In transactions underscoring the continued consolidation of federal contractors as Pentagon budget cuts loom, defense giants Boeing and L-3 Communications recently announced strategic acquisitions.
Boeing purchased Argon ST in a deal valued at $775 million. The Chicago-based contractor said it bought Argon as part of Boeing’s “growth strategy” and to expand its presence in the C4ISR, cyber and intelligence markets.
L-3 has not disclosed the value of its acquisition of Airborne Technologies, Inc., which specializes in aeronautical engineering services for unmanned aircraft systems (UAS.) However, L-3 executives described Airborne Technologies as an “innovator” in the field that would aid expansion in the business for small, expendable platforms.
Meanwhile, the defense market saw two other recent mergers. Aecom Technology Corp., of Los Angeles, is acquiring McNeil Technologies Inc. from private equity firm Veritas Capital in a deal valued at $355 million. Aecom said the move will increase its sales of U.S. intelligence services.
Wyle, Inc., a high-tech systems engineering and information technology firm, has agreed to buy CAS Inc. of Huntsville, Ala., for an undisclosed sum. Wyle executives say they want more revenues from the key defense hubs based in the Huntsville area and estimated combined corporate sales of about $1 billion.
Industry analysts said the mergers indicate the recent trend of corporate consolidations would likely accelerate as contractors seek greater efficiencies amid expected Pentagon cutbacks.
Defense secretary Robert Gates has said he wants to cut the DoD’s budget by 2 to 3 percent a year in real terms and to reduce another $100 billion in costs by eliminating waste and redundancies.
Moreover, the prolonged recession marked by unemployment of 9.5 percent has provided large U.S. firms, including major defense contractors, with enormous improvements in productivity that translate into mountains of available cash.
Indeed, the Wall Street Journal recently said the largest U.S. non-financial firms are sitting on an historic $1.9 trillion in cash and equivalents. According to figures compiled by the St. Louis Federal Reserve Bank, that’s roughly twice as much as the excess cash held by the nation’s commercial banks.
For its part, Boeing has some $10 billion in cash on hand and L-3 has roughly $1 billion in available cash, according to key financial statistics compiled by Capital IQ, a research and analysis firm.
In announcing the Argon ST deal, Boeing officials said the merger would help the company offer its domestic and overseas customers “affordable” mission-critical network support in an era of Net-Centric Warfare.
“Combining the strength of Boeing with the experience of Argon ST will significantly accelerate our capabilities in sensors, communications technologies and information management,” said Dennis Muilenburg, president and CEO of Boeing Defense, Space & Security.
Founded in 1997 and headquartered in Fairfax, Va., Argon ST develops sensors and networks designed to exploit, analyze and deliver information for real-time situational awareness.
L-3 Communications indicated its purchase of Airborne Technologies (ATI) is a relatively small transaction in dollar terms, though no purchase price was given.
The company estimated ATI’s revenues for 2010 at $20 million. But L-3 executives noted ATI products would help them gain traction with the defense, commercial aerospace and intelligence communities.
Based in New York City, L-3 Communications employs approximately 67,000 people worldwide and is a prime C3ISR contractor. It also provides aircraft modernization and maintenance, government services and electronic systems used on military platforms. The company reported 2009 sales of $15.6 billion.