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Second Quarter 2016
Noteworthy M&A Activity
Since World War II, the U.S. military periodically undertakes large-scale strategic
initiatives to “offset” perceived deficiencies in its conventional forces. Most recently, the
DoD launched the Defense Innovation Initiative (“DII”) to develop a “third offset
strategy” that counters adversarial advances in Anti-Access/Area Denial (“A2/AD”)
capabilities. Components of the DII budget include
cyber and electronic warfare
,
submarine and undersea warfare
,
autonomous systems and human-machine
teaming
,
A2/AD and anti-A2/AD capabilities
, and
war gaming and concept
development
. A2/AD threatens to disrupt the military’s ability to deploy forces and
establish air, space and maritime superiority. Threats include ballistic missiles designed
to pinpoint key ground facilities, as well as counter-maritime and counter-air systems
targeting mobile assets, including space and cyber assets.
M&A activity suggests that some companies already positioned themselves for these
developments. Transactions relating to these capabilities can be found more than
three years ago, with the A2/AD, Undersea Warfare, and Man/Machine categories
showing an upward trend. For example, Chemring Group acquired missile defense
technology from Wallop Defense Systems providing infrared decoy flare
countermeasures against both air-to-air and ground-to-air missiles. In Undersea
Warfare, Hungtinton Ingalls Industries acquired the Engineering Solutions division of
Columbia Group, which manufactures both manned and unmanned undersea war
vehicles, testing of mine warfare systems, and torpedo countermeasures. Additionally,
General Dynamics Corp. acquired Bluefin Robotics Corp. for its UUV capabilities in
order to integrate UUVs into its existing Naval platforms. The Man/Machine category
extends beyond unmanned vehicles to include human-machine collaboration in the
form of autonomous systems, robots and artificial intelligence. Arlington Capital’s
recently acquired iRobot Corp.’s Defense & Security business brings capabilities
including behavior-based robots that can be deployed in hostile environments to
provide warfighters with invaluable situational awareness while replacing human
casualties.
Industry Trends
(Defense and Government Services)
DoD DII Estimated Annual Budget ($ in Billions)
3.0
Undersea Warfare
3.5
A2/AD
1.7
Cyber & Electronic Warfare
3.0
Man/Machine
0.5
Wargaming & Concept
30%
26%
26%
15%
4%
LTM 3
rd
Offset Deals by Category
Buyer
Target
M&A Close Date and Strategic Rationale
Chemring
Group
Wallop Defense
Systems [Assets]
May '16:
Infrared decoy flare countermeasures
against air-to-air and ground-to-air missiles
Arlington
Capital Partners
EOIR
Technologies
Jun '16:
Electromagnetic Maneuver Warfare
Command & Control, among other capabilities
J.F. Lehman &
Co.
API Technologies
Apr '16:
RF, microwave, millimeterwave, and
electromagnetic systems for electronic warfare
Huntington
Ingalls
Industries
Columbia Group
[Engineering
Solutions]
Jan '15:
Manned/unmanned undersea war vehicles,
mine warfare systems, torpedo countermeasures
Kraken Sonar
Systems Inc.
Marine Robotics
Nov '15:
World-class underwater robotics technology
and related intellectual property rights
Arlington
Capital Partners
iRobot
Corp.
[Defense
&
Security]
Apr '16:
Behavior-based robots providing warfighters
with invaluable situational awareness
Braxton
Science
&
Tech. Group
Space/Ground
System Solutions
Mar '16:
Combine expertise to foster innovations in
human-machine collaboration
Veritas Capital
Fund Mgmt.
Alion
Science
and Technology
Aug '15:
Modeling, Simulation, Training, and
Analysis for explosives, robotics and AI
0
5
10
15
20
25
30
35
3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
A2/AD Electronic Undersea Man/Machine Wargaming
Source: InfoBase; Capital IQ and Industry Newswires