GRAHAM WARWICK / WASHINGTON DC
DRS Technologies and Precision Castparts point the way as they expand by absorbing rival manufacturers
Substantial acquisitions announced by defence electronics company DRS Technologies and metal components manufacturer Precision Castparts (PCC) may signal a trend towards consolidation of mid-tier US suppliers. PCCis to acquire fastener supplier SPS Technologies in a cash and stock transaction worth $729 million, while DRS is to buy rival electronics manufacturer Integrated Defense Technologies (IDT) in a cash, stock and debt deal valued at $550 million.
Parsippanny, New Jersey-based DRS has grown rapidly in recent years on a series of acquisitions that have boosted revenues almost fourfold in five years. Revenues for the 2003 fiscal year ended 31 March were $676 million, a 31% increase over FY2002, of which just 6% was due to organic growth. The IDT acquisition will boost FY2004 revenues from an expected $800-810 million to $965-995 million, rising to $1.2-1.3 billion in FY2005. This will lift DRS from 52nd place in the Flight International Aerospace Top 100 into the low 40s (Flight International, 5-11 August).
Whereas analysts believe DRS is buying Huntsville, Alabama-based IDT primarily to increase its size, as the companies have overlapping technologies, but different programmes, Portland, Oregon-based PCC sees the potential for significant savings through the acquisition of SPS. PCC's last major acquisition was forgings specialist Wyman- Gordon in 1999, for $721 million. Since then the company has reduced costs and kept double-digit margins despite the downturn. Margins at Jenkintown, Pennsylvania-based SPS are lower, and PCC expects to achieve annual savings of $20-25 million in 12-15 months, rising to $30-35 million a year.
Precision Castparts' revenues for the year to 30 March were $2.1 billion. SPS sales for calendar year 2002 were $830 million. PCC says the acquisition will lift aerospace revenues from $1 billion to $1.4 billion.
Source: Flight International