Welcome to The Business Buying Academy with Sieva Kozinsky.

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🔑 A company that made precision military equipment - and typewriters

Some people study war history.

I study military business history.

Today I'm writing about two companies, Sperry and Remington Rand, and two waves of military M&A deals that help explain 20th century military history.

The first wave: During 1950s-60s, military contractors merged frequently with non-government contractors in order to branch out into civilian businesses. Think of fighter jet manufacturers branching out into civilian aircrafts.

The second wave: In the mid-1990s, 50+ government contractors consolidated as the Pentagon cut the budgets for military work.

Let's start in 1955.

Sperry and Remington Rand merged during the height of the Cold War.

It was a natural time for government contractors to acquire other non-military businesses.

The era of physical war (think planes, guns, and tanks) was ending; a new era of warfare with computers was emerging.

Military businesses saw the opportunity to branch out.

They could make computers for the military and computers for ordinary citizens. The same for planes, vehicles, or anything else made of metal.

But our story starts even further back.

In 1910, a man named Elmer Sperry formed a new company around the gyroscope.

It was a breakthrough technology.

Before, US Navy ships had trouble navigating when their magnetic compasses failed. Those ships were made of steel, so onboard compasses often were unreliable due to interference from the ship itself.

Elmer turned the gyroscope into a reliable non-magnetic compass pointing to true north, which was essential for steel ships.

By the time of his death in 1930, Sperry held more than 400 patents. In 1933, the Sperry Gyroscope Company would become the Sperry Corporation, which manufactured computers, precision instruments and controls, farm machinery, and electric and hydraulic equipment. After multiple mergers and takeovers, the company today is part of technology giant Unisys.
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- PBS

By the mid-1950s Sperry Corporation generated strong revenues ($441 million in 1954).

But the business remained heavily dependent on defense work.

President Harry Vickers wanted to expand into consumer electronics while retaining its military business.

Meanwhile, Remington Rand was a diversified office-equipment firm. They sold typewriters, business machines, and electric shavers.

But in the early 50s, they made a move into computing.

In 1950 Remington Rand acquired Eckert–Mauchly Computer Corporation (builders of ENIAC and developers of UNIVAC, the first commercial electronic computer).

In 1952 they bought Engineering Research Associates (ERA), which had strong defense and cryptographic ties.

UNIVAC I debuted commercially in 1951; early customers included government and military users, and the machine gained fame (such as predicting the 1952 election for CBS).

By the mid-1950s Remington Rand had a meaningful base of large computers and a backlog of orders, though IBM was rapidly overtaking it.

Sperry executives made a bet.

They thought the nature of military contracting would no longer just be about producing weapons and tools for ships and plans; the future would be in computer.

They were right.

Remington Rand and Sperry merged in July 1955.

Combined assets were about $500 million and revenue around $650 million.

The new business became known as Sperry Rand.

Here's what happened next:

• 1960s–1970s: The company continued as a diversified player (computers, military electronics/avionics, other industrial businesses). It ranked high on the Fortune 500 and competed with IBM for a short time in mainframe computing. In 1971 Sperry Rand acquired RCA’s computer operations.
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• Late 1970s: Sperry Rand decided to focus more heavily on computing. It sold off several non-core divisions (including parts of the old Remington Rand office-equipment businesses) and dropped “Rand” from the name, reverting to Sperry Corporation in 1979.
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• 1986: After a hostile takeover battle, Burroughs Corporation acquired Sperry for about $4.8 billion. The two companies merged, and the combined entity was renamed Unisys Corporation. This was one of the largest computer-industry mergers of its era and aimed to create a stronger competitor to IBM. Unisys is still around today, but has declining revenues and a struggling business model.

The 1960s saw a wave of military-related M&A deals (just like in many other industries).

Many of them involved a military contractor wanting to branch out into non-military businesses, and vice-versa. A few examples:

• 1960 – Diversified holding company Textron acquires Bell Aircraft (helicopters).
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• 1961 – Martin Company merges with American-Marietta and forms Martin Marietta. Diversified the missile and aerospace business with non-aerospace materials businesses while remaining a major defense contractor.
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• 1967 – North American Aviation merges with Rockwell-Standard and forms North American Rockwell. Combined a major military aircraft and space contractor (X-15, Apollo command module) with industrial businesses. Later, this group's defense/space units became part of Boeing.
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• 1967 – McDonnell Aircraft merges with Douglas Aircraft and forms McDonnell Douglas. Combined McDonnell’s strong military fighter business (F-4 Phantom) with Douglas’s commercial and military transport lines. Created an aviation powerhouse that later merged with Boeing.

Another massive wave of military M&A deals happened because of budget cuts.

The industry is, by definition, shaped by the Pentagon's budget.

Wartime surges, postwar cuts, Cold War peaks, post-Cold War drawdowns are all part of the cyclical business model for government contractors.

A pivotal moment was the July 21, 1993 “Last Supper” at the Pentagon.

Deputy Defense Secretary William Perry and other officials met major contractor CEOs and signaled that post-Cold War budget declines meant the industry must consolidate.

Merge, acquire, or risk failure.

The government effectively green-lit (and in some cases subsidized) a wave of deals.

The number of major U.S. defense contractors fell from roughly 51 to five by the late 1990s.

The remaining ones became known as the “Big Five”: Lockheed Martin, Boeing, Raytheon, General Dynamics, Northrop Grumman.

Nearly every military contractor of the past is likely folded into one of these five.

Here are a few of the most notable deals from this era:

• Lockheed acquires General Dynamics’ fighter business (1993, ~$1.5B)
• Martin Marietta acquires GE Aerospace (~$3B, 1993).
• Northrop acquires Grumman (1994, $2.1B) and becomes Northrop Grumman.
• Lockheed + Martin Marietta merge (1995, stock deal valued at $10B).
• Lockheed Martin acquires most of Loral (~$9B, 1996).
• Boeing acquires Rockwell aerospace/defense ($3B, 1996) then McDonnell Douglas around the same time.
• Raytheon acquires E-Systems (~$2.3B), and Texas Instruments defense (~$3B).

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Sieva

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