|
It's not just the big companies
By James H. Smith
November 30, 2005
Although the world business press tends to spend considerable time focused
on the acquisition of large companies in the defense sector by other major
defense players, at least one recent development demonstrates that small
companies are not out of contention as acquisition targets.
European Aeronautic Defence and Space Co (EADS)
has strengthened its test and services business portfolio with the
acquisition of Talon Instruments, through a California-based company that
specializes in digital test instrumentation. The acquisition was made
through EADS North America, the North American operations of the huge
European defense company (the second-largest defense company in the world).
advertisement
EADS points to the acquisition as a being part of the company's long-term
strategy.
Talon Instruments develops and manufactures complex instrumentation for the
test and validation of digital equipment on aircraft, weapons and other
systems. Its products include programmable digital test modules, serial
emulators and waveform generators.
Talon will become part of the EADS North America Defense Test & Services
unit, created when EADS bought test equipment manufacturer Racal Instruments
in 2004.
What is interesting is that EADS has acquired for an undisclosed price a
business with 10 to 15 employees and annual revenue of US$2 million to US$3
million. While terms of the deal were not disclosed, it has been structured
to encourage key employees to stay on after the merger.
EADS North America is aiming to reach US$1 billion in US revenue by next
year through a combination of growth and acquisitions. The company says its
US revenue is about US$800 million for 2005.
With varied interests in the defense sector, EADS is trying to establish
itself as a major player among Pentagon contractors.
The company is vying for three major defense programs in the military
aerospace sector.
While the US market appears open for grabs, the same scenario is missing in
Europe -- a geopolitical region that has promoted internal integration.
The widespread sentiment abroad is that Europe's defense industry risks
being wiped out by international competition led by US rivals unless
governments cut red tape preventing cross-border consolidation within the
European Union (EU) market.
The European Union is being urged from within to establish a common market
in defense, as it has with most other goods, with simplified regulations to
allow cross-border trading within the 25-nation bloc.
EU defense ministers have recently established a voluntary "code of conduct"
to open military contracts to suppliers from other European nations.
But that is only a first step in opening the market while the defense
industry continues to remain fragmented.
For example, there is the issue of German naval electronics systems company
Atlas Elektronik, a unit of the UK's BAE Systems.
BAE has short listed the number of bidders for the company to three,
including EADS, French company Thales and US-based L-3 Communications, which
has reportedly made the largest cash offer.
According to the press reports, however, the German government is reluctant
to allow Atlas -- a key supplier of technology to German submarine builder
HDW, now a unit of ThyssenKrupp -- to fall into foreign hands.
Industry observers say a decision by BAE has been delayed by the hand-over
of the new German government, and the UK company may decide to delay picking
a buyer until the German political situation settles down.
If this is an indication of how Fortress Europe works, perhaps Europe has
something to learn from the Americans.
Disclaimer
James Smith is an independent columnist for this web site. James Smith may
hold long or short positions in any of the stocks mentioned in this article
and those positions can change at any moment.
InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article. James
Smith is a freelance writer. Nothing in the articles should be construed as
an offer or solicitation or recommendation to buy or sell any specific
products or securities. Past performance does not guarantee future results.
|
|
