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Company Perspectives:
The Allied Defense Group (AMEX: ADG) is a diversified international defense and security firm, which provides an array of products and services as solutions to defense and security needs worldwide. The capabilities of Allied's five operating units include: development and production of conventional ammunition marketed to defense departments worldwide; the design, production and marketing of sophisticated electronic and microwave security systems principally for European and North American markets; manufacturing battlefield effects simulators and other training devices for the military; and designing and producing state-of-the-art weather and navigation software, data, and systems for commercial and military customers. Each unit has a dedication to agility, diligence, and precision, as well as a commitment to defending and securing the future for every American and our allies.
The Allied Defense Group, Inc. (ADG) owns several defense- and security-related businesses. ADG's largest unit, MECAR S.A. of Belgium, is a leading supplier of medium- to heavy-caliber ammunition and grenades, specializing in quick turnarounds on small orders. In 2004 MECAR was setting up a U.S. subsidiary at the site of Titan Dynamics, ADG's Texas-based pyrotechnics business. ADG also owns security equipment companies in the United States and Belgium.
Origins
The Allied Defense Group, Inc.'s history can be traced to Allied Research Associates, Inc., a Delaware corporation organized on July 20, 1961. It was originally headquartered in Boston and had connections to MIT. According to the Washington Post, the company's first line of business was studying the effects of nuclear tests on aircraft.
Martin B. Ruffin acquired Allied Research in 1967 and eventually became chairman. A native of Tarboro, North Carolina, Ruffin had studied at the University of North Carolina and earned an engineering degree from the Naval Academy in 1941. During his career, he worked at Lear Industries and at MECAR S.A., Allied's Belgian munitions subsidiary, where he oversaw development of the first bullet-trap grenades (BTUs), which could be mounted on assault rifles. According to his obituary in the Washington Times, Ruffin's design team also pioneered tungsten dart ammunition, which was used in MECAR's star product, the Kinetic Energy Weapons System (KEWS), a high-velocity 90mm gun.
Allied sold most of its subsidiaries in the late 1970s after running into hard times. It acquired complete control of MECAR in 1983, reported the Baltimore Business Journal. The company immediately set out expanding its product line, from 15 items to more than 65. Revenues were $30.5 million in 1985, up from $25.8 million the year before. Net income slipped from $3 million to $2.5 million.
Allied itself had just two employees at the time, President and Chairman Martin Ruffin and Reinald W. Carter, then executive vice-president. MECAR was Allied's only holding at the time. Its history in Belgium dated back to 1938. Although MECAR had virtually no U.S. competitors, Allied management sought an American company to acquire to help increase Allied's marketability with the U.S. Department of Defense.
Allied acquired Barnes & Reinecke, Inc., based in Arlington Heights, Illinois, on May 26, 1987. Barnes & Reinecke was an engineering and manufacturing company specializing in technology and support related to military equipment such as the M109 self-propelled 155mm Howitzer and M55 Sheridan Light Tank. It had 300 employees and produced a $1 million profit on sales of $17 million in 1986.
Allied Research Associates became known as Allied Research Corporation effective June 1, 1988. In the same year, headquarters moved from Severna Park, Maryland, to Legg Mason Tower on Baltimore's Inner Harbor. The company moved again five years later to Vienna, Virginia, to be closer to the Pentagon. Allied ended the 1980s with about 500 employees.
A U.K. unit, Allied Research Corporation Limited, was established in 1989 to develop the business abroad. Its London office was closed five years later due to a lack of business, although the entity remained in existence, awaiting further contracts.
New Leadership in the 1990s
In early 1990, Reinald Carter, then chief financial officer, took over the positions of president and chief operating officer from Chairman Martin B. Ruffin, who passed away on November 16, 1990. Carter also was named chief executive officer in May 1990. He was tasked with restoring the company's profitability, and this was achieved quickly. Revenues reached $51.2 million in 1990. The company had managed to break even after posting a $7.4 million loss the year before and an $8.5 million loss in 1988. It had contracts with 35 free world nations. In December 1990, the company had been able to acquire the inventory of bankrupt Belgian munitions maker PRB S.A.
Engineering firm Barnes & Reinecke produced armored cars at its facility in Illinois. Founded in 1934, it was also known for developing the first pop-up toaster for Toastmaster in the late 1930s.
Grumman Corp. veteran and former Assistant Secretary of the Army Jay R. Sculley was named president and chief operating officer of Allied in April 1992. He became chief executive officer as well after Reinald Carter retired at the end of the year. Allied shares migrated from the NASDAQ (symbol: ARAI) to the American Stock Exchange (ticker: ALR) in October 1992.
Sales were up to $217.3 million in 1992, producing income of $18 million. Most of the company's revenues came from sales of Belgian-made ammunition to clients in the Middle East, an area that did not see the steep decline in defense spending that affected the United States after the Cold War. Asia was another key market.
Looking to hedge against U.S. military downsizing, Allied entered the weapons and chemical cleanup business in the early 1990s. It announced the creation of a dedicated new unit, ARC Services Inc., in January 1993. Allied also was negotiating with Austrian arms and vehicle maker Steyr-Daimler-Puch Spezialfahrzeug AG (SSF) on possible joint ventures.
