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Defence contractor BAE Systems is on the verge of buying Detica, the IT and software security firm recently bitten by the credit crunch, in a deal worth £531m. Talks between the two started last Wednesday and culminated this Monday with confirmation that a cash deal has been struck for BAE to swallow Detica entirely. Under the deal, BAE offered Detica shareholders 440p per share, valuing it at £531m, representing a 57% premium compared to the firm’s closing price on the Wednesday. For what analysts said was a very “full valuation” of Detica, BAE will get the firm’s technical skills to help grow its security presence in new regions and the US homeland security market. IT skills from Detica, a specialist in software and data security for government and financers, will also develop BAE in the UK’s national security and resilience markets. This will require significant investment from BAE in Detica - something the market reacted to as the firm’s share price soared, although it has now levelled out at around 440p. Coupled with the massive premium BAE paid, this cooling off indicates that investors don’t expect another suitor, despite Lockheed Martin being named as a potential counter-bidder. Reflecting on the deal, Ian King, BAE’s chief operating officer said: “This acquisition will combine Detica’s well established customer relationships and technical capabilities together with our system integration capabilities. "This will result in a depth of financial and technical capability to address growth opportunities and better serve customers.” For Detica, with clients like defence and immigration departments, the FSA and Nationwide Building Society, the agreement was hailed as a way to foothold its products in new areas. Its chief executive Tom Black said that thanks to BAE's strong balance sheet, he expected “continued growth in our core business” and “further critical mass in newer markets such as the US.” But if the deal goes through, the giant that is BAE, with annual sales last year of £14bn, needs to tread carefully with its new found British mate that is Detica, with annual sales of £203m. IT analysts said this delicate approach was for the good of both businesses. “BAE Systems’ (potential) acquisition of Detica puts us in mind of Serco’s acquisition of ITNET in 2005,” wrote Ovum analyst Georgina O’Toole “Prior to the ITNET acquisition, as a giant facilities management company, Serco’s software and IT services business (Serco Solutions) played a minor part within the broader Serco business. “Serco’s key motivation behind the acquisition of ITNET was to boost its IT capabilities and capture a larger share of major transformation outsourcing programmes within the UK public sector. “However, the acquisition has not been without its problems. One of the key challenges has been to get the Solutions division to work more closely with other parts of Serco and thereby capitalise on the potential of the enlarged business. “While Serco is now making significant progress, Serco’s biggest threat remains its visibility as a facilities management company (rather than an ICT company); as a result, despite its progress, Serco still has to work hard to convince UK government of its IT services prowess.” In her note, the analyst said swap ‘Detica’ for ‘ITNET’, ‘BAE Systems’ for ‘Serco’ and ‘defence manufacturing’ for ‘facilities management’ in the above paragraph, and “it’s easy to picture the type of hurdles that Detica will face as part of BAE Systems.” Jul 31, 2008 Email this article Printer friendly page Previous Page
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