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American Defense Concepts Announces Overview of Midsized U.S. Defense Firms Profits Amidst New Administration Agenda

/EINPresswire.com/ -- NEW YORK, NY--(Marketwired - Jun 29, 2017) - The following information is the research opinion of American Defense Concepts. American Defense Concepts announces its following overview of Midsize U.S. Defense Firms alongside current U.S. Administration agenda:

With the election of a new pro-military U.S. President in favor of rebuilding and updating America's military apparatus compounded with the Republican Party controlling both the House and the Senate, defense contractors are likely to continue to outperform market projections. For the last decade, the S&P Aerospace and Defense Select Index has outperformed the S&P 500 by more than 6% annually. The increase of an already unstable geopolitical climate and with the potential removal of sequester spending caps from the defense budget, defense stocks seem poised to continue a pattern of outperforming the overall equity market throughout the remainder of 2017.

With the increase of conflicts involving non-state actors and a volatile environment that exceeds the era of the Cold War has given way to an ostensibly ever-expanding intelligence apparatus and counterterrorism market segment. The current geopolitical landscape is catacombed with a threat matrix that includes terrorism, cyber warfare, authoritarian posturing and numerous regional conflicts worldwide that the Pentagon refers to as "conflicts other than war."

To combat this new threat, the Pentagon has focused heavily on fighting nation states, while also preparing for emerging threats like the cyber-attacks that have become more frequent. Larger defense companies have the potential to benefit from increased spending on traditional platforms like manned fighter aircraft and potentially benefiting from emerging fields like cyber security. While the potential for larger defense contractors to benefit from this environment is present the nimbler, lesser known and more secretive mid-tier firms appear to be best positioned to capitalize on this volatile and quickly evolving threat matrix.

A handful of small and midsize military contractors are thriving and adding staff, while their larger competitors are still recovering from a period of buyouts and layoffs, resulting in the migration of many talented employees into the arms of mid-size contractors. Larger firms scaling back has been due in part to automatic Department of Defense cuts, political posturing, sequestration, and of course the withdrawal of U.S. military from overseas conflict areas. With the beginning of a new U.S. administration seemingly in favor of military expansion larger firms appear to be more optimistic however, in keeping with their size they tend to move slower than their mid-sized counterparts.

Mid-tier firms tend to require and offer a wider range of skills than your average small business, and because they typically have fewer layers of management than their larger big brothers, they can keep overhead costs down, be more dynamic in a volatile market segment and ultimately have the ability to be more responsive when fielding government requests.

Companies such as Sotera Defense Solutions, Boecore, Braxton Technologies, Infinity Systems Engineering, Intelligent Software Solutions, TechWise and UAT Group each have added more employees, have open positions to fill and plan to continue hiring in an effort to fulfill impending or future contracts. All seven companies specialize in defense technology, information technology, and in one case have diversified to service multiple market segments outside of traditional military spending. Fortunately, these mid-tier firms were not affected by the Defense Department budget cuts that took place over the past eight years.

Over the past six years many private equity firms seized on the opportunity to capitalize on mid-tier firms facing increased challenges. From 2000 to 2006, the market share for mid-tier companies dropped from nearly 38 percent of the total value of federal service prime contracts to just under 32 percent, according to data analyzed by the Center for Strategic and International Studies.

Recently, medium-size contractors have recovered, growing their share to just over 35 percent in 2010 with a sustained increase predicted through 2020. Industry analysts say mid-tier contractors are primed to do well in a difficult budget environment however, being a mid-tier firm is not without its challenges.

Size can make a difference

Mid-tier contractors may struggle because they're more reliant on their largest contracts. While larger firms such as Lockheed Martin and Northrup Grumman typically own several large contracts across a range of contract vehicles allowing them to compete for a variety of individual task orders; mid-tiers tend to rely on just a few.

Additionally, mid-tier contractors may struggle to win prime contracts because larger procurements often go to the larger firms, resigning mid-tier firms to act as subcontractors, while smaller programs are awarded to the smaller firms which again forces mid-tier firms to act as subcontractors.