In 1991, Kusai H.M. al Azawi of Saudia Arabia, Allied's largest shareholder at the time with a 20 percent holding, had unsuccessfully attempted to take over the company. A 1993 attempt to acquire Allied by Florida investor Malcolm Glazer also collapsed after several months.
In 1993, MECAR entered the medium-caliber ammunition market, producing a 25mm round for use against light armor and support vehicles. MECAR, based in Petit-Roeulx-lez-Nivelles, Belgium, had developed a specialty in quick turnarounds on small orders larger armament manufacturers would not touch.
Beyond Defense in the Mid-1990s
Allied took a major step toward diversifying into non-defense markets in the mid-1990s. Its MECAR subsidiary acquired companies making up Belgium's VSK Group in 1994 and 1995. These included VSK Electronics, S.A., Teletechnique Generale, S.A., and IDCS, S.A. VSK supplied security systems and components. Belgian video surveillance company Vigitec was acquired in December 1999.
In the mid-1990s MECAR accounted for more than three-quarters of Allied's total revenues. It posted a $9 million loss on annual sales of $54 million in 1994. In April 25, MECAR's plant in Belgium suffered an explosion that shut down operations for three months.
Allied entered the mid-1990s with more than 500 employees, but cut 200 jobs to recover profitability. Revenues slipped a bit to $65.8 million in 1995; the company narrowed its losses from $11 million to $2 million. By 1996, Allied was in recovery; revenues rose 30 percent to $134.5 million in 1997 as net income doubled to $8.6 million. By this time, the company had 442 employees, just five of them at its headquarters.
Allied's poor stock performance in the bull market of the late 1990s prompted a 1999 takeover battle led by New York-based Zilkha Capital Partners. Allied sold a lower-performing unit, Barnes & Reinecke, to United Defense Limited Partnership, Inc., a unit of The Carlyle Group, in March 2000. Rising gas prices in 2000 prompted Allied's Middle Eastern customers to stock up on ammo, noted the Washington Post.
Post-9/11 Acquisitions
The September 11, 2001 terrorist attacks on the United States brought homeland defense to the forefront. Allied soon bought a U.S. electronic security firm to complement its European business. News/Sports Microwave Rental, Inc. was acquired on the last day of 2001. NS Microwave, based in Spring Valley, California, supplied surveillance equipment for law enforcement and security applications. It also made mobile command centers. The company had been founded in 1986 by Everett Shilts and employed 53 people at the time of its acquisition by Allied.
In June 2002 Allied bought Titan Dynamics. Titan produced pyrotechnics used in combat simulation. SeaSpace Corporation was added at the end of July 2002. SeaSpace provided technology for satellite-based sensing equipment. It employed 40 people.
In late 2002, MECAR bought a critical supplier, Netherlands-based pyrotechnics firm Eugene Hendrickx N.V., from a division of Euro Metaal. MECAR added nine new nations to its list of clients in 2003, bringing the total to 20. In April 2003, in cooperation with L-3 Communications, MECAR won a contract to supply high-explosive 105mm rounds to the U.S. Army, and was opening a plant at the Titan Dynamics site in Marshall, Texas, in late 2004.
MECAR was looking to expand sales in South America. The company was left as the world's premier supplier of 90mm ammunition after France's GIAT Industries scaled back operations. MECAR also specialized in 105mm tank rounds.
VSK's four units (VSK Electronics N.V., Intelligent Data Capturing Systems N.V., Télé Technique Générale S.A., and VIGITEC S.A./N.V.) provided security alarm, access control, and video recognition systems. Based in Belgium, VSK made significant progress in penetrating markets in Germany, France, and the United Kingdom in 2003. It also made inroads in the Polish banking industry.
Allied Research was renamed The Allied Defense Group, Inc. (ADG) effective January 2, 2003. Its ticker symbol on the American Stock Exchange changed from ALR to ADG. Total ADG revenues rose from $130.9 million to $171.4 million in 2003. Net income slipped to $8.8 million from $10.7 million. Ordnance and Manufacturing was the largest segment, taking in $129.7 million. Electronic Security (VSK Group) accounted for $33.3 million while Environmental Safety and Security accounted for $7.1 million. A fourth segment, Software, Training and Simulation, had revenues of $1.3 million.
General (Ret.) J.H. Binford Peay, III, former head of the U.S. Central Command, became Allied's CEO in January 2001. He left in June 2003 to lead the Virginia Military Institute (VMI). He was succeeded at ADG by the company's chief operating officer, Major General (Ret.) Gil Meyer, who had formerly served as chief of army public affairs.
Principal Subsidiaries: ARC Europe, S.A. (Belgium); Allied Research Corporation Limited (U.K.); Energa Corporation; News/Sports Microwave Rental, Inc.; Titan Dynamics Systems Inc.; SeaSpace Corporation; MECAR USA, Inc.
Principal Operating Units: Ordnance & Manufacturing; Electronic Security; Software, Training & Simulation; Environmental Safety & Security.
Principal Competitors: Alliant Techsystems Inc.; Esterline Technologies Corporation; General Dynamics Corporation; General Electric Company; Honeywell Automation and Control Solutions.
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