With Cuts Expected, Defense Contractor Stays Agile
Despite what its CEO called "an increasingly challenging environment" in the defense sector, Chelmsford-based Mercury Computer Systems is making plays in an effort to expand its offerings and to keep deals coming in.
Mercury announced this month that it has completed its $74.9-million acquisition of Micronetics, a New Hampshire firm that makes microwave and radio frequency subsystems.
A 'Well-Aligned' Fit
Micronetics' subsystems will enhance Mercury's own subsystem products, which include radar, electronic warfare, sonar and intelligence, surveillance and reconnaissance (ISR), among other applications, CEO Mark Aslett said in a statement.
"This type of integrated solution is unique in the marketplace and is in high demand by our defense prime customers," Aslett said.
He said the acquisition is "well-aligned" with Mercury's acquisition strategy, which focuses on the sensor processing chain.
Mercury, which used available cash for the transaction, paid $14.80 per share.
Micronetics has just over 200 employees.
Cuts Anticipated
The acquisition, which was first announced in June, comes as defense contractors are anticipating the effects of $500 billion in federal defense cuts over the next decade.
In Mercury's fourth-quarter earnings report, released in late July, Aslett noted that a "strong fiscal year" came during challenging times.
"The uncertainties surround the U.S. defense budget have caused a pronounced slowdown in defense program funding and contracting, which dampened our revenue and bookings for the quarter," he said.
But the company had a good fourth quarter, bringing in revenue of $60.8 million, down just slightly from $61.2 million during the fourth quarter of 2011. And for the year, revenues were up to $244.9 million from $228.7 million in 2011. Profits were also up for the quarter and for the year.
Aslett predicted challenges ahead.
"Looking forward, we believe 2013 will be another challenging year for the defense industry and for Mercury," he said.
But the company may benefit from its position in the market – its electronic warfare, missile defense and ISR technologies fit well with the Department of Defense's priorities, he added.
Combined with its M&A strategy, Aslett believes Mercury will remain capable of growth and improved profitability, despite federal budget cuts.
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