CHICAGO, Aug. 31, 2012 /PRNewswire/ -- Today, Zacks Equity Research discusses the U.S. Aerospace & Defense, including General Dynamics Corp. (NYSE:GD), Northrop Grumman Corp. (NYSE:NOC), L-3 Communications Holdings Inc. (NYSE:LLL), Engility Holdings, Inc. (NYSE:EGL) and Raytheon Company (NYSE:RTN).
The big defense operators armed with strong balance sheets are expanding their operations inorganically through acquisitions. The U.S. Defense department also endorses mergers among U.S. defense companies, provided they don't involve the top five or six suppliers acquiring each other. For that matter, the industry encourages acquisitions as the highest-priority investment area for a company with a sizeable cash balance looking for growth amid significant defense budget cuts.
In fact, the four main strategies to stimulate that growth are joint ventures, foreign military sales, international expansion and mergers and alliances.
Recently, General Dynamics Corp. (NYSE:GD) entered into a definitive agreement to acquire Fidelis Security Systems Inc. The acquisition will make the company well positioned to deliver relevant and innovative cyber security solutions that help customers to respond to dynamic cyber threats.
General Dynamics in August 2012 has also completed the acquisition of the Ship Repair and Coatings Division of Earl Industries. Earl Industries is a leading East Coast ship-repair company that supports the U.S. Navy fleet in Norfolk, Virginia and Mayport, Florida. This acquisition will improve the company's ability to compete in the growing naval ship-repair market.
In another deal, on June 7, 2012,Northrop Grumman Corp. (NYSE:NOC) agreed to acquire privately held M5 Network Security Pty Ltd, at Canberra. Australia-based M5 Network Security provides cyber security and secure mobile communications products and services, and advanced analytics to Australian military and intelligence organizations.
In August 2012, L-3 Communications Holdings Inc. (NYSE:LLL) completed the acquisition of Thales Training & Simulation Ltd's civil aircraft simulation and training business for approximately $130 million. The business is now a part of L-3's Electronic Systems Group and is known as L-3 Link Simulation & Training U.K. Limited.
Post-acquisition, the business will strengthen L-3's Electronic Systems Group with its full flight simulator capability and help expand into the civil simulation market. The company will thus be able to offer a full range of total training system solutions to its military as well as commercial customers. This would not only expand the company's global presence, but will diversify its product offering.
In July 2012, L-3 Communications completed the spin-off of 100% of a new, independent, publicly traded government services company -- Engility Holdings, Inc. (NYSE:EGL) -- to L-3 shareholders. The spin-off has brought ample opportunity for growth and profit expansion for the company. The spin-off removed a lot of uncertainty with respect to revenue and will also take away some of the lowest margins at the company.
These acquisitions and strategic spin-offs help the defense pros in fulfilling the task orders and contracts entered by them. For instance, Northrop has received a multimillion-dollar cyber security contract from the Maryland Procurement Office to develop, integrate and sustain cloud-based information repositories in an integrated product development team environment with the government. Buying M5 Network Security Pty Ltd would help the company to complete its cyber security contracts.
In July, Raytheon Company (NYSE:RTN) received a contract from the U.S. Army's Communications, Electronics, Research, Development and Engineering Center Space and Terrestrial Communications Directorate to develop technology for Morphing Network Assets to Restrict Adversarial Reconnaissance. Per the contract, the company will develop cyber maneuvering techniques to thwart potential attackers in high-threat environments.
The company would be helped by Pikewerks Corporation that was acquired in December 2011. The acquired unit is helping Raytheon to find a solution to sophisticated cyber-security threats facing customers in the intelligence community, the DoD and commercial organizations.
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