Smiths Group to Acquire Morpho Detection from Safran

Smiths Group plc announced that it has agreed to acquire Morpho Detection from Safran S.A. for an enterprise value of $710 million.  The transaction is expected to close in early 2017.   

Based in California, Morpho Detection is a manufacturer and supplier of Computed Tomography Explosive Detection Systems for checked baggage and Explosive Trace Detection equipment to airports, government agencies and critical infrastructure customers.  The company’s products are certified by TSA, Canadian Air Transport Security Authority, the European Civil Aviation Conference, and the Civil Aviation Administration of China.  Morpho Detection had 2015 revenue of $310 million and EBITDA margins of 22 percent.  
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It will be interesting to see if this deal spurs additional consolidation in the detection market.  Stand-alone competitors including AS&E and OSI Systems have seen their share prices take a big hit over the past 12 months and could start looking attractive as acquisition targets.  Leidos also has a significant detection business.  One wonders whether they would be a buyer or seller in today’s market.