Investment and the Homeland
Security Market
© Civitas Group, llc 2009 – Proprietary and Confidential
Outline
The Investor's View of the Market
Market Imperatives—the Firm’s Approach
Summary
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© Civitas Group, llc 2009 – Proprietary and Confidential
VIEW OF THE MARKET
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© Civitas Group, llc 2009 – Proprietary and Confidential
HLS Market View (1 of 3)
The Homeland Security Market is large and growing
• The market, in aggregate, represents annual spending of (2009) $113 billion that is
addressable by the private sector.
• Government security funding expected to remain on positive slope
– The threat is persistent and dangerous
– The markets for the Chemical, Biological, Radiological, and Nuclear Threats (CBRN); Cyber
Security; and Border Security mission areas represent significant growth areas due to several
high-profile, well-funded initiatives at the Federal level.
– But—growth rates slowing in the Obama Administration
 ~7% CAGR  ~2% CAGR
• Commercial spending is increasing as new solutions become available, regulatory
environment clarifies, and risk/threat remains substantial
– For example, better explosive detection systems are available; better radiation detectors; etc
– Desire to head off regulatory action, e.g., chemical plants, cargo security
• International market is growing; threat driven
– Spain, India, UK plots
– But concerns are different—outside US & UK, little worry about nukes, for example, or bio
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HLS Market View (2 of 3)
Federal government policy is central
• Through regulation, RDT&E, and programs, the risks are de facto prioritized
• Demand can be created through legislation & regulation
– E.g. requirements for cargo screening; aviation security; background checks for
bio researchers
Technology driven market
• Current technology generally insufficient to meet mission/market demands
– Chem detectors have too many false alarms
– Airport passenger checkpoints not really designed for explosive detection
– Counter MANPAD system Mean Time to Failure=300 hrs
• Priorities on improved performance, lower cost of ownership and ease of
operation
– ARFCAM program for chem (with a cost bogey of $2K ea and turnkey operations)
– $300M+ counterMANPAD program focused almost solely on increasing MTTF to
3000 hrs
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© Civitas Group, llc 2009 – Proprietary and Confidential
HLS Market View (3 of 3)
Market is diverse and fragmented
• Government market and policymaking is much more than DHS (e.g., HHS,
DOD, intel)
• Customers include all levels of government, and commercial entities
– >30,000 police departments, >10,000 fire departments
Competition/market leadership still evolving
• Traditional DOD primes vs. commercial providers
• No clear dominant players
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Market Size by Buyer
Significant fractions of the Homeland Security Market are not in the Federal space. Although the Federal
government captures roughly one third of the market, Federal policy is a strong driver for all other parts of the
market.
Total Addressable Homeland Security Market
(in $ Billions, per year)
$52
US Domestic ($61B/yr)
$4
International
$113
Private
Sector
$11
State,
Local, and Quasi Gov’t
$46
Total Market
Federal
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© Civitas Group, llc 2009 – Proprietary and Confidential
Market Size by Mission Area
The estimated size of the Homeland Security Market is $113 Billion per year, with Cyber Security, Critical
Infrastructure Protection, CIP, and Border Security representing the largest mission areas. The U.S. portion of
this market represents about $60 Billion of addressable spending that may be captured by the private sector.
FY 2009 U.S. Addressable Market, by Mission Area
(total market = $60B)
Cyber Security
27%
CBRN
10%
Border Security
16%
Emergency Prep &
Response
13%
Critical Infrastructure
Protection (CIP)
22%
Intelligence/
Domestic CT
5%
Policy Priorities
CIP - Transportation
7%
Counter CBRN
Border security
Critical infrastructure protection
Cybersecurity
Emergency Preparedness & Response
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© Civitas Group, llc 2009 – Proprietary and Confidential
Market Attractiveness by Mission Area
The attractiveness of each market segment is a reflection of how much the segment can be expected to grow,
and how much of the market is potentially accessible. Only a certain percentage of the addressable market will
actually be accessible at any given time – the remainder will have already been captured as part of ongoing
programs. Border Security, Cyber Security, and CBRN show the greatest growth potential (>2.5%), while Cyber,
CIP (including Transportation) and Border Security have the most new contract opportunities (as a percentage
of the market size).
20%
Border Security
Growth Rate
15%
Cyber Security
10%
CBRN
Critical Infrastructure
Protection (CIP)
Intelligence/ Domestic
CT
5%
Emergency Prep &
Response
0%
0%
10%
20%
CIP - Transportation
30%
40%
-5%
*Based on snapshot of current & anticipated contracts for FY09
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% Accessible*
© Civitas Group, llc 2009 – Proprietary and Confidential
50%
60%
MARKET IMPERATIVES—WHAT
FIRMS NEED TO BE THINKING
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© Civitas Group, llc 2009 – Proprietary and Confidential
Market Imperatives I
Buyers (and investors) want a demonstrated capability
• Vugraphs need not apply, and lab tests are marginally better
Buyers Want Solutions not Widgets
• HLS government (and commercial) buyers lack the capability for turning a problem into
a system concept, performance specification and program plan
• Tend to be suspicious of technology
• This places a premium on the ability to integrate technologies into a solution
–
Operations have to be turnkey—there are no tech training schools, and no combat support equivalents
• Absolute need to understand operational and policy constraints—requires investment
Buyers Emphasize Total Cost of Ownership
• Cost really is an independent variable
–
Local jurisdictions and federal agencies like the Border Patrol cannot afford major and enduring increases in
operational costs
• Training, logistics, maintenance, consumables—in HLS, cannot afford depots,
dedicated support, specialized operators
State and local marketplace is structurally flawed
• Need a plausible story for how you will scale to National-scale revenue
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© Civitas Group, llc 2009 – Proprietary and Confidential
Market Imperatives II
Don’t bring a “DoD” solution—it will rarely apply
• Performance; suitability; cost; secrecy—But core technology can transfer
Opportunities Can Be Shaped—what is the plan?
• Ideas marketplace—absence of systems engineering and requirements
generation culture allows providers of good ideas a hearing and an
opportunity
• “Build it and they will come” approaches will fail
• Firm needs to focus on channel development and seek strategic investors
Research and development participation important
• Most DHS/S&Tprograms became procurements (e.g. ASP)
• New leadership likely to reinvigorate
SAFETY Act and liability relief
• Confers derivative protections onto buyers—significant discriminator
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© Civitas Group, llc 2009 – Proprietary and Confidential
Summary
Investors want significant returns
• Will look for priority markets with both revenue and growth
• Will be very leary of programs that can’t plausibly argue a means toward
“National” scales
Investors expect the firm to understand the buyer
• Operational environment and constraints
• Cost effectiveness
With that being said…
• Attractive market to savvy investors
• Lots of funding and room for growth
• Technology-driven — new, good ideas can prevail
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© Civitas Group, llc 2009 – Proprietary and Confidential