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M&A As A Proxy for R&D


Technology within the defense space is among the most advanced of any industry in the world, and large firms are driven to maintain leading portfolios of solutions at the cutting edge.  However, given that internal R&D (“IRAD”) is often not funded by their customers, larger defense contractors are increasingly looking to M&A to bolster their IP portfolios, as opposed to IRAD.  This buy-versus-build decision making is influenced by a variety of factors, with a number of respective pros and cons.  Gaining enhanced technology to meet the evolving needs of military forces can be more quickly achieved via acquisition.  Also, M&A allows large firms to accelerate growth and put their healthy balance sheets to work.  Potential pitfalls of acquiring technology include miscalculating the potential cost / benefit, and key person risk, where the creative mind(s) behind the intellectual property transition out of the business post-acquisition, and potentially take the “secret sauce” of their brainchild.

Many recent notable transactions have occurred where large defense companies made an acquisition in order to add technology instead of developing it internally – strategic interest is high for businesses with advanced, proven capabilities that fill a key need or niche.  Boeing made a series of C4ISR- and cyber-focused acquisitions to quickly diversify its business, and vault to the cutting edge of modern mission requirements.  Raytheon’s acquisition of BBN added significant sensor and detection system technology, while L-3’s acquisition of Insight expanded its suite of thermal imaging and laser aiming technology.  More recently, KippsDeSanto acted as financial advisor to two technology-focused companies in their sales to large defense firms: fuel cell maker Adaptive Materials to UK-based Ultra Electronics, and full motion video solution provider EchoStorm to ITT.

The following chart details select recent acquisitions of technologies by large defense companies.

Click to view table.