AnalysisInvesting in homeland security

Published 13 February 2006

In a few issues of the newsletter last week we analyzed the president’s homeland security priorities as expressed in the 2007 proposed budget he submitted to Congress last Monday. We noted that the emphases in the budget included securing borders, better monitoring of goods and people coming into the United States, detection of explosives, and improving communications and interoperability among different security and federal agencies entrusted with responding to emergencies. There was also an emphasis on certain technologies — especially those required for identifying fingerprints and other biometrics, RFID tagging for both biometric information in documents but also in broadcasting information which would help secure cargo containers, surveillance, and software.

As Canada’s Financial Post notes, it is not always easy to take that knowledge and use it to respond to the question: Which companies will benefit from this focus and money? The main reason is that most of the companies in the field are not solely homeland security companies but have many other related activities; the second reason is that many are privately held. It is easier to make these calculations in the defense field, where few large players dominate and the business cycle is more predictable.

Still, it is possible to highlight several companies which did well in the past year and are likely to do as well this year. This list is not comprehensive, but rather illustrative:

Waltham, Massachusetts-based Raytheon is the fourth-largest U.S. defense contractor, with homeland security being one of its four strategic business areas. It is a high-growth business, as Raytheon’s CEO Bill Swanson said recently: “Our bookings grew 38 percent to 40 percent in 2005. We expect the same double-digit growth in 2006.” Sales in the homeland security unit were up 20 percent in 2005, and Swanson said he expects similar results this year.

Some cash-rich companies — defense contractors and others — have been eagerly looking for good acquisitions in homeland security technology, at the same time that smaller companies are merging to