Boeing has snapped up a key signals intelligence (SIGINT) specialist in a $775 million bid to strengthen its pursuit of the airborne surveillance market and grab defence market share amid declining military spending growth.
The proposed cash acquisition of Argon ST - a long-time supplier to Boeing and other major primes - is expected before October and follows Boeing's acquisition last year of Digital Receiver Technologies, another key supplier in the growing SIGINT market.
The combination of Argon and DRT creates a "SIGINT powerhouse" under the Boeing brand, BB&T Capital Markets analysts say in a research note on the deal. BB&T's Michael Lewis believes Boeing now has "a competitive advantage" in the SIGINT market.
Boeing plans to submit an offer for the US Army enhanced medium altitude reconnaissance and surveillance (EMARSS) contract based on a modified Beechcraft King Air 350ER.
In the long term, the US Navy plans to replace the EP-3E Aries II fleet, although the requirement was cancelled earlier this year. In June, Argon's Collins predicted that the EP-X contract would come back, and will include a "widebody manned aircraft component and will likely have a high-altitude and probably, let's say, tactical-level UAV component as well".
Boeing Networks and Space Systems president Roger Krone says Argon's "technology truly does complement our own with very little overlap". Argon boss Terry Collins adds: "What we wanted to do was to find a company that could leverage our products and capabilities and with which we had a good fit."
Boeing and Argon had already teamed up to compete for the EP-X contract two years ago. If the acquisition is completed, Boeing would benefit from bringing more of the value stream from such potential contracts in-house, Lewis says.
Grabbing market share in such deals will become more important for prime contractors to sustain business growth amid projected declined military spending, he says, adding: "It is really a market share grab-game in the marketplace today. There aren't many new opportunities out there."