Flir agrees to buy ICx for $247m

Thermal, infrared imaging, sensor technology to come together
Thursday, August 19, 2010

PORTLAND, Ore.—Thermal imaging manufacturer Flir Systems announced Aug. 16 their intent to acquire ICx Technologies, a company that has merged a number of smaller companies in a short amount of time and manufactures a number of threat-detection technologies, including those targeting bio-hazard, nuclear, and explosive materials.

Flir is offering $7.55 per share for the public company, for a net purchase price of roughly $247 million, according to Flir chairman and CEO Earl Lewis in an investor conference call.

Lewis described ICx’s product line as complementary to Flir’s thermal and infrared imaging products, and said he expects to be able to “leverage Flir’s global infrastructure to reduce costs and drive growth.” Further, he said Flir would look to reduce the R&D work done for the government by ICx and increase commercial product sales, in order to better margins that have left ICx with $168 million in annual revenues, but having lost roughly $8 million over the last year. Nor has ICx provided a good return to initial investors who bought in as part of an IPO on Nov. 8, 2007. Initial shares ended that day at $12.60.

Despite ICx also being in the thermal space, “we didn’t compete that much with them,” said Tony Trunzo, Flir CFO and senior VP, in an interview with Security Systems News. “They do have thermal, but it’s not a particularly large part of the business. They were at some points a good customer of ours, where we would sell cameras to them for their tower business. We’ve known these guys for a long time. There’s been a mutual appreciation for the strengths of the companies for quite a while.”

He also noted that much of ICx’s inability to see steady growth and profits might be attributable to the lumpy nature of government work, in which ICx was heavily invested. “They do more contract work than we do, even through they’re a smaller company,” he said.

Flir has been an active acquirer in the security space, and has been turning out good revenues and profits. They bought Directed Perception, a PTZ hardware maker, at the end of last year, and bought Cedip, an infrared imaging manufacturer, at the end of 2007. Their 2Q results, announced in July, showed a net profit of $115 million on $618 million in revenue, for a nearly 19 percent net margin, with $284 million in cash.

Lewis said the ICx acquisition would be made with available cash on hand. Trunzo confirmed that it will be the largest acquisition the company has made if everything works out.

Flir’s buy of ICx also takes an active acquirer out of the space. Most recently, ICx had purchased PureTech, a video analytics manufacturer, in 2008, along with S3I, a bio-sensor manufacturer.

ICx CEO Colin Cumming told this reporter back in April of 2009 that “the commercial market is an absolutely crucial part of the plan” and “our goal is to provide a suite of solutions, options to our partners, and that means dealing with that at the point where they choose.” Essentially, he said, integrators can choose to resell one sensor at a time, a package of integrated sensors, “or we can be at an even higher level,” Cumming said. “And we’ll support those in any way they choose.”

Lewis said in the investor call that this integration of products has produced low margins for ICx, as they’ve often had to bring in products from other manufacturers, but that Flir might be able to supply some of those products and increase margin performance.

Further, Trunzo said Flir will continue to bring these products further into the commercial space. “One of the hallmarks of Flir,” he said, “is the ability to marry the performance levels that are required of government customers with the cost level and customer service level more consistent with commercial customers. To the extent that we can bring that to ICx, I think that’s an opportunity ... We’re not of the view that the commercial costs of manufacturing, quality, and service are incompatible with the government’s high-performance marketplace.”