M&A

Two more deals for L3's defense makeover

L3 Technologies' latest acquisitions of two information security firms are another example of its ongoing effort to recast the company as a more formidable defense technology player.

The company Wednesday said it will acquire a pair of information security companies for at least $200 million combined in an effort to further build its cyber, intelligence and surveillance portfolio.

Azimuth Security and Linchpin Labs focus on computer network operations and vulnerability research for intelligence, defense, security and other government agencies around the world that operate in the classified domain.

New York City-based L3 touts the addition of both companies as part of a strategy to create synergies in and strengthen offerings for "C6ISR" -- command, control, communications, computers, combat systems, cyber defense, intelligence, surveillance and reconnaissance.

This move continues a busy period for L3 on the acquisition front as CEO Chris Kubasik is seeking to transform the company into a "nontraditional sixth prime" focused on defense technology domains prioritized in the 2017 National Security Strategy. L3 closed its first deal of the year earlier this month in space technology company Applied Defense Solutions.

In 2016, L3 made four acquisitions worth a total of $388 million, and eight deals in 2017 worth $317 million.

The company is not just buying. It has also been an active seller, including a May deal to sell its Vertex Aerospace business and two other smaller units, Crestview Aerospace and TCS, to American Industrial Partners for $540 million.

That move came two years after the sale of the former L3 National Security Solutions business to CACI International. L3 also exited much of the government services market in 2012 when it spun off the business now known as Engility Corp.

L3 expects to close the Azimuth and Linchpin deals second half of this year pending regulatory approvals and other closing conditions, after which the businesses will become L3 Trenchant. L3 will pay an initial $200 million to acquire the businesses and that price could increase by $32 million in stock based on Trenchant's post-acquisition sales over the next three years.

Sydney, Australia-based Azimuth provides analysis of software systems and performs threat modelling and design, configuration and source code review services for enterprise customers. Ottawa, Canda-based Linchpin is a customized software developer centered on computer network operations, cross-platform and low-level systems development, and IT security services.

The initial purchase price values the L3 Trenchant businesses together at seven times their expected 2019 earnings before interest, taxes, depreciation and amortization expenses. L3 expects them to add $65 million in net revenue for 2019.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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