Defence firms primed for cyber security acquisitions

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Today Raytheon Company announced that it had acquired cyber security firm Pikewerks Corporation for an undisclosed amount.

This is Raytheon’s second cyber security acquisition this year following the transformational $490 million (£314 million) deal for Applied Signal Technology (“AST”) Inc. in February. Think Raytheon is still a missile company? Well, the deal for AST was the company’s biggest acquisition since William Swanson took over as CEO. Pikewerks signals Raytheon’s ninth cyber buy since 2007.

"Like Raytheon, Pikewerks is built on the commitment to undertake the hardest problems and apply creativity and innovation to push the limits of technology," said Lynn Dugle, President of Raytheon's Intelligence and Information Systems business. "Developers at Pikewerks are experts who have taken technology from concept to deployment, and we are excited to welcome them as members of our innovative Raytheon team."

According to a press release the addition of Pikewerks to the Raytheon family will increase  its “capabilities to defend against sophisticated cyber security threats facing customers in the intelligence community, Department of Defense and commercial organizations.” Pikewerks offers a “range of analysis and investigation capabilities with particular emphasis on insider threat protection, software protection and forensics.”

Another defence and government services firm actively acquiring in the cyber sector is ManTech International Corporation (NASDAQ: MANT), buying Worldwide Information Network Systems (“WINS”) for $90 million in cash last month. WINS will become a part of ManTech's Mission, Cyber and Technology Solutions group, led by L. William Varner.

“WINS innovative IT capabilities fit well with our existing business,” said Varner. “With WINS we will be able to offer our customers more comprehensive solutions to overcome their complex network challenges. We look forward to working with their talented employees to provide continued excellent service to our customers.”

While the company’s cyber business is blooming, other parts of the business are struggling in the face of budget cuts and cancelled contracts. Two days following the acquisition of WINS, ManTech announced that it had appointed Michael Brogan as Senior Vice President for Strategy of the company’s Systems Engineering and Advanced Technology (SEAT) group. Brogan’s role is to “identify new business opportunities and help align SEAT’s strategy with Department of Defense acquisition-reform measures.”

Reading between the lines, the SEAT business is looking bleak and a new strategy for growth, perhaps in adjacent markets, is required.

“Our government is reassessing priorities, and we have the right person to help us understand and meet the government’s technology needs – in both the civilian and military sectors,” said SEAT President and Chief Operating Officer Terry Ryan. “Mike’s experience, knowledge, and analytical abilities will be valuable assets to ManTech.”

This trend will become more and more apparent as defence firms continue to diversify their offerings and become more cyber security exposed. 'No money in defence, let’s buy in cyber' – problem solved, right? Not exactly. With so many firms now competing for a limited number of acquisition targets, multiples will inevitably rise and rise, pricing many out of the market. Even mid-market stalwart Cobham is struggling to keep up with CEO Andy Stevens announcing in March that he would not be pursuing any deals in the sector as prices have become "ludicrous.”

While there will undoubtedly be a number of other cyber security acquisitions to report over the coming years, it’s likely the most interesting ones will come from the likes of Raytheon, BAE Systems, Lockheed Martin and ManTech who can afford to pay the lofty market prices.

Contributor:   Andrew Elwell

Andrew graduated from The University of Nottingham with an MA in History in 2003. After graduating Andrew started his career with a niche armour systems manufacturer, which provided ballisitic and blast armour products for the international defence market. His first major undertaking was to project manage a UOR up-armour programme for an in-theatre MoD vehicle. After completion of the contract, Andrew headed up the research and development department at the company. This involved designing, developing, testing and presenting new armour solutions to defeat customer specific threats to all major European and International ballistic and blast standards.

Following this Andrew moved behind the desk and became Senior Editor at a news and data provider, offering proprietary analysis, intelligence, market research and data on the global security and defence industry. The role offered the chance to write widely on the industry, exploring new technologies and getting to grips with corporate finance, mergers and acquisitions and debt and equity fundraisings.

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