Long-term programs, DHS maturity spark interest

Investment bankers and venture capitalists are displaying greater attention to  homeland security companies and the sector is offering promising returns, according to John Mack III, executive vice president, head of mergers and acquisitions and co-head of investment banking for Imperial Capital LLC, a brokerage and investment banking firm.

"Investors are showing significant interest," Mack told Homeland Security Today in an interview yesterday, Oct. 21, at the fifth annual Homeland Security Investor Conference in Washington, DC.

The conference brings together investors and homeland security-related companies seeking investment. This year there were more presenting companies than in any previous conference, with 38 presentations, and more attendees. The conference was founded by Imperial Capital, Capital Source and Civitas Group. (Homeland Security Today was a co-sponsor, along with Patton Boggs LLP, BAE Systems and the law firm Mitchell Silberberg & Knupp LLP.)

Among the reasons for the invigorated investor interest, Mack cited improved operations at the Department of Homeland Security (DHS), which he said had stabilized since the confusion of its earliest days. Now, "DHS is seen as a model for public and private partnerships," and now "we see a consistency of programs and longer term commitments of funding" in acquisitions.

Furthermore, Mack said DHS had matured. "I think we're at between 60 and 80 percent functional proficiency," although there remains some talk of moving one or two offices.

Politics is another reason for investor interest in homeland security-related companies. Although the previous administration of President George W. Bush focused more media attention on terrorism, now "the perception is that the Democrats would rather put money into homeland security than defense." Furthermore, "the macro trend is that the government is the only one spending money."

Another reason for interest is that "there are just so many different long-term programs" in so many different areas, particularly identity solutions, critical infrastructure protection and information security.

"This country has for years underspent on security," said Mack. "Europe, on the contrary, has had such a backdrop of terrorism over the years with the [Irish Republican Army], the Baader-Meinhoff gang, the Red Brigades and others. If you look at infrastructure in Europe it is better protected than in the United States. Here, it wasn't a priority." Now, "there is massive spending to get some basic level of infrastructure protection. On the borders there is tons of impetus for improving protection and lots of opportunities for border protection."

In each directorate in DHS, "you can come up with compelling themes" for increased investment and opportunities, Mack stated.

The conference is oriented to showcasing established companies of at least $20 million in revenues and Mack noted that one sign of the maturation of the homeland security sector is "there are more solid, middle-market companies that fit the profile" than in the past.