L3 Technologies Acquires Adaptive Methods For UUV Technologies – L-3 Communications Holdings Inc. (NYSE:LLL)

Quick Take

L3 Technologies (LLL) has announced the acquisition of Adaptive Methods for an undisclosed amount.

Adaptive provides a range of research and development capabilities primarily focused on the undersea warfighting environment.

L3 has been acquisitive in the undersea space, and the deal for Adaptive is the third related acquisition in the past six months as management moves to improve its position in the nascent industry.

Target Company

Centreville, Virginia-based Adaptive was founded in 1973 to provide development of surveillance sonar systems to the US Navy.

Management is headed by Barclay Roman, President and CEO, who has been with the firm since 1996 and was previously with TRW, Seismic Engineering Company and Hydroscience.

Adaptive’s primary research areas include:

  • Sensor System Design
  • Data Acquisition
  • Algorithm Development
  • Performance Assessment

Adaptive divides its operations into three groups: Sensor Systems, Mission Systems and Integrated Systems.

The firm’s expertise lies in its technological capabilities for Unmanned Undersea Vehicles [UUV] and Anti-Submarine Warfare [ASW] in the context of sensor design and data capture.

Acquisition Terms and Rationale

Neither firm disclosed the acquisition price or terms and L3 did not file an 8-K or disclose a change in financial guidance, so I presume the acquisition was for a non-material amount.

L3 acquired Adaptive to bolster its unmanned and undersea sensor technology offerings and will fold the company into its Sensor Systems business segment

I previously wrote about L3’s acquisitions in the underwater space, here and here.

As my previous articles indicate, L3 has been increasing its investment in undersea and unmanned underwater vehicle technologies in order to provide the US Navy with greater capabilities.

This is becoming more important as the US Armed Forces shifts its focus from a Europe-centric, land-based posture to an Asia-centric water-based fighting capability.

The combination of L3 and Adaptive promises to further develop L3’s technologies in this nascent but growing area.

In a 2016 market research report by MarketsandMarkets, it forecasted the AUV (Autonomous Undersea Vehicles) market to grow from $212 million in 2016 to as much as $498 million in 2022, a CAGR of 15.31%.

While the overall market size in the forecast is relatively small, the CAGR is significant and points to increased interest by major buyers such as the US Navy, whose plans may dramatically increase depending on circumstances.

As Christopher Kubasik, L3 President and COO, stated in the deal announcement:

The addition of Adaptive Methods provides L3 with an innovative UUV autonomy technology that will broaden our capabilities in the dynamic and growing undersea market. By combining its solutions with our L3 OceanServer and Open Water Power businesses, L3 will be uniquely positioned to support the U.S. Navy’s evolving priorities. We continue to execute on a disciplined acquisition strategy that strengthens our businesses, adds cross-segment collaboration opportunities and creates value for our customers.

In the undersea military space, L3 competes with Boeing (BA), among others. In December 2016, Boeing acquired Liquid Robotics, which had developed a sea-based autonomous sensor platform.

Boeing had already created a partnership with Liquid Robotics in September 2014 and said it planned to use Liquid’s technology to ‘enhance its autonomous seabed-to-space information services’ offerings.

So, L3 continues to press forward with kick-starting its undersea sensor program and management is right to make the necessary investments or acquisition to potentially develop a leading position in the industry.

I write about M&A deals, public company investments in technology startups, and IPOs. Click the Follow button next to my name at the top or bottom of this article if you want to receive future articles automatically.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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