M&A

Raytheon to take full control of Forcepoint cyber venture. Then what?

Raytheon will soon own all of the Forcepoint commercial cybersecurity joint venture once the defense company and its private equity partner iron out the details.

During Raytheon’s third quarter earnings call with investors Thursday, Chief Financial Officer Toby O’Brien said Vista Equity Partners has exercised its option that requires Raytheon to acquire the remaining interest in Forcepoint.

Forcepoint's roots go back to 1994 when it was founded as NetPartners. In 1999, it changed its name to Websense and was acquired by Vista in 2013. Two years later, Raytheon acquired 80 percent of Websense and the venture was rebranded as Forcepoint.

O’Brien said Raytheon and Vista are in negotiations over the final price for the remaining 20 percent Vista owns. Then there is the question posed by one analyst on the call of what role Forcepoint will have in the future Raytheon Technologies, the company being formed out of Raytheon’s merger with United Technologies Corp.’s aerospace and defense businesses anticipated to close in the first half of next year.

“Soon we’ll own 100 percent of Forcepoint, and our plans have not changed,” Raytheon CEO Tom Kennedy said on the call. Raytheon will "monetize Forcepoint to create value for our shareholders.”

Kennedy added that Raytheon sees “a lot of optionality relative to how we do monetize that, but it all remains in play in terms of monetizing the asset.”

One option for Raytheon has already been posed by analysts in the past: an initial public offering of Forcepoint, whose CEO has also raised that possibility in the past.

Raytheon executives have tamped down the prospects of an IPO of Forcepoint and instead talk up the investments being made to get that business better positioned with larger enterprise customers such as governments and Fortune 500 companies.

When Raytheon announced the megadeal with UTC in June, the companies said Forcepoint would reside in a consolidated intelligence, space and airborne systems segment that would be formed from two other Raytheon divisions: intelligence, information and services, plus space and airborne systems.

Keep in mind when considering Forcepoint’s future that it has its own executive team and board of directors in a similar manner to how direct competitors like Symantec and Palo Alto Networks operate. This is different from how other defense companies have managed their commercial cyber shops in the past before nearly all of them sold those businesses.

Forcepoint also collaborates with Raytheon’s IIS services segment on ideas and new offerings. While Forcepoint is more product-focused, IIS houses the bulk of Raytheon’s mostly-classified government cyber work with defense and civilian agencies.

Raytheon’s guidance for this year sees Forcepoint posting $700 million in revenue at a 1-3 percent operating margin. The unit recorded $634 million in sales and a 1-percent margin last year.

In the meantime, Raytheon had other news to share this week regarding what the management team will look like after next year’s anticipated closure of the merger with UTC’s defense businesses. Raytheon will consolidate five of its segments down to two for the merger.

In a release Wednesday, Raytheon said Roy Azevedo will become president of the consolidated intelligence, space and airborne systems segment. The company estimates that segment would have $15 billion in revenue this year if it operated as such.

Wes Kramer was appointed president of the future integrated defense and missile systems segment, which brings together the current integrated defense systems and missile systems units. Raytheon estimates that combined business to have around $16 billion in revenue this year.

Azevedo has led the space and airborne systems segment as president since August 2018 and is a 30-year company veteran, while Kremer was appointed missile systems chief in March of this year and first joined the company in 2003.

Raytheon has previously announced O’Brien will become CFO of the future company. UTC CEO Greg Hayes will be chief executive of Raytheon Technologies with Kennedy slated to be chairman of the board of directors.

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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