Washington-based executives at Swedish defense giant Saab say they are pursuing an ambitious program to substantially grow their North American operations by focusing on a few core businesses and offering mature technologies where the market demands them, acting as a prime when possible, but also actively partnering with larger companies.
“We don’t see ourselves as a major competitor to Lockheed Martin, or Boeing or Northrop Grumman, but we’re a technology partner with them,” said John Belanger, VP and head of communications at Saab North America. “We bring niche technologies into the mix, and help them win the big awards.”
The Washington team said its goal is to hit $1 billion in annual sales by 2017, up from the $270 million it made in 2011. That plan is well underway, as the first half of fiscal 2012 has matched the yearly sales mark for 2011. North America is already Saab’s No. 2 market after Sweden, and “our mission is to be the No. 1 market for Saab, eclipsing Sweden,” Belanger said. Saab did $1.1 billion in sales in Sweden in 2011.
Michael Lewis, director of equity research at Lazard Capital Markets, said the ambitious plan may be late, given tightening defense budgets.
“If they engaged the strategy before, when we were at a peak in defense spending, they would have probably proved more successful,” he said. “They do have some very capable offerings, but to make a big push in a market that is contracting, where the companies who are operating ... are just fighting to maintain whatever market share they have, it will be very difficult.”
Brian Lawrence, vice president of marketing at Saab North America, said part of the growth strategy revolves around a focused merger and acquisition strategy. In June 2011, the company acquired Rochester, N.Y., radar and surveillance technology maker Sensis for $155 million, and that won’t be the last acquisition of that kind, he said. Lawrence warned that the company likely won’t be very active in further acquisitions for the rest of this year, but in order to stick to its five-year plan for growth, the company will likely make more acquisitions similar to the Sensis deal over the next several years. The Sensis-Saab team provides the Sea Giraffe Agile Multi-Beam Naval Surveillance Radar to General Dynamics for its littoral combat ship design.
Lazard’s Lewis said the merger and acquisition strategy might be the best way forward, especially for companies in the $50 million to $150 million range. “They have the resources, they have the financial backing, they can be aggressive on the acquisition front,” Lewis said, adding that while “a lot of the low-hanging fruit has already been picked, there are still some gems out there.”
Lawrence and Belanger repeatedly stressed the need for Saab to stick with a few core competencies to keep growth focused on key areas.
“We’ve got niche products, we’ve got high technology, we’re willing to partner, and we’re willing to bring those things to a customer,” Lawrence said. “The flip side is that we’re not willing to waste our time in an area where we don’t believe we have a strength.”
A few of the growth areas the company is looking to focus on are intelligence, surveillance and reconnaissance (ISR), both at the system and subsystem level, as well as with U.S. Special Operations Command, a community with which Saab has been doing about $20 million to $30 million in business annually.
Outside of the ISR market, Saab is hopeful the U.S. Army makes the 84mm Carl Gustav recoilless rifle a program of record in its next budget. If it does, it could mean “$75 [million] or $100 million a year [in sales] in five years,” Lawrence said.
In response to several urgent operational needs statements from commanders in Afghanistan in 2011 looking for weapons with a greater standoff range, the Army sent more than 100 Carl Gustavs, along with 3,024 rounds of ammunition. The weapon has been used by militaries around the globe for the past half century, including U.S. special operators since the 1980s. Saab is also waiting on another urgent needs contract from the Army for Afghanistan that could be worth about $35 million.
Belanger said that with the domestic defense budget reductions that are coming — with or without sequestration — the fact that the company already reinvests 20 percent of its annual revenue into research and development should help it offer “fully developed products that meet a high percentage of the existing need.”
By being able to offer mature solutions, Saab is able to enter programs relatively late in the game. “We’ve been very successful in letting U.S. companies fail, and then offering a backup solution,” Lawrence said. “You’ve got to take advantage of those situations and have technologies off the shelf ready to go. We try and be agile and track future opportunities and time them right so we’re there when the customer really needs it.”
Saab executives say budget pressures also work to their advantage.
Since customers are short on funds, Lawrence said, “if someone can leverage the fact that India just bought something from [Saab] and that helps drive down the price and now we can pass that benefit on to a U.S. or Canadian customer, then that’s the global economy working in the defense and aerospace sector.”
Principal markets: Sweden, Europe, Asia and the Middle East
Employees: 13,000, including 10,000 in Sweden, 750 in the U.S.