WASHINGTON - Look out Aegis Defence
Services - there's a new sheriff in town.
For the past few years, the one British
private security company (PSC) that even the
casual observer knew about was Aegis, which has
the biggest private security contract in Iraq
(worth US$293 million over three years). It
provides the US Defense Department with security
support services for the Project and
Contracting Office, which is
responsible for managing the reconstruction
program.
But on April 2, it was announced
that ArmorGroup North America, a McLean,
Virginia-based subsidiary of UK-based ArmorGroup
International, had been awarded the contract to
provide guard services at the US Embassy in Kabul.
The contract, worth up to $189 million, will run
for up to five years from early this month.
Under the terms of the contract,
ArmorGroup will provide the following services:
Static guard services: former Gurkha soldiers
and Afghan guards protecting personnel and assets
based at the US Embassy and other facilities in
Kabul.
Life-support services: providing facilities
support, such as catering and laundry, for all
personnel based at the US Embassy and other
facilities in Kabul.
Explosive-detection dogs: providing dogs and
handlers for improved access-point and perimeter
protection.
The deal is ArmorGroup's
biggest contract ever. The announcement means that
the firm is now one of the biggest armed-guard
providers in Afghanistan, alongside big US
contractors such as DynCorp International Inc and
Blackwater USA.
The announcement comes
after its parent company was recently re-awarded a
$30-million-a-year deal, beating rivals Kroll
Security and Aegis, with the British government to
protect its staff and assets in Afghanistan. That
contract tasked ArmorGroup with providing
close-protection and site-security teams for
British government personnel and those working for
organizations such as the British Department for
International Development, HM Customs and Revenue,
and the British Council.
ArmorGroup has
600 staff in Afghanistan, and the US Embassