L-3 Eyes Homeland Security Acquisitions

With a strong financial quarter under its belt, the surveillance systems vendor looks to homeland security and military defense for future growth and possible acquisitions.

Riding high on a stellar financial quarter, surveillance systems vendor L-3 Communications Holdings Inc. is pondering future opportunities—and possible acquisitions—in cargo security and other antiterrorist aspects of homeland security, as well as in military defense.

After announcing a 21.2 percent leap in earnings for the fourth quarter of 2004, L-3 Chief Executive Frank Lanza said during a Webcast on Tuesday that he expects L-3 to experience "moderate" growth in 2005, but more substantial growth during 2006.

As drivers behind the anticipated future growth, Lanza pointed to needs for cargo security, port security, satellite security and airport gateways for secure check-in, for example.

But for initiatives to happen, the Department of Transportation needs to use "strong leadership" in presenting homeland defense needs to the U.S. Congress and the Bush administration, Lanza told the financial analysts.

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In a statement issued Tuesday, L-3 cited military spending and recent acquisitions as two factors contributing to the companys fourth quarter sales of $119.3 million.

Also in the statement, Lanza said that he believes the U.S. military budget will grow at a conservative rate during 2005, with a focus on cost containment. He said that the Bush administration has made it a priority to increase the homeland security budget, and that the U.S. Congress is also quite interested in protecting cargo, ports and maritime travel.

Lanza said, too, that L-3 can be expected to make acquisitions in 2005 that will supplement its existing products and services in intelligence, communications, sensors, training and simulation, and government services.

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Recent acquisitions already completed by L-3 include Vertex Aerospace; MAS (Military Aviations Services); AVISYS, Inc; Cincinnati Electronics; and some of IPICOM Inc.s defense and aerospace assets.

The U.S. Justice Department is now considering three other acquisitions proposed by the company, Lanza said during the Webcast.

Also during the Webcast, Lanza told the analysts that L-3s acquisition pipeline is "hectic" right now, but that L-3 is "staying fairly disciplined."

Possible acquisitions now being eyed include vendors in the United Kingdom and Germany, according to the chief executive.

Lansa also cited a current trend toward large vendors spinning off some of their assets in the areas of defense and homeland security.

In the homeland security business, L-3 already sells products and services in categories such as explosives detection systems; bioterrorism defense; sensors; aviation, cargo, port and maritime security; border security; and crisis management.

As one looming competitive threat, Lanza cited General Electric Co.s sudden moves into the homeland security business.

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