By Calvin Biesecker

General Dynamics [GD] yesterday said it has agreed to acquired Axsys Technologies [AXYS] for $54 per share in a cash deal that would expand the company’s offerings in sensors and imaging systems by adding electro-optical and infrared products and related products.

The transaction is valued at $643 million and is expected to close in the third quarter of 2009 pending approval by government regulators and Axsys’ shareholders. Axsys announced in March that it was exploring options for the sale of the company after the bottom fell out of its stock price beginning last year and strategic buyers became interested (Defense Daily, March 13).

The acquisition is being carried out by GD’s Advanced Information Systems (AIS) business unit, which is part of the company’s Information Systems and Technology Group. In the intelligence, surveillance and reconnaissance space, AIS does image processing, exploitation, dissemination, signal intelligence, command and control, and has a family of radar products.

The acquisition of Axsys expands its ISR capabilities by adding EO/IR systems, optical products, gimballed cameras and other motion control products.

“Axsys Technologies delivers innovative, high-value products in a market segment that is strategic for General Dynamics AIS,” Lou Von Thaer, president of AIS, said in a statement. “Adding Axsys’ capabilities to our existing intelligence, surveillance and reconnaissance expertise will enable us to further strengthen our portfolio of offerings and discriminators in the high-growth tactical ISR market.”

Axsys’ primarily services government markets through systems integrators and less than 10 percent of its sales are to commercial customers. Its two largest customers are Britain’s BAE Systems and Raytheon [RTN]. For BAE, Axsys provides optics for the Army’s Common Remotely Operated Weapons System (CROWS) program and the Thermal Weapon Sight (TWS) program and for Raytheon the company also provides optics for TWS. BAE accounts for 23 percent of Axsys’ revenues and Raytheon 11 percent, and Axsys spokesman told Defense Daily.

Other important programs that Axsys is on include the Army’s Counter Rocket, Artillery and Mortar, and Base Expeditionary Targeting and Surveillance Sensors-Combined programs, Customs and Border Protection’s Secure Border Initiative and Mobile Surveillance System programs, and international border security programs.

Axsys is also finding customers for its gimballed camera systems used on manned aircraft and sells its optical products for use on unmanned aerial vehicles. The company says it is about a year away from being able to offer gimballed cameras for operations on UAVs.

Axsys, which is based in Connecticut, appears to be solid financially. The company expects to have sales this year of $280 million, up from $245.5 million in 2008, which itself was a 43 percent increase over 2007. Net income last year was $25.9 million, up 54 percent from 2007. Through the first quarter of 2009, sales are up 18 percent to $66.6 million and net income is up 37 percent to $7 million. Backlog stands at $162.1 million.

GD expects the acquisition to be neutral to earnings this year and accretive next year. Morgan Keegan analyst Brian Ruttenbur estimates the deal will add five cents to earnings per share in 2010 and seven cents in 2011.

Axsys’ key competitors are FLIR Corp. [FLIR] and ICx Technologies [ICXT].

Axsys’ stock price closed yesterday at $53.51, up $3.51, or 7 percent, from Wednesday’s closing price. Last summer, the company’s shares peaked near $74 before dropping to under $25 in March. Shortly afterward, the stock climbed into the $40-plus share range when Axsys announced it was exploring a sale. The company’s financial adviser on the deal is Jefferies & Co.