In recent history, most investment philosophies and procurement priorities around network security have been devoted to building stronger and higher barriers. However, this legacy approach is insufficient in the context of the ever-evolving cyber threat environment and the continuous digital enablement of practically all business artifacts.
The markets were closed on Friday in observance of Good Friday, but shares rose since Monday with the Dow and S&P 500 climbing about 1.3% and NASDAQ rising 2%, as a number of 1Q11 earnings reports were released that exhibited strong performance.
Technology within the defense space is among the most advanced of any industry in the world, and large firms are driven to maintain leading portfolios of solutions at the cutting edge. However, given that internal R&D (“IRAD”) is often not funded by their customers, larger defense contractors are increasingly looking to M&A to bolster their IP portfolios, as opposed to IRAD.
After months of speculation, NetWitness Corporation announced its acquisition by EMC Corporation / RSA Security on April 4th. NetWitness, a market leader in network security analysis solutions, had long been a prime target of potential acquisition overtures.
Earlier this month SRA announced plans to be acquired by New York based Providence Equity Partners, joining Altegrity – parent of federal contractor USIS – in the Providence portfolio. The announcement culminates months of speculation following a “highly conditioned expression of interest” from Serco last December.
Private equity has consistently been an active player in the government and defense services space, but has recently raised the eyebrows of other industry participants and strategic buyers alike with increasing deal announcements over the past few months, including very high profile transactions, such as SRA, GTEC, and EIG. One needs to look no further than the credit markets as a driving force behind the increased activity, as credit has eased of late for larger assets with earnings before interest, taxes, depreciation, and amortization (“EBITDA”) of $10 million plus.
Shares fell slightly for the week with the Dow dropping 0.3% and the S&P 500 and NASDAQ each falling approximately 0.6%. Aerospace/defense and government services companies underperformed this week in the wake of news that the Obama administration would be seeking an additional $400 billion of cuts to the defense budget over the next 12 years.