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Flir to buy ICx

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Monday, August 16, 2010

Just when I was complaining about a boring summer, here comes Flir to shake things up with an agreement to buy government-focused sensor-maker ICx Technologies for about $274 million.

Nor should this move be overly surprising. Flir has been active in the space lately, and has been turning out good revenues and profits. They bought Directed Perception, a PTZ hardware maker, at end of last year, and bought Cedip at the end of 2007. And their 2Q results, announced a couple weeks back, show healthy net profit of $115 million on $618 million in revenue, for a nearly 19 percent net margin, with $284 million in cash.

As for ICx? Yeah, they weren’t doing quite as well. I think they’re going to release 2Q numbers after the market close today, but I can’t imagine they’re a whole lot better than what they’ve been reporting. They’re going in the right direction, but the last four quarters are still: loss of $1.3 million, loss of $3.85 million, loss of $2 million, loss of $1 million (1Q of 2010).

And the revenues have been up and down - nothing like the line moving up relatively steadily that you’d want to see from a young company that just did an $80 million IPO in late 2007. I’m guessing those guys that bought in early aren’t psyched. Early shares sold for as high as $17, and Flir is buying ICx shares now for just $7.55 a whack.

Ouch.

They bought PureTech, a video analytics manufacturer, in 2008, along with S3I, a bio-sensor manufacturer. In all, they’ve rolled up some 20 companies already, and here’s how their philosophy was laid out by CEO Colin Cumming back in April of 2009 when I interviewed him about his new gig:

While many think of ICx as providing solutions to federal and state governments, “the commercial market is an absolutely crucial part of the plan,” Cumming said. “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.”

Cumming also hopes to make it “really easy to work with us,” and ICx will be investing in training sessions in the field, webinars, in-house training, and “whatever it takes to expose our capabilities and potential to our partners.”

For example, he said, “the products that we think are the most powerful are some of the newer ones, and in some cases they’re not well known to the industry yet. Using radar for perimeter security, for example, is something we think is very powerful,” where the radar identifies targets and points the camera in the direction of the target. “But, as with any new technology, there’s a take-up period, an acceptance period,” Cumming said, “so we’re going to work very hard in reaching out to support new technologies, and we’ll be supporting the well known stuff as well.”

I bolded that last part, as I think it’s been part of the “problem,” if you want to call it that. I’ve only been in the business five years, but I can’t tell you how many times well-meaning and smart technology people have overestimated the speed at which new technology will be adopted by the integration and end user community in security.

People just don’t jump in with both feet in this industry, and anyone who has growth plans based on new-technology adoption really needs to go beyond ROI calculations and the use case. They need to get into the psychology of the industry and see just how entrenched people are in the way they’ve been doing things. You think it’ll be five years? That means it’ll be 10, in most cases. I don’t think you can be too conservative in your predictions.

So, what’s Flir want with all this sensing technology that’s outside of its optics and vision focus? Bio-sensing? Radar? Do they buy the same collection-of-sensors philosophy that got ICx off the ground? Or will they sell off the non-camera pieces?

I’ve got some calls in.