Elbit Systems Gains Critical Mass with New Acquisitions

by Richard Pettibone, Aerospace & Defense Companies Analyst, Forecast International.

Ongoing conflicts and terrorism have increased the focus on defense systems for low-intensity conflicts, homeland security and cyber warfare – areas in which Elbit Systems is firmly established.

For many years now, the company has capitalized on the need for security, growing from an avionics firm to an international aerospace and defense conglomerate.  Having begun with electro-optics, Elbit has expanded into unmanned vehicles, electronic sensors, and data synthesis.  The company has become a top international defense firm, thanks to intensive management that has capitalized on emerging markets and a solid merger and acquisition strategy.

Most recently the company has initiated two major acquisitions, one in the U.S. and another in Israel.  In the U.S., the company acquired avionics producer Universal Avionics Systems and at home the company is in the process of acquiring the former Israel Military Industries, IMI Systems.

Elbit’s acquisition strategy is two-pronged, based on the following factors.  First, while ongoing defense industry consolidation has decreased the number of competitors, it has naturally increased the relative size of those competitors and more importantly the resources they can bring to bear. Second, there is a growing trend of many governments requiring that part of any work contracted outside the country be done by local companies in their country.

In Israel, the firm has successfully assimilated many of its local competitors, such as Elop, Elisra Electronic Systems, and Tadiran.  In addition, Elbit has acquired numerous other medium-size aerospace and defense companies, such as Cyclone Aviation, Innovative Concepts, Shiron Satellite, Kinetics, and BVR Systems, to name a few.  The company also added artillery developer Soltam Systems, armored fighting vehicles firm Saymar, and defense electronics manufacturer ITL Optronics to the fold. Elbit pushed into cybersecurity with the acquisition of the Cyber and Intelligence division of NICE Systems.  This division was subsequently folded into a new subsidiary, Cyberbit, which will lead Elbit’s push into the growing cybersecurity market.

Continuing this trend, Elbit is pursuing its biggest deal to date, the purchase of IMI Systems. The deal will create a broad-based defense conglomerate with a product range that includes Elbit’s avionic systems, drones, and cybersecurity offerings coupled with IMI’s portfolio of missiles, precision-guided munitions, and armor systems.  Once complete, the deal should give Elbit sufficient economies of scale to match its global rivals.

In terms of expanding its geographic footprint, Elbit has been successful in making inroads into the U.S. – its “second home market” – with some $800 million in sales.  Again, following the strategy of growth via mass, the Elbit Systems of America unit acquired M7 Aerospace, a provider of MRO services and logistics support for both civil and military aircraft fleets.  In addition, Elbit Systems of America bought out its partner General Dynamics and assumed control of UAV provider UAS Dynamics – a key market for the firm.

In early 2018, the company returned to its avionics roots in the U.S. with the purchase of Universal Avionics Systems. This synergistic purchase not only expands the company’s position as an avionics systems integrator but furthers its penetration into new markets, especially in the USA.  Universal Avionics will become the key sales point for all of Elbit’s commercial avionics systems in the hemisphere. Further, the company also gains access to its new subsidiary’s existing distribution and support network – an MRO area that is quite lucrative.

Beyond Israel and the U.S., Elbit establishes footholds via teaming or acquisition in select regions.  Once these have taken root, Elbit then leverages its position as a local company for both political and economic considerations.  For example, the company has opened joint ventures in Poland and India for various defense competitions.

In terms of specific products, Elbit is perhaps best known for its UAVs, which have long been a critical part of Elbit’s success.  Thanks in large part to Elbit, Israel’s unmanned aircraft fleet is the second largest in the world and has accumulated hundreds of thousands of flight hours.  With no end in sight to the Syrian civil war and with the security situations in neighboring countries tenuous at best, there is a lot for Israel’s UAVs to keep an eye on.  Elbit Systems plans to capitalize on this growing demand for unmanned aircraft through its wide range of UAVs, including man-portable, tactical, and MALE systems.

For over 15 years, Richard has authored Forecast International’s Defense & Aerospace Companies series, Volume I (North America) and Volume II (International) services. The two books provide detailed outlines and analyses of major aerospace and defense contractors.

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