Hello, Guest!

L-3 Signals More Acquisitions This Year, CACI & Raytheon Pivot to Organic Growth Focus

cashDiffering acquisition strategies among government services contractors and defense primes became a main discussion topic analysts raised in earnings calls Thursday morning with three GovCon companies that stated financial results.

L-3 Communications (NYSE: LLL) hinted it could make more acquisitions this year with three announced already so far, while CACI International (NYSE: CACI) and Raytheon (NYSE: RTN) all signaled their main focus is on organic growth with some attention on the acquisition scene.

By divestiture or purchase, these three companies have been active players in a busy year for GovCon M&A that has seen large consolidation among services contractors and primes turn their attention to technology-related or other targeted deals.

L-3 sold its former National Security Solutions business to CACI in February for $550 million and has since used acquisitions as a tool in its reposition toward the defense electronics and aerospace services markets among others.

Since the NSS sale,  L-3 has announced three acquisitions worth almost $200 million combined: explosive trace detection technology maker Implant Sciences,  Australia-based electronic warfare company Micreo and pilot and aircraft maintenance training services provider Aerosim.

L-3 has slowed down its share repurchases for acquisitions and could put another $200 million-$300 million toward deals this year, Chief Financial Officer Ralph D’Ambrosio told investors in L-3’s third quarter earnings call.

Chief Operating Officer Chris Kubasik said L-3 may announce “a few more before the end of 2016 or early next year” and also detailed the different strategies behind each transaction in the call.

Kubasik said Implant adds to L-3’s security and detection systems businesses, Micreo adds new microwave technologies in a key international market and Aerosim grows pilot training footprints in the U.S. and Asia-Pacific.

“The acquisitions are all very different, fit our criteria of expanding market share and increasing our customer base, ” he added.

For CACI, the purchase of NSS diversified its revenue distribution and added new customers in the intelligence community and defense agencies.

Asbury told analysts in CACI’s first quarter earnings call the continues to look at the overall GovCon acquisition picture and “will do something again in the market” but any target should have footprints in key areas of investment for agencies, such as the enterprise information technology and intelligence systems areas NSS specializes in that CACI sought.

Even as CACI looks at the market, Asbury said “the thing that we strive most on here at the company is returning to organic growth.”

“We don’t want to buy sales. What we want to do is buy access to places where we think we could cross-sell or where we think we can expand, frankly expand the number of markets that we support by getting into completely new areas where we have. I think we are at a really good size today, “ he added.

NSS contributed $427.2 million in revenue to CACI, which reported $3.7 billion in total sales for its 2016 fiscal year ended June 30 and expects to generate $4.05 billion-$4.25 billion during FY 2017.

Raytheon’s notable transaction of the year came in April when the missile maker announced its investment of $1.9 billion in and eventual 80-percent ownership of the cybersecurity product joint venture Forcepoint along with Vista Equity Partners, which owns the remaining 20 percent of the business formerly known as Websense.

Raytheon CEO Tom Kennedy and CFO Anthony O’Brien told investors in the third quarter earnings call the company is turning its attention to internal investments and shareholder return.

“We continue to use smaller targeted M&A to fill technology or market gaps to augment both our defense business and commercial cybersecurity capabilities, ” Raytheon CEO Tom Kennedy told investors in the third quarter earnings call.

“Generically, we don’t have as part of our plan to go after big deals that would be something strategic and opportunistic, ” O’Brien said.

The company seeks to use 80-90 percent of cash flow this year toward share repurchases and dividends to stockholders in lieu of larger deals,  he added.

Video of the Day

Related Articles