As the defense industry undergoes major shifts due to a declining U.S. defense budget, defense companies are continuing to adjust their future strategies to include the possibilities of mergers and acquisitions. The Defense Department is weighing in, saying it doesn’t want consolidation among the bigger defense companies.
The Defense Department recently stated it would take steps to block mergers and acquisitions among the nation’s largest weapons contractors such as Boeing and Raytheon. Last September, Boeing defense chief Dennis Muilenburg stated he would not rule out the possibility of a large-scale merger.
“We would not allow any further mergers of the big ones,” said Ashton Carter, the Pentagon’s undersecretary of Defense for acquisition, technology, and logistics, in the National Journal “On occasion we will intervene by blocking a transaction if we thought it was excessively short-term focused and had done a poor long-term risk analysis.”
Defense companies large and small have shifted their priorities to coincide with defense cuts and spending shifts from the Pentagon. While spending on more traditional weapons has been cut, other areas are seeing an increase in spending, such as cybersecurity. The U.S. military plans to spend $2.3 billion to secure its networks and engage in cyber warfare and protection, according to the FY 2012 budget proposal.
Because of this, larger defense contractors have responded by buying up smaller cybersecurity companies. BAE Systems has been on a cybersecurity buying spree this year, purchasing Norkom Group for about $344 million, Detica for $1 billion, ETI A/S for $212 million, and stratsec.net for $23 million. Other cybersecurity-related acquisitions include Raytheon winning a bidding war to acquire Applied Signal Technology for $490 million and Boeing purchased Argon ST for $775 million last year.
The bulk of the Pentagon’s spending for cybersecurity, about $1.9 billion, will go toward traditional information systems security programs. These are defined as the “entire infrastructure, organization, personnel, and components for the collection, storage, processing, maintenance, use, sharing, dissemination, disposition, display, or transmission of information.”
Another initiative that could drive cybersecurity spending is Cyber 3.0, which was launched last February as a public-private partnership. William Lynn, US deputy secretary of defense, said the Cyber 3.0 strategy is based on five pillars: cyberspace is a new domain of warfare; DoD must apply active network defenses; critical infrastructure must be secure; collective cyber defenses are needed with allies; and private sector resources must be utilized by the military.