For those who had the foresight to have a diversified or expanded business model, to include several areas currently experiencing growth, it seems that they may be the companies best positioned to capitalize on the Presidents military expansion agenda. The trend of mid-tier firms buying smaller competitors has become increasingly popular and appears to be paving the way for mid-tier companies to affect exponential growth and attract larger investment capital. UAT Group's subsidiary Umbra Applied Technologies has bought five companies in five years and attracted millions in investment capital. UAT Group is already looking for more acquisitions, said Alex Umbra, the company's chief executive.

Boecore President Tom Dickson stated in a recent interview that his company and smaller contractors continue to grow because "there is still a lot of focus on small business" with both the DOD and the rest of the federal government, including work that is set aside for smaller companies or those owned by veterans. As an example, Boecore was one of 385 contractors selected by the Navy to compete for up to $5.3 billion over the next two years in logistics, engineering, information technology and training tasks, much of it set aside for small firms.

Former president of military affairs for the Greater Colorado Springs Chamber and EDC, Brian Binn, said small defense contractors also have been winning more contracts in recent years because they generally have lower overhead costs than defense giants such as Lockheed Martin, Northrop Grumman and Raytheon. Commenting on both realized and potential local benefits, Binn stated, "All of this is good for our community and local economy, even if all of the jobs aren't created locally. Since most of these companies are based in Colorado Springs, the profits stay here."

Market Segment Growth

Sotera Defense Solutions, Inc., recently acquired by KeyW Holding Corporation, is an agile, mid-tier national security technology company delivering innovative solutions and mission services in support of the Intelligence Community, Department of Defense, Department of Homeland Security and Federal law enforcement agencies. The mid-tier firm was awarded a prime position on the Enhanced Solutions for the Information Technology Enterprise (E-SITE) Indefinite Delivery Indefinite Quantity (IDIQ) -- Large Business track last year. Deb Alderson, Sotera President & CEO, recently commented on the awarded contract, "The E-SITE IDIQ is a critical component in providing intelligence and technological advantages to the U.S. military today and continuing into the future. Sotera is excited to continue our support for the DIA mission to plan, manage, and execute intelligence operations under this vehicle."

Sotera highlights a growing interest by larger defense companies to acquire their smaller counterparts in an effort to expand their reach and enhance their own capabilities. KeyW's CEO, Bill Weber said, "We'll purposely remain nimble to deliver advanced solutions that address ever-evolving, complex national security challenges. At the same time, we'll have the scale to provide highly competitive cost models to further drive growth and create value for our customers and additional opportunities for our employees."

The Colorado Springs-based software-development and information technology defense contractor, Boecore, works with Northrop Grumman on mission engineering, modeling and simulation, enterprise networks, cybersecurity and training under a seven-year contract valued at $3.48 billion awarded to a team headed by Boeing. The ground-based element is designed to destroy intermediate and long-range ballistic missiles in mid-flight; the latest contract is for development, manufacturing, testing and training for the system. Boecore continues work on the Ground-based Midcourse Defense element of the ballistic missile defense system.

Another Colorado based firm with significant presence in Florida, Braxton Technologies has added contracts with the U.S. Department of Energy and Air Force Space Command. The military software-development contractor has "thrived by offering budget-conscious government customers a lower-cost option of buying and customizing off-the-shelf software that can be completed in a few months rather than several years", said Kenneth O'Neil, the company's president and chief operating officer. Much of Braxton's work for Space Command in the Springs and the Air Force Space and Missile Command in Los Angeles involves automating tasks such as satellite control.

"Under Braxton's Energy Department contract, the company is helping the Lawrence Livermore National Laboratory in California turn research into marketable commercial products. As that contract has grown, the company's workforce on that project has grown," O'Neil said.

Infinity Systems Engineering has significantly increased staff and revenue as its contracts for software used to control the Global Positioning System network of satellites have expanded and it has won additional work on a new military communications satellite network. More than half of its staff works on contracts involving the GPS satellite network, said Brad Michelson, Infinity's vice president supporting the uploading of new timing and mission data to add additional capabilities and ensure the data from each satellite remains the most accurate possible. The company also is a subcontractor to Lockheed Martin to develop the next generation of the network.

