Mercury Systems looks to acquisitions and R&D for growth

December 3, 2018

By Marjorie Censer

Mercury Systems, a supplier to dozens of prime contractors, has been rapidly making acquisitions and is investing heavily in research and development as it seeks growth.

In an interview with Inside Defense, Mark Aslett, the company's chief executive, said the defense electronics company has made seven acquisitions in the last three years.

Mercury previously was focused on sensor processing, but has sought to expand its work into the other computers onboard military platforms, a market it collectively refers to as C4I.

Last year, for instance, Mercury picked up Themis Computer, which designs, builds and integrates commercial rugged servers, computers and storage systems, as well as Delta Microwave, which expanded Mercury's RF, microwave and millimeter-wave capabilities.

"We're fully integrating the acquisitions that we're doing," Aslett said.

The company reported fiscal year 2018 sales of $493 million, more than double the $235 million it reported in FY-15, and profit of $40.9 million.

Additionally, the company is seeking to fuel growth by spending 11 percent to 13 percent of sales on research and development each year.

"At the heart, we're really a high tech company who operates inside of the defense industry," Aslett told Inside Defense, noting the company keeps one foot in the commercial world.

Mercury builds pre-integrated subsystems, which he said is increasingly in demand by prime contractors.

"The government's trying to focus on speeding up the rate of tech insertions . . . and improve the affordability," he said, contending pre-integrated systems meet those goals.

Aslett argued the company's subsystems make more sense than buying commercial-off-the-shelf items.

With COTS, "the prime or, ultimately, the government would need to fund the integration costs," he said. "In our model, we're funding that integration, but we're amortizing those costs over a much broader base of platforms."

Aslett said Mercury uses open systems architecture and sells its subsystems on "commercial terms."

He said the company doesn't view the Pentagon's interest in working with Silicon Valley as a threat.

"There are clearly reasons and opportunities for the Department of Defense or the intel community to work with Silicon Valley," Aslett said. "I think it makes sense probably more on the cloud services offerings."

Mercury's systems must be ruggedized for military use, meaning the company can make use of commercial technologies but doesn't consider the companies that make them direct competitors.

"We're able to leverage those investments and R&D investments that Silicon Valley is making, but then we're adapting those technologies . . . for use inside military platforms," Aslett said.

Additionally, he said Mercury is "investing heavily in embedded security," as attention centers on the cyber vulnerability of weapon systems.

"We're building out those trusted domestic manufacturer capabilities," he said. "We felt that at some point the department would realize that cybersecurity [in] weapon systems is critically important."

Mercury is working on trusted domestic manufacturing assets in radio frequency, digital surface mount technology and microelectronics.

"Historically, security is something that has been traded away," Aslett said. "I think we are seeing that change."