Federal security market reaches maturity

Market Watch | Financial views of a competitive environment

Slowing growth in government spending has
intensified contractors' search for other
growth areas, particularly those with high priority,
within the budgets at all levels of government.
Outlays directed at upgrading and
improving security meet this high-priority test.

Security-oriented spending is
likely to grow even in a slowgrowth
spending environment. The events of the past five to 10
years ? most recently in
Pakistan, North Korea and the
Middle East ? have raised the
awareness of security in all its
facets and forms across government
and commercial markets.

Government entities and
multinational companies have
employees and facilities scattered
worldwide. Their assets
include huge volumes of data,
much of which is confidential.

Furthermore, they are doing business
in foreign jurisdictions, in unfamiliar
cultures, and often with insufficient
or underdeveloped infrastructures.
Hence, critical asset protection
? human, physical, intellectual and
digital ? is essential. And companies
are emerging with the experience and
technical know-how to configure,
deliver and support those comprehensive
security solutions.

Security initiatives have
often been addressed on a
balkanized basis at the
local level, much like
information technology in
its early years. Many companies
in the security arena address
one or two of the identified threats and
deploy technologies and processes specific
to the circumstances.

However, exciting new products and
systems have emerged, including better
cameras, screening, access control
and identification technologies. Spectroscopy
and improved sensors are
available to detect, capture and transmit
imagery, sights, smells and sounds.
Sophisticated software and complex
algorithms offer pattern-recognition
capabilities, tools that defense and
intelligence operations have been
using successfully for many years.
Captured raw material can be digitized,
communicated and stored in a
security data warehouse, thus providing
the foundation for analysis, feedback
and systematic decision support.
Essentially, those elements provide a
framework for integrating security
components across organizations,
geographies and asset types.

This might all sound familiar
because many of the elements fit in
the area known as command, control,
communications, computers, intelligence,
surveillance and reconnaissance.
Together with physical security,
C4ISR encompasses most of the elements
needed for delivering the
enterprise-level security solutions
large entities seek.

Software, hardware, delivery systems,
vehicles and people are components
of those solutions. Government
or commercial entities seeking to
examine their security environment at
the enterprise level might increasingly
turn to experienced lead systems integrators
to guide them. Similar to IT
and other military systems, the integrator
functions include developing
the architecture and managing the
implementation of the solution. The
activities entail assembling contracting
teams, negotiating prime and subcontractor
teaming arrangements, and
organizing the installation, training
and support functions.

Many companies have entered the
security market in the past five years,
introducing new products or migrating
their capabilities from commercial
to government markets. Several federal
market integrators have technologies
and experience that could prove
effective in this segment. Newer companies
that seek to provide such solutions
on an international basis include
Global Strategies Group and Olive
Group.

Senior executives at those firms have
extensive experience in the defense
and intelligence business and bring
significant expertise on the nature of
security threats, effective technologies
available and knowledge of where to
find the necessary resources to deliver
security solutions. Abraxas Corp. is
another example of a business integrating
experienced national security
people with emerging technologies to
develop riskmitigation
solutions.

I expect several companies to
achieve above-average growth by
addressing this demand well into the
future.

Jerry Grossman is managing director at
Houlihan Lokey Howard and Zukin. He can be
reached at jgrossman@hlhz.com.

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