Andreas Wilfong, Infinite Systems Engineering President, stated, "We want to hire brilliant people and give them opportunities throughout their career so they stick around with the company. That saves money on restaffing and retraining," Michelson said. "Our mission and vision is to have highly qualified staff who have a passion for supporting the war fighters. We offer fully paid health and dental insurance, bonuses, profit-sharing, a contribution of 10 percent of our salaries to our 401(k) retirement accounts and a five-day company-paid trip, all of which has helped us retain a large percentage of our staff."

Intelligent Software Solutions (ISS) typically has four or five positions for immediate fill every pay period and generally has 20 to 25 open positions at any one time. "We thrive in environments like this because our value proposition is that we offer low cost and efficiency, building systems for 20 or 30 percent less than the large contractors because we can complete them faster," ISS President Jay Jesse said. "We are very conservative in our hiring and our technology crosses over dozens of projects."

TechWise has exponentially increased its staff to over 200 employees, after winning numerous contracts and contract renewals with the United States Air Force, Army and the government of the United Arab Emirates.

The mid-sized defense contractor added employees to work in its office in Dubai to help the United Arab Emirates government design training programs for military, homeland security and emergency preparedness in addition to adding employees in support of new or renewed contracts for military training development, logistics and facility support at Peterson and Schriever Air Force bases, Fort Benning in Georgia and Fort Sill in Oklahoma.

Techwise CEO, Shawnee Huckstep stated, "Smaller companies can be more agile, responsive and flexible. It is no longer business as usual. The days of getting a contract then having it automatically renewed are over. We have to constantly prove our value and come up with new and innovative ideas."

Florida based firm, UAT Group, the parent company of Umbra Applied Technologies, is a diversified, leading edge technology company with an innovative vision in the fields of alternative energy, conventional energy, medical innovation, environmental remediation, weapons systems, and compound recognition technologies most of which are marketed toward U.S. homeland security and Military. With an aggressive M&A strategy and progressive employee benefits program typically seen in larger companies, UAT Group is clearly eying expansion under the new promilitary administration. In the past year, the small publicly traded, defense start-up, has seen improved market share and liquidity highlighting increased interest in the defense sector and mid-tier defense companies.

UAT Groups CEO Alex Umbra said that his company and smaller contractors will always excel because, "In a low-cost environment a mid-tier company with an abbreviated chain of command, compared to some of the larger firms that we may work in concert with, is able to respond quicker and with a more decisive posture. If need be we are also able to assess margins and the modification there of, in order to fulfill a contract."

Not surprisingly, many of these firms have a sizeable presence in Colorado Springs, where larger contractors for those commands, including Boeing, Lockheed Martin, Northrop Grumman, and Booz Allen Hamilton, maintain their regional headquarters and not coincidentally is home to the US military's Northern Command and the Air Force Space Command. While many mid-tier firms maintain a presence coast to coast and even globally, such as Techwise, UAT Group, Sotera Defense Solutions and Infinite Systems Engineering most maintain a smaller footprint within the industry.

While these highly secretive companies exist, and operate in a world of shadows, what is not a secret is their enormous influence and potential as National Security contributors. In fact, as collaborators with CIA, NSA, NGA, FBI, DHS, NASA and many other government agencies most contractors at these firms maintain a Top Secret/SCI (compartmentalized) security clearance that gives them access to virtually the entire panapoly of US intelligence -- SI for signals, TK for classified imagery, and HCS for raw CIA reports from the field. If those are the clearances held by rank-and-file employees, you can imagine what its top executives get to see and hear. All Chief Executives of these firms declined to comment on this issue but assured us that all protocols are stringently followed and that they adhere to the strictest interpretation of all security procedures and National Security guidelines. In deed they do, as not one of these firms has had a security breech to date and is held in high favor with the United States Government.

It's a good thing that these "guys" are on our side, when one considers the impressive array of products and services that these firms provide to our government the only conclusion. Maybe we will all rest a little easier knowing that defense firms are watching out for us even when we sleep.

AMERICAN DEFENSE CONCEPTS is an emerging publication featuring the latest research, findings and opinions relating to military, aerospace and defense.