By Andrea Shalal-Esa
WASHINGTON (Reuters) - General Dynamics Corp, one of the largest U.S. weapons manufacturers, said it plans to acquire privately-held wireless network equipment maker IPWireless Inc as defense spending in the United States begins to decline.
General Dynamics expects to complete the purchase of the San Francisco-based company in the third quarter as it taps into "a fast current of growth" in the rapidly expanding 3G and 4G wireless market, said Gerard DeMuro, executive vice president of the company's information systems and technology division.
He gave no details on the purchase price, but said IPWireless, which has about 90 employees, was expected to generate sales of $65 million to $75 million this year.
The acquisition would give General Dynamics a technological and pricing edge in future upgrades to the secure communications networks it already provides for the U.S. military and civilian agencies such as the Coast Guard, Justice Department and Department of Homeland Security, DeMuro said.
It will also help General Dynamics compete for billions of dollars of orders as the United States moves to create a nationwide broadband network for first responders over the next 10 years. Congress set aside funding and wireless frequencies to build a national broadband network for first responders as part of the payroll tax cut extension approved earlier this year.
"We're confident that this will bring us double-digit growth in this...business segment which will be difficult to come by in our traditional market, given the current fiscal constraints," DeMuro said.
The acquisition could provide a boost for DeMuro's information systems division, which saw sales drop 13 percent in the first quarter, and is now projecting a 5 percent decline for the full year, down from earlier projections of flat sales.
DeMuro said the acquisition would help General Dynamics meet growing demand from the U.S. military to expand fourth generation capabilities to the battlefield, which could amount to tens and tens of millions of dollars of new business a year.
Another main driver was the push for a national broadband network dedicated exclusively to public safety, an area that could generate $15 billion to $20 billion in new business in coming years, according to some estimates.
Morgan Keegan recently outlined significant growth opportunities in the public safety market, noting that to be successful, companies would need significant expertise in the wireless and first-responder end markets, as well as experience building and maintaining networks.
DeMuro said the acquisition would give General Dynamics valuable product content that it could adapt and integrate into its proposals, setting it apart from other competitors like Raytheon Co and Harris Corp.
"This is about keeping the portfolio relevant and competitive in the near and long term," he said.
General Dynamics said IPWireless already provided equipment and solutions to the military and first responders, including the network used by all five boroughs of New York City, the largest multi-agency government network in the United States.
It also provides the network for a wireless broadband communications system in Adams County, Colorado, that is being built by Raytheon. IPWireless components and systems allow first responders to access data at very high speeds, including real-time fingerprint identification and high resolution video.
DeMuro said the acquisition had been approved by both boards, and IPWireless would be renamed General Dynamics Broadband when the transaction was completed.
(Reporting by Andrea Shalal-Esa; Editing by Ryan Woo)
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