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General Dynamics Corporation (GD - Analyst Report) entered into a definitive agreement to acquire Fidelis Security Systems Inc. for an undisclosed amount after receiving approval from the Board of Directors of both companies.
The acquisition is expected to be completed in the third quarter of 2012.
Post acquisition, Fidelis Security Systems will become a part of General Dynamics Advanced Information Systems, a unit of Information Systems & Technology ("IS&T") that provides end-to-end intelligence, surveillance and reconnaissance ("ISR") solutions across all domains. During the second quarter of 2012, the backlog was marginally lower year over year for Information Systems & Technology, but the total potential contract value for the segment was $31.1 billion, up from $25.3 billion in the year-ago period.
Fidelis Security Systems Inc., a market leader in cyber security tools, provides real-time network visibility, analysis and control. Its network security solutions assist customers in recognizing threats beforehand and thereby prevent them. Moreover, it averts data breaches by providing visibility into the complex layers of network.
The acquisition will make the company well positioned to deliver relevant and innovative cyber security solutions that help customers respond to dynamic cyber threats. Therefore, both the companies will focus on advanced threat defense innovation and will introduce ample opportunities into the market with more and more comprehensive products that will protect against threats.
The company is busy making acquisitions and boosting its portfolio in all its segments. General Dynamics recently completed the acquisition of the Ship Repair and Coatings Division of Earl Industries. Earl Industries is a leading East Coast ship-repair company that supports the U.S. Navy fleet in Norfolk, Virginia and Mayport, Florida. This acquisition will improve the company’s ability to compete in the growing naval ship-repair market.
In June, the company also completed the acquisition of IPW Holdings Inc., the parent company of IPWireless Inc. IPWireless provides 3G and 4G LTE wireless broadband network equipment and solutions for public safety and military customers, and will now be known as General Dynamics Broadband.
Also, one of the company’s peers, Northrop Grumman Corporation (NOC - Analyst Report) agreed to acquire privately held M5 Network Security Pty Ltd, at Canberra on June 7, 2012. Australia-based M5 Network Security provides cyber security and secure mobile communications products and services, and advanced analytics to Australian military and intelligence organizations.
These acquisitions in various spheres prove that the aerospace and defense industry is looking forward to strategic acquisitions as the highest-priority investment area to boost growth.
Particularly, for General Dynamics, the acquisition strategies will prove to be fruitful for the company going forward. Furthermore, its business jet market, its stable business of U.S. military vehicles, an ongoing share repurchase program and strong cash flow generation are key drivers for the company’s growth.
However, we are concerned about the defense budget and risks related to the execution of key projects. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Based in Falls Church, Virginia, General Dynamics Corporation engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation.
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