UK official sees cyber, security consolidation

WASHINGTON Tue Oct 11, 2011 12:24am BST

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WASHINGTON (Reuters) - The global security market will likely see increasing mergers and acquisitions in coming years, given the large number of firms and buyers in the sector, and the intensity of the threat, a top U.K. official said on Monday.

"The opportunities for consolidation in security are much more obvious than they are in defence," Richard Paniguian, who oversees defence and security exports for the British trade and investment office, told Reuters in an interview at the annual conference of the Association of the U.S. Army.

The defence sector consolidated heavily after the end of the Cold War, but many new companies have sprung up after the September 11, 2001 hijacking attacks to deal with growing threats to government and corporate computer networks and physical infrastructure.

"In the world of security, where the threats are enormous, in order to surmount these threats, there needs to be a kind of consolidation of both the industry and most importantly, the purchasing power," Paniguian said.

Defence industry executives and analysts expect a new wave of consolidation among second- and third-tier companies in the global weapons-making business. They believe that companies specializing in cybersecurity are a particularly attractive target.

Paniguian said the sheer scale of the challenges of protecting corporate, government and military computer networks from a vast array of threats underscored the need for better coordination within individual countries, and among them.

"We have to create greater strength in both the industry and at the level of government in order to be able to mount an effective defence," Paniguian said. "You cannot build a defence in a disparate and widely distributed way."

International coordination was already growing and would likely increase further in coming years, Paniguian said. "The events and threats as they've been identified in the last five years will be leading to a great sharing of ... technologies and intelligence," he said.

British officials are due to unveil next week a new strategy to deal with computer threats. They forecast that the global market for homeland defence, cybersecurity and border protection, could swell to around $400 billion (256 billion pounds) over the next five years from around $180 billion now.

Paniguian, who will meet with U.S. trade and defence officials during his visit to the United States, said expected cuts in U.S. and European defence spending were fuelling greater interest in arms exports, and could also lead to additional trans-Atlantic defence mergers.

He said sales of security services and equipment comprised a growing share of overall British foreign arms sales, accounting for 2 bln pounds of the 6 bln pounds in defence exports reported by Britain last year.

Many U.S. defence companies have expanded operations in the homeland security and cybersecurity sectors in recent years to help offset the coming slowdown in defence spending.

Cybersecurity is one area of the U.S. defence budget that officials say will be largely exempted from a White House agreement with Congress to cut Pentagon spending by $489 billion over the next 10 years.

Many U.S. companies, including Boeing Co have already bought companies with cyber technologies in anticipation of continued growth in that sector.

Sean O'Keefe, chief executive of EADS' North American unit, did not mention the cybersecurity market specifically, but told Reuters at the conference that his company continues to look for acquisition opportunities in the areas of services, systems integration and space sectors.

EADS North America could make a move within the next six months, O'Keefe said, although he declined to narrow down the size of a possible acquisition.

(Reporting by Andrea Shalal-Esa; editing by Carol Bishopric)

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