Raytheon [RTN] recently said it has agreed to acquire the defense electronics firm Applied Signal Technology Inc. [APSG] for $38 per share, worth $490 million in cash, saying the deal would enhance its integrated sensor solutions.
Applied Signal specializes in systems, products and services related to communications and signals intelligence (COMINT/SIGINT), cyber intelligence and sensor signature processing. About 90 percent of the California-based company’s sales are to classified customers.
Applied Signal had $13.2 million in net income on $225.2 million in sales in its fiscal year that ended in October. New orders for the year totaled $221.6 million. The company is projecting that operating income in its new fiscal year will be between $22 million and $25 million and sales between $250 million and $270 million.
Raytheon said the deal would be immaterial to its earnings next year.
“Applied Signal aligns with our strategy of expanding participation in our customers’ principal areas of need, particularly ISR (intelligence, surveillance and reconnaissance) systems,” Rick Yuse, president of Raytheon’s Space and Airborne Systems (SAS) sector, said in a statement. “Joining Raytheon’s radar, electro-optical/infrared sensors, and communications technologies with Applied Signal’s SIGINT/COMINT systems will enhance our ability to deliver a full spectrum of integrated sensor solutions.”
Applied Signal will be integrated into SAS.
Morgan Keegan defense and security analyst Brian Ruttenbur, who covers Applied Signal and Raytheon, told Defense Daily yesterday that he’s unclear as to the actual technology synergies between the two companies. Applied Signal typically does small production volumes compared to longer production runs for Raytheon, he said. He sees it as a “make-up” acquisition after Raytheon was an unsuccessful bidder last summer for the defense electronics firm Argon ST, which was acquired by Boeing (Defense Daily, July 1).
The transaction is expected to close during the first quarter of 2011 pending regulatory approvals and a tendering of the outstanding shares by Applied Signal’s stockholders.
Just about all of Applied Signal’s sales are generated either through prime contracts with the United States government or with prime contractors that do business with the U.S. government. The company’s three biggest projects are Next-Generation ASA, Tiffany and Thunderdome, all of which are aliases for classified programs and account for about 40 percent of sales.
Applied Signal announced in October that it was exploring strategic alternatives. Its financial advisor on the deal is Merrill Lynch.
Applied Signal develops and makes sensors and digital processing equipment that uses advanced software. The company says that its cyber intelligence include high-speed network monitoring, deep packet inspection, and high end software engineering services. The company is also highly regarded for its information processing from various sensors including electro-optic, sonar, radar, magnetic and chemical.
In the spring Applied Signal acquired Seismic, LLC, a firm involved in cyber security, software engineering, data management, and systems engineering and integrations services for the Defense Department and intelligence community.