This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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BAE Systems, the UK listed defence and aerospace company, is planning acquisitions in the American IT security arena, its European regional managing director Bob Keen told mergermarket.
“We want to build up our army portfolio in the US and new acquisitions have been planned in the IT security division,” Keen said. Potential targets are IT companies with a focus on security systems.
The US consolidation strategy is likely to take place in the next six to nine months. “Last year we made a string of acquisitions in the US. We will consider new targets with a similar turnover as our previous acquisitions,” said Keen.
A source at Stanley Inc, a listed Arlington, Virginia-based company, said that with the growth rates that Stanley has, the company would be a great fit for a number of companies including BAE Systems. Stanley has a market capitalisation of USD 569m, with USD 409m in 2007 sales. The company provides IT services and solutions to the US defense and federal civilian government agencies.
Many of those larger companies like BAE Systems are looking to further diversify in the IT area, the Stanley source said.
BAE has been very aggressive in acquiring US companies in the IT space over the last three years, as evidenced by its acquisitions of DigitalNet in 2004 and MTC Technologies recently, an industry analyst said. BAE could look at SI International or Stanley as it clearly wants to be focused on security, the analyst concurred. SI, for one, is very involved in security and could be appealing to BAE because of its diversity with its presence in civilian and government agencies.
SI is a provider of information services, technology and network solutions primarily to the Federal Government. The company, with a market capitalisation of USD 295m, had roughly USD 462m in 2006 sales.
SI and Stanley would seem to fit nicely in the sweet spot BAE typically goes after, a second industry analyst said. He also said another company that could fit with BAE, although it was a bit bigger, is ManTech, a listed Fairfax, Virginia-based company, with its focus on security systems.
ManTech is a provider of technologies and solutions for mission-critical national security programs for the intelligence community, Departments of Defense, State, Homeland Security and Justice and other US federal government agencies. The company has a market capitalization of USD 1.47bn and had close to USD 1.14bn in 2006 sales.
London-based BAE Systems, which employs 88,000 people worldwide, is also planning to expand its business in Japan, Korea and India. “We are particularly interested in India but no negotiations are going on at the moment,” said Keen. He confirmed that the European market was not attractive from an M&A point of view. “We will not acquire any targets in Europe and will only consider partnerships with the leading players in the European market,” he added.
An industry analyst said there is strong competition with European defence companies looking to snap up businesses in the US. He added that the companies are also gearing up for acquisitions in India, as the Indian government plans to spend billions on improving its defence capabilities.
BAE Systems reported a 2006 sales of GBP 13.76bn with a pre-tax profit of GBP 1.207bn and an operating profit of GBP 1.054bn.
The analyst said BAE is riding off the success of its continued acquisition strategy over the past few years. He said the company recently reported a 22% increase in pre-tax earnings and a 14% increase in sales. “The US offers a huge amount of opportunities for European companies to expand in this rapidly expanding sector,” the analyst added.
BAE Systems has facilities and manufacturers in Australia, Sweden, South Africa and Saudi Arabia.
In December 2007, BAE Systems acquired MTC Technologies, a US provider of engineering and IT for GBP 226m. The MTC Technologies takeover was part of a pipeline of acquisitions including Tenix Defence, the Australian defence group, which was acquired in January 2008 for GBP 347m.
In May 2007 BAE Systems announced the acquisition of Armor Holdings, a US based company headquartered in Jacksonville, Florida, for GBP 2.48bn. Armor Holdings is a manufacturer of security products such as tactical wheeled vehicles used for military, law enforcement and commercial applications.
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