UPDATE 3-Applied Signal hires BofA to explore sale

* Applied Signal: strategic alternatives include sale

* Most top defense contractors expected to look-sources

* BAE, Cobham, Raytheon, Northrop all interested-sources

* Initial bids for Applied Signal expected for Nov-source

* Shares of Applied hit highest level since Feb. 2005
(Rewrites with company confirmation, shares)

By Soyoung Kim

NEW YORK, Oct 22 (BestGrowthStock) – Cybersecurity firm Applied
Signal Technology Inc (APSG.O: ) said on Friday it has retained
Bank of America Merrill Lynch (BAC.N: ) to explore strategic
alternatives to enhance shareholder value, including a sale of
the company.

Shares of Applied Signal surged 13 percent to close at
$31.33 on Nasdaq, the highest since February 2005 and valuing
the firm at nearly $420 million.

The company, whose products are used by U.S. defense and
homeland security agencies to intercept cellphone, microwave
and military communication signals, was responding to a Reuters
report earlier on Friday that it hired Bank of America in
recent weeks to run the auction.

Applied Signal, the last remaining pure cyber defense
company that has not been snapped up by a major defense
contractor, is likely to draw interest from most top
contractors such as BAE Systems Plc (BAES.L: ) and Raytheon Co
(RTN.N: ), people familiar with the matter told Reuters.

Applied Signal said its options include but is not limited
to a sale of company, and that there was no assurance that the
review of strategic alternatives would result in any particular

Applied Signal is likely to seek initial offers for the
company sometime in November, one of the sources said.

Most big defense firms, including Cobham Plc (COB.L: ),
Northrop Grumman (NOC.N: ), Lockheed Martin Corp (LMT.N: ), Boeing
Co (BA.N: ) and L-3 Communications (LLL.N: ) are expected to look
at Applied Signal as they seek to get deeper into the
fast-growing world of cybersecurity and intelligence, the
sources said.

Bank of America Merrill Lynch declined to comment, and
representatives for BAE, Cobham, Raytheon, Northrop, Boeing,
L-3 and Lockheed were not immediately available for comment.

The auction comes months after Boeing bought Applied
Signal’s bigger rival, Argon ST, for $775 million — a price
that represented 14 times Argon’s forward earnings before
interest, taxes, depreciation and amortization (EBITDA), above
the average deal multiple of 7 to 9 in the sector.

Applied Signal had a market capitalization of $360 million
as of Thursday’s market close, valuing the firm at more than 10
times its forward EBITDA, according to estimates from Thomson
Reuters I/B/E/S.

Bankers expect Applied Signal to fetch a similar rich
multiple of at least 14 times, indicating a sale price of about
$460 million, based on estimated forward EBITDA of $33 million
by Thomson Reuters I/B/E/S.

“Applied Signal being the last one standing with the scale
in the signal intelligence area … that really gives them some
level of scarcity value that may not be reflected in public
markets,” one of the sources said, asking not to be identified
because he was not authorized to speak with the media.

Sunnyvale, California-based Applied Signal collects,
analyzes and intercepts communication and electromagnetic
signals. Its cybersecurity expertise also includes network
monitoring, intrusion detection, and processing information to
detect abnormalities and increase situational awareness.

Top weapons suppliers are looking to acquire smaller rivals
in high-demand technologies such as cybersecurity,
intelligence, reconnaissance and surveillance as they brace for
tightening budgets on traditional arms platforms.

Deal activity is expected to heat up, given low valuations,
ample cash and shifting priorities under the Obama
administration to move funding from weapons platforms to areas
of unmanned war, bankers said.
(Reporting by Soyoung Kim; Editing by John Wallace, Derek
Caney and Richard Chang)

UPDATE 3-Applied Signal hires BofA to explore sale