L3 To Acquire Two Information Security Firms Based Outside U.S.

L3 Technologies [LLL] on July 11 said it has agreed to acquire two companies that it said will strengthen its cyber defense capabilities, particularly for intelligence and classified missions.

L3 said it will pay $200 million for the companies, which will be combined as L3 Trenchant, and that the deals include a $32 million earn out provision payable in its stock based on post-acquisition sales.

Linchpin Labs is a Canada-based software development company focused on computer network operations, cross-platform and low-level systems, development, and information technology security services. Australia-based Azimuth Securityprovides consulting services around software systems, including threat modeling and design, configuration and source code review.

The companies have a presence with governments, defense and security agencies globally.

“These acquisitions sharpen our capabilities, heighten our responsiveness and advance L3’s prime position as a C6ISR solutions provider,” Christopher Kubasik, chairman, president and CEO of L3, said in a statement. C6ISR stands for command, control, communications, computers, cyber-defense and combat systems, intelligence, surveillance and reconnaissance.

Kubasik is putting a renewed focus on acquisitions as the company’s chief.

“We are making targeted investments in cutting-edge technologies and integrating them with existing capabilities to support our domestic and international customers in strategically important business areas,” he said.

L3 said the deals are expected to close in the second half of 2018, subject to regulatory approvals. Trenchant is expected to add $65 million to L3’s sales in 2019.

Jefferies aerospace and defense analyst Sheila Kahyaoglu said Trenchant has 80 employees. The future business unit also has offices in the United States and the United Kingdom.

Jeff Miller, president of L3’s Sensor Systems segment, which Trenchant will become part of, said in a statement that “These pioneering intelligence solutions—the ‘I’ in ISR—give our customers and intelligence advantage through next-generation network security and threat mitigation.”

Kahyaoglu said in a client note that she estimates that the operating margins for the two businesses being acquired are in the mid-30 percent range and believes the deals could add 20 cents to earnings per share in 2019.

“The deal is a good fit with potential for revenues synergies given LLL’s product and customer reach,” she said, adding that, “The cyber technology can be further integrated and embedded into LLL’s product lines with opportunities for joint development.”





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