TOP 100: No. 15

TOP 100: L-3 sees more acquisitions as key to growth

When L-3 Communications acquired Data Tactics Corp. in March, the move underscored a key strategy for L-3 as it shapes its portfolio to expand business in the aerospace, electronic systems, communications and security-technology markets.

“Acquisition is an important part of L-3’s strategy going forward,” said Les Rose, president of the New York-based company’s National Security Solutions division.  “We’re always interested in the opportunity to acquire something that makes sense for our business. We don’t acquire it just for the sake of acquiring it. It has to fit into our strategy.”

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The company is ranked No. 15 on the Top 100 with $1.9 billion in prime contracts during fiscal 2013.

The acquisition of Data Tactics, renamed L-3 Data Tactics, added big data analytics and cloud computing services to L-3’s portfolio. It also brought a talented workforce of more than 150 data scientists, engineers,  architects and developers, most of whom have U.S. government security clearances, L-3 officials said.

Rose said the acquisitions and mergers market is more stable as a result of the two-year budget agreement signed by President Obama last December.

“The [military] drawdown, sequestration and the budget reductions in general made the M&A market less predictable,” Rose said. “Now that we have a clear budget for this year and next year and even beyond next year if you look at sequestration impacting the budget, it will still remain fairly stable. I think you’re going to an increase in activity across the market in M&A because of the stability in the budget.”

The Data Tactics deal was L-3’s second major acquisition in six months. In December, the company acquired the Mustang Technology Group, which expanded L-3’s Defense Department and classified business base. Now named L-3 Mustang Technology, the Texas-based company manufactures radar-based sensors and systems used in precision guided weapons, electronic warfare, unmanned systems and other military applications.

“There are a lot of properties available for acquisition today but we’re being very selective in those properties that really have a strategic interest for the organization as a whole,” Rose said.

Another strategy for L-3 is expanding its international business, especially where there is a demand for security technologies, Rose said.

“We’ve increased our market share significantly in international over the last two years and we continue to move in that direction to offset the DOD budget reductions,” he said. “There is a demand in security—border security, etc.—where many countries are becoming interested in having a better solution. That’s how we’re positioned and looking forward to going in to 2015 and 2016.”

On the global front in the last year, L-3 won a $38.5 million contract to supply SATCOM terminals to the Australian Defense Force and another contract with a potential value of $669 million to provide program management, engineering support and other services for Canada’s CC-150 Polaris fleet.

While the U.S. federal budget deal has helped steady the contracting market, years of budget chaos have left a residual impact that will continue to challenge companies, Rose said.

“Even though the budget is set, the uncertainty that was put into the system by the budget and sequestration process hasn’t worked its way completely out,” he said. “So we’re seeing delays in contract awards beyond what would be normally expected. I believe part of that is just getting the acquisition system performing again at the rate that it was prior to sequestration. So while the budgets are there, there is some time delay in actually getting decisions on awards.”

Despite such hurdles, L-3 has chalked up some key wins in recent months, most notably a $357 million task order awarded last September to the National Security Solutions group to supply software development, systems integration, distance learning and IT technical support services to the U.S. Army Reserves’ Reserve Component Automation program.

“We were able to move [the Army Reserves] from their [legacy] systems to an agile software development system in 90 days,” Rose said. “The program is off to a great start.”

About the Author

Richard W. Walker is a freelance writer based in Maryland.

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