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The 2021 Merger & Acquisition series kick-started with digital imaging and electronic sensor manufacturer Teledyne Technologies Incorporated and thermal imaging and UAS maker FLIR Systems, Inc. entering a definitive agreement in which Teledyne would acquire FLIR in a whopping  $8.0 billion deal.

The news must have inspired mixed emotions for many. FLIR is among the most renowned players in the thermal imaging space with a healthy order book and reported revenue of $1.9 billion in 2019 – a trend expected to be repeated in 2020 reporting. But anything can happen in the market, especially when top-tier players want to capture higher market share by acquiring innovative, financially stable businesses and create a pipeline for substantial growth in the post-COVID era.

For Teledyne, this is an ideal situation, as its major focus is on industrial, maritime, aerospace and the energy sector, whereas FLIR serves mostly defense, law enforcement and CNI customers. This one deal has opened the market for Teledyne, wide enough to expand horizontally and vertically. The attractive aspect of the deal is that there isn’t much overlap between the two companies in terms of product or customer segments, hence they will complement each other in longer run (e.g. FLIR makes unmanned vehicles for ground and air whereas Teledyne manufactures the vessels for marine applications).

It is of note that Teledyne’s previous acquisitions, including Oceanscience Group, Bolt Technology Corporation and BlueView Technologies, were largely motivated by an expansion into the marine segment.  The only exception is e2v technologies, specialised in manufacturing electronic components for defense, healthcare, and commercial and industrial sectors.

The FLIR acquisition has made Teledyne a key defense contractor in thermal imaging and ISR and will position it in the same league as prominent heavyweights L3Harris, Textron, Leidos, among others.

Another reason for the acquisition of FLIR is the appeal of its gradual evolution from its beginnings as an electro-optics supplier to a  fully-fledged ISR solution provider. The following table highlights FLIR’s transition over the past decade, backed up by heavy investment in  acquisitions:

 

# Company Name Amount Date Acquired Expertise
1 Altavian, Inc. NA December 2020 Acquisition enhanced the sUAS capabilities of FLIR. It is one of the five manufacturers of drones authorised by the U.S. Department of Defense to sell to the U.S. military and government agencies under the Blue sUAS programme.
2 Aria Insights NA October 2019 With this acquisition of IP and operating assets, FLIR has strengthen its offering in tethered drones being used by law enforcement agencies, border security, and for protection of critical national infrastructure (CNI).
3 New England Optical Systems NA July 2019 Improved FLIR expertise in developing complex infrared optical assemblies in SWIR/ MWIR/ LWIR spectrum used in drones, combat vehicles and astronomy.
4 Endeavor Robotics $385 Million February 2019 Boosted the tactical unmanned ground vehicles (UGVs) capabilities. Endeavour robotics have supplied 7,000 UGVs in over 55 countries being used by SWAT teams, first responders and nuclear plants etc.
5 Aeryon Labs $200 Million January 2019 Boosted the quadcopter (small VTOL UAS) capabilities and provide its flagship product SkyRanger to FLIR.
6 Point Grey Research, Inc. $259 Million October 2018 Strengthen its industrial portfolio through machine vision cameras being used in industrial, retail, scientific and other advanced imaging applications.
7 Acyclica September 2018 Improved the urban security portfolio of FLIR, acquired the proprietry Traffic Data Analysis platform being used in various smart cities.
8 Prox Dynamics $134 Million November 2016 Provides the nano drone capability to FLIR, got the IP rights of their flagship product black hornet.
9 Armasight, Inc. $41 Million June 2016 Strengthen the Personal Vision Systems and Thermal Weapon Sights offerings. Broaden the product portfolio in outdoor recreation and hunting segment.
10 DVTEL, Inc. $92 Million November 2015 Acquisition has made FLIR an end-to-end security system provider by acquiring the range of visible/thermal cameras, VMS and Video Analytics.
11 Raymarine $180 Million May 2010 Widen the FLIR reach in marine electronics industry by getting the IP of products like multifunction displays, radars, autopilots, cameras, fishfinders, GPS enabled chartplotters, and automatic identification systems.

How will this merger affect market dynamics?

The deal has created a large conglomerate in the market having aggregated revenue of $5 billion. It is an ideal situation for Teledyne, as the deal will give immediate boosts of $2 billion to its revenue. The acquisition will also provide natural access to proprietary technologies of FLIR, which in turn can help Teledyne create the next generation of devices for industrial and military use. The joint entity will have a robust digital imaging portfolio, Unmanned Systems (for land, air & sea) and instrumentation products.

For FLIR, the proposition is as straightforward. Of course, a 40% premium to FLIR shareholders is a strong argument. From a market perspective, FLIR will benefit from Teledyne’s vast experience in the marine and undersea market segment by developing new products for oceanography, and subsea imaging remains a watch item.

FLIR spends approximately 9 -10 % of annual sales on research and development, which is crucial for driving innovation and remaining competitive in the high-tech security industry. Post-merger, it will be interesting to watch how the new board will support these initiatives and help Flir grow as an independent progressive company.  Recent Frost & Sullivan findings project revenues in the global surveillance industry alone to be worth more than $54 billion by 2030, with EO/IR accounting for $1.5 billion. It will be interesting to watch how much market share the joint entity can capture.

 

About Himanshu Garg

Himanshu GargHimanshu Garg is an Industry Principal with Frost & Sullivan's MEASA region Aerospace & Defense Practice. He has more than a decade of industry experience in homeland security and defense markets with core competency in solution design, technology convergence, program management, requirements analysis and strategy development.

Himanshu GargHimanshu Garg

Himanshu Garg is an Industry Principal with Frost & Sullivan's MEASA region Aerospace & Defense Practice. He has more than a decade of industry experience in homeland security and defense markets with core competency in solution design, technology convergence, program management, requirements analysis and strategy development.

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