To contact the reporter on this story: Edmond Lococo in Boston at elococo@bloomberg.net

Last Updated: October 4, 2006 16:29 EDT