No. 11: BAE keeps acquisition fires burning

After doubling its size last year through a major acquisition, BAE Systems Inc. could have taken a breather from its buying spree. But it shows no sign of slowing down.The U.S. subsidiary of the United Kingdom's BAE Systems Plc within months is expecting a fresh infusion of cash from the anticipated sale, by its parent company, of a 20 percent ownership stake in Airbus Inc., the commercial airline manufacturer. The stake could be worth $5 billion, analysts said.The company's growth has helped land BAE at No. 11 on the Top 100 list, with $1.4 billion in prime IT contracting revenue.The influx of cash means that Lucy Reilly Fitch, vice president of corporate development for the Rockville, Md., division, is juggling up to 20 prospective acquisitions at a time. She is looking at "all types of companies, large and small," with the goal of again doubling revenues for the U.S. subsidiary, to about $20 billion, in the next several years, she said."I know we're not alone," Fitch said of the hot acquisition market for U.S. defense contractors. "The big five, the big 10, they're all flush with cash and looking for opportunities to deploy it."BAE spent $4.2 billion in March 2005 buying United Defense Industries Inc., maker of the Bradley Fighting Vehicle. It is one of several acquisitions, including five in 2004, that have grown the North American subsidiary from about $250 million in sales in 1993 to about $10 billion now in 2005.Fitch said she has been involved in 16 acquisitions and about eight or nine sales in the six years she has been responsible for BAE's mergers and acquisitions. The purchases have been as small as $8 million."In 2005, we looked at 125 deals, which is 30 percent more than in 2004," Fitch said. "We are well known in this space. We've been discovered."With the pending sale of the Airbus stake, Fitch confirmed reports that BAE continues, as it has for several years, to focus on additional opportunities in the North American defense market."The U.S. defense market is bigger than the next 14 combined," Fitch said. Ten years ago, large defense companies had sales in the range of $4 billion to $5 billion. Today it is closer to $30 billion. "That is what is driving our growth," she said.Even so, it's a challenge to be a buyer in a seller's market with valuations at extremely high levels, Fitch said. The government market's high growth rates since the Sept. 11 terrorist attacks cannot be sustained. With budget growth likely to slacken in the next several years, sellers are trying to sell at the peak, she said. Meanwhile, buyers, including BAE, are determined to expand to better compete."The goal is to position to sustain yourself during the downturn," Fitch said.BAE, in absorbing United Defense, also has been undergoing an internal transformation and now is ready for more prime contracting work, Fitch said."In 2005, we went from being a tier-two systems supplier to a tier-one platform prime," she said."Most of what we did before was as a subcontractor. Now our largest customer is the Army, followed by the Navy."