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By Julian Nettlefold, Editor, BATTLESPACE

30 Oct 07. BATTLESPACE Editor Julian Nettlefold met Jeremy Furniss a Partner at Livingstone, the defence mergers and acquisitions specialists.

“We see the majors re-entering the M&A market in strong numbers since the credit crunch caused a number of Private Equity deals to be put on hold,” Jeremy Furniss told the Editor.

Livingstone Partners is a leading investment banking boutique specialising in cross-border company sales, acquisitions and private equity transactions with deal values ranging from between £10m and £100m plus. With offices in the United Kingdom, continental Europe and the United States, Livingstone is the only mid-market M&A boutique with an integrated international infrastructure capable of delivering immediate access to buyers, investors and opportunities across two continents

As we said last week, the interesting points to watch is where the money is going, and looking at the recent results, there is a lot of it about! The majors, Boeing, Lockheed, Northrop, Raytheon and GD have all made small bolt-on technology acquisitions in the past years, whilst Textron is diversifying heavily into C4I with its Overwatch and AAI acquisitions which also bolsters its UAV business. ITT is the one to watch with growth in its defense segment now making it the top performing segment with 40% of revenue. The win of the $1.2bn ATC business from Raytheon and Lockheed was a major win in an area where the company was little known, closely followed by the EDO bid which fills in gaps in sonar, IED and bomb technology which were not major players in the ITT portfolio. Harris has been looking more to the civil communications sector to grow its business.

Other targets to watch would be DRS which is also performing well and digesting its ESSI acquisition; DRS is expected to be back on the acquisition trail next year as ESSI was the equivalent of buying fourteen companies. ATK is another one to watch with rumours that some at BAE preferred that to Armor Holdings but, no doubt, the Land Systems segment would see that as a clash with CTA gun which they have high hopes of beating ATK’s Bushmaster in world markets. L-3 continues to be one in the sights but tax problems are believed to be holding back any potential bidders, some suggest that some businesses would have to be shed to tidy it up. Rockwell Collins continues its growth into new technologies and avionics which may make it a target for GE after the company has digested its Smiths buy. (See: BATTLESPACE UPDATE Vol.9 ISSUE 42, 25 Oct 2007, PROFIT GROWTH AND INCREASED MARGINS CONTINUE AT U.S. MAJORS, By Julian Nettlefold, Editor, BATTLESPACE)

“Livingstone was started thirty years ago and we have carved out a niche in mid-tier defence stocks in the £10-100m value since then and have carried out 300 deals in ten years with 40 anticipated for 2007. We have made Consultancies a particular speciality having led the original buy-out of Smiths Systems Engineering (now Detica), the sales of Frazer-Nash and LSC to DML and, this year, Advantage to Atkins. The recent purchase by Cohort of SEA was, in our view, a key deal for Cohort. We have also sold a number of other defence companies, particularly Automotive Technik [ Julian – do people recognize the Pinzgaur name better?] to Stewart & Stevenson.” Furniss continued.

The FT reported last week that Lockheed Martin was looking for acquisitions and Boeing’s win of the FRES SOSI contract will put that company looking outward to Europe. Its recent deal with Textron to bid for the JLTV requirement could point to future areas of growth. Northrop continues its relationship with EADS in air tankers and EuroHawk and the market expects further deals in this area, particularly when the expected sale of BAE’s stake in MBDA is achieved.

“We see Qinetiq’s purchase of Boldon James announced last week (BATTLESPACE UPDATE Vol.9 ISSUE 42, 25 Oct 2007, QinetiQ ANNOUNCES ACQ

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