What's going on?
It’s best known for building tanks, planes and submarines, but major American defense contractor General Dynamics announced on Monday that it’s gunning for the acquisition of cybersecurity specialist CSRA in a $9.6 billion deal – the biggest since it bought the maker of Gulfstream jets almost 20 years ago.
What does this mean?
Providing cybersecurity services to the US government has become one of General Dynamics’ most important business lines in recent years. CSRA is a smaller rival in the field, offering cybersecurity and data analytics support to the US military (although it has some private clients as well).
According to General Dynamics, the deal will help the firm scale up its cybersecurity and IT contracts with the US Department of Defense and other government agencies. That’s likely to be lucrative work in a world where governments are increasingly investing in their virtual defenses in order to protect public infrastructure and classified information from a growing number of cyber attacks.
Why should I care?
For markets: CSRA’s stock jumped 30% on Monday.
General Dynamics will buy CSRA shares at about $40 a pop, a significant premium to their value before news of the deal broke. CSRA shares are now pretty much worth exactly what General Dynamics is promising to pay, meaning that investors are seemingly confident the deal will get done.
The bigger picture: The American military-industrial complex is pretty keen on the new administration.
The defense sector depends on support from both public budgets and political opinion, a dearth of which can cause a downturn even when the economy is booming. General Dynamics bore out a couple of long, lean winters thanks to Obama-era defense cuts. Now, however, defense contractors like it and Lockheed Martin are hoping to profit from the Trump administration’s promises to boost defense spending by $94 billion this fiscal year, with further increases to follow.