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Cobham Sells Sparta Unit to Parsons

by: Matthew Potter
October 21, 2011

Category: Acquisitions, Boeing, Business Line, Cobham Defense Electronic Systems, Companies, Countries, Department of Defense, development program, England, Events, General Dynamics, Industry Analysis, IT, Lockheed Martin, logistics, MDA, Military Aviation, northrop grumman, Northrop Grumman Corp., production program, Raytheon, Restructuring, Services, training | RSS 2.0

In yet another M&A action in the defense industry British contractor, Cobham plc (COB:LSE), has agreed to sell its Analytic Solutions group to Parsons Corporation. The transaction is estimated at about $350 million.

Sparta was formerly a private company started in 1979 that provides SETA support as well as technical products and services to the U.S. defense and intelligence business sector. The company was acquired by Cobham a few years ago. Foreign defense contractors, especially those from Great Britain, had grown their presence in the U.S. defense market in the last decade through mergers, acquisitions as well as winning some contracts. Due to the rapid expansion of the defense budget post-9/11 the market was their for them to provide competition to the U.S. domestic industry.

Sparta provides design, development, fielding and sustainment support for ballistic missile defense systems primarily working through the Missile Defense Agency (MDA). It also supports tactical weapon systems especially in the area of logistics as well as network-centric warfare operations. Sparta also supports the intelligence community through developing software and hardware tools and operating computer networks and systems.

Parson’s is about a $2.7 billion engineering support company that not only provides defense services but also civil efforts across the globe. These include engineering and construction, transportation and infrastructure support. Many of their efforts in defense have synergy with Sparta’s but they provide some that are different such as range and training support. Parson’s revenue recently peaked in 2008 and is now about $700 million less then that year. Stock price and Net Operating Income though have gone up steadily though.

If the U.S. defense budget does see major cuts it might be harder for the U.K. and other non-U.S. companies to sustain their current level of revenue. The pressure to always choose a domestic provider will be high on the U.S. Defense Department and the Services. Cobham could also be looking at the market and believing that what Sparta provides may be an area of shrinkage or more competition and now has decided to focus on more core assets. Sparta formed one of nine business units in the company. Last year the company had revenue of about $3 billion.

If the expected decline in defense spending does occur then the U.S. defense industry may see major consolidation as happened in the 1990’s though M&A as well as companies moving out of the sector. The government reportedly has made it clear that they would not like to see any of the big 5 defense contractors (Boeing (BA), Raytheon (RTN), Lockheed Martin (LMT), Northrop Grumman (NOC) and General Dynamics (GD), who are the primary hardware providers merge as did happen in the 90’s.

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