Defense M&A in Electro Optics Industry

by: Matthew Potter
September 8, 2010

Category: Acquisitions, BAE Systems, Business Line, Companies, Department of Defense, development program, Events, FLIR, ISR, IT, production program, S&T, Services, U.S. Army | RSS 2.0

Two acquisitions were announced recently that involve companies designing and making electro-optic systems and software for the defense market. They indicate that the continued investment by the United States, its Allies and other nations around the world into these systems are expected to continue and provide a market for contractors. This as there are now persistent worries that the U.S. and European defense budgets will start declining in the near future.

First BAE Systems (BAE: LSE) announced that they will be acquiring New Hampshire’s Oasys Technology. The total price could be up to $55 million if all conditions are met. Oasys Technology provides engineering services and research to support development of new electro-optics system. By acquiring the company BAE acquires that expertise which should lead to better systems and advanced production capability.

BAE already makes thermal weapon sights in use by the United States, Canada and Australia. These go on weapon systems and vehicles. Last week BAE received an order worth $123 million as part of a five year contract with the U.S. Army. This brings the total value of sales to the U.S. to over $1 billion. BAE also makes thermal imaging and infra-red cameras that may be integrated by other companies.

It was also announced FLIR Systems (FLIR) will acquire ICx Technologies. FLIR as their name implies makes Forward Looking Infra Red (FLIR) and other electro-optical sensor systems for use by military, security and civil customers. ICx will cost the company about $270 million. ICx manufactures sensors and equipment used in a variety of applications. These include those used to detect explosives that have homeland security uses. ICx also designs and builds radar equipment.

These two transactions show that there are opportunities for larger defense contractors to acquire companies that will expand their own product line. These two moves will aid BAE Systems and FLIR in developing more advanced systems and allow them to grow their share of a growing market for advanced optics, sensors and electronic surveillance systems.

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