Curtiss-Wright Corp. CW recently completed the acquisition of a leading provider of tactical data link software, Tactical Communications Group LLC
(TCG) for $50 million in cash. The acquisition is expected to be accretive to Curtiss-Wright’s 2019 earnings per share, excluding purchase accounting adjustments made in the first year of acquisition.
Rationale Behind the Deal
New macro challenges along with rising completion are prompting aerospace and defense industry players to revisit their business models, and expand their core operations and product lines. Moreover, increased defense spending under President Donald Trump have lately prompted U.S. defense contractors to expand their product portfolio. These factors, in turn, are encouraging America’s defense majors to pursue mergers and acquisitions, evident from the latest deal struck by Curtiss-Wright and Tactical Communications Group.
In line with this strategy, the U.S. defense space witnessed some mega merger deals in recent times. Northrop Grumman NOC acquired Orbital ATK for a whopping $9.2 billion and General Dynamics GD completed the CSRA Inc takeover for $9.7 billion in 2018. Another major acquisition last year was that of Rockwell Collins by United Technologies Corp. UTX for $30 billion. We believe that the acquisition of Tactical Communications paves way for Curtiss-Wright to cater to a broader Aerospace-Defense Equipment industry.
Benefits From the Deal
The acquisition will be instrumental to Curtiss-Wright’s future expansion and for achieving significant growth opportunities. The buyout will enhance the company’s existing flight test instruments along with complementary tactical data link processing software, analytics and visualization capabilities. Per the company’s chairman and CEO, the deal will further enable Curtiss-Wright to foray into the tactical data link test, simulation and training markets, thereby gaining larger market share.
With Tactical Communications being a leading provider of tactical data link software solutions for military communications systems around the world, we may expect Curtiss-Wright to enjoy a smooth flow of contracts from Pentagon and overseas customers. This can be further supported by the fact that growing disputes among global nations are leading to increased procurement of military communication solutions, and thus the military communications market is projected to see a CAGR of 3.6% from 2018 to 2023 (per Markets and Markets Research firm).
This reflects increased sales growth opportunities for Curtiss-Wright. Moreover, the recent transaction will support the company’s long-term financial objectives to drive continued profitable growth for shareholders.
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