Do acquisitions support Lockheed Martin’s growth strategy?



Lockheed Martin on an acquisition spree

As we saw in the previous article in this series, Lockheed Martin’s revenue has been negatively affected by U.S government spending cuts through sequestration and the Budget Control Act (or BCA) of 2011. Future revenue growth is also at risk, given Congress’s deadlock over the rollback of the BCA. As the largest defense contractor, Lockheed Martin is better positioned than its peers. But management does realize the need to look for different avenues for growth.

One of these steps involves acquiring new companies to improve its product portfolio, strengthen its competence, and increase international sales that should aid growth. In fact, the company has been on an acquisition spree since 2011.

LMT Acquisitions

Lockheed Martin’s acquisitions

2011: The company acquired QTC and Sim Industries B.V. for $649 million. QTC provides medical evaluation services to the U.S. government and has joined Lockheed Martin’s IS&GS segment. Sim Industries is a commercial aviation simulation company and has joined the MST segment.

2012: Lockheed Martin acquired Chandler/May, Inc., CDL Systems Ltd., and Procerus Technologies Ltd. for $304 million. All these companies specialize in advanced unmanned systems and now form a part of Lockheed Martin’s MST business segment.

2013: Lockheed Martin acquired Amor Group from the United Kingdom for $269 million. Amor Group provides IT services for energy firms, passenger tracking at airports, and security. The company is now part of the IS&GS segment.

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2014: LMT has already completed four acquisitions this fiscal year and is in talks to close a fifth. Its acquisition with EONTRA AG provides LMT with forecasting services for commercial airports. Acquiring Astrotech Space Operations Inc. provides LMT satellite launch prep technology. Its acquisition of Deposition Sciences Inc. gives it the capability to manufacture thin film coating used in its Aeronautics division. Lockheed Martin’s latest acquisition of Zeta Associates Inc. provides the company with the ability to gather, process, store, and analyze digital communication signals.

The strategy

The strategy at play seems to be vertical integration of services that Lockheed would have otherwise ended up subcontracting to other players. While the acquisitions will definitely aid revenue growth through higher international sales and new product portfolio, they will also help Lockheed Martin in reducing overhead costs.

Lockheed’s competitors include Rockwell Collins (COL), The Boeing Company (BA), and Excelis Inc. (XLS), some of which are also part of the Industrial Select Sector SPDR (XLI).


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