Differing acquisition strategies amongÂ government services contractors and defense primesÂ became a main discussion topic analystsÂ raised inÂ earnings calls Thursday morning with three GovCon companies that stated financial results.
L-3 CommunicationsÂ (NYSE: LLL)Â hinted it could make more acquisitions this year with three announced already so far, whileÂ CACI International (NYSE: CACI)Â andÂ 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 soldÂ itsÂ former National Security Solutions business to CACI in February for $550 millionÂ and has since used acquisitions as a tool in itsÂ repositionÂ toward theÂ defense electronics and aerospace services markets among others.
Since the NSS sale, Â L-3Â has announced three acquisitionsÂ worthÂ almost $200Â million combined: explosive trace detection technology maker Implant Sciences, Â Australia-based electronic warfare company Micreo and pilot and aircraft maintenance training services provider Aerosim.
L-3Â has slowed down its share repurchasesÂ for acquisitions and could put another $200 million-$300 million toward dealsÂ this year, Chief FinancialÂ OfficerÂ Ralph D’Ambrosio told investors in L-3’s third quarter earnings call.
Chief Operating Officer Chris Kubasik said L-3 may announceÂ “a few more before the end of 2016 or early next year” and also detailedÂ 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.
ForÂ CACI, theÂ purchase of NSSÂ diversifiedÂ itsÂ revenue distributionÂ 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 pictureÂ and “will do something again in the market” but any target should have footprints in key areas of investment for agencies, suchÂ as the enterpriseÂ 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.Â 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.Â I think we are at a really good size today, “Â he added.
NSS contributed $427.2 million inÂ revenue to CACI, which reported $3.7 billion in total sales for its 2016Â fiscal year ended June 30 and expectsÂ to generate $4.05 billion-$4.25 billion duringÂ FY 2017.
Raytheon’s notable transaction of the year came in April when the missile maker announced itsÂ investment ofÂ $1.9 billion inÂ andÂ eventualÂ 80-percent ownership ofÂ theÂ cybersecurity productÂ joint ventureÂ ForcepointÂ along withÂ 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 companyÂ seeks to use 80-90 percent of cash flow this year toward share repurchases and dividends to stockholders in lieu of larger deals, Â he added.