In the national security market, even the smallest defense manufacturers and engineering firms can attract strategic interest from the largest systems integrators in the industry. The motives for these acquisitions are frequently the target’s intellectual property that can be utilized by the buyer to gain a competitive advantage in an existing market or expand into new markets. The sense of urgency for the acquisition can be heightened by an upcoming contract solicitation.
One recent example is the spate of M&A activity by General Atomics and BAE Systems. The two defense contractors have positioned themselves to be awarded the U.S. Navy’s future production contract for the railgun, targeted for operation in 2020. After being locked in the competition to build the railgun for the Navy, they have both been awarded contracts to develop a prototype of the railgun. Earlier this month, General Atomics announced the acquisition of Aronson Capital Partner’s client, Syntronics, LLC. In their press release, General Atomics highlighted Syntronics’ significant contributions “in advancing and testing our railgun weapons systems.” The defense company sees Syntronics’ experience designing and manufacturing sophisticated electronics and telemetry packages that withstand High G forces applicable to a broader set of weapons programs, such as “smart” projectiles and missiles.
In February 2017, BAE Systems acquired IAP Research, Inc., a supplier of electromagnetic launchers, power electronics, and advance materials. IAP Research was initially their subcontractor to BAE on its railgun prototype. It is not unusual for major defense companies to acquirer subcontractors that own intellectual property or possess technological expertise that represent key elements of their weapons systems. As a result of their investment in R&D to create intellectual property and technological discriminators, niche manufacturers and engineering firms can command attractive valuations.
Aronson Capital Partners is a leading M&A and strategic advisor to middle-market defense and government technology solutions providers. Over the past 18 years, ACP has advised companies on their sale to most active strategic buyers in the National Security market. Please feel free to contact Phil McMann at email@example.com or 301.231.6202 if you are interested in learning more about how we can assist you in evaluating your company’s strategic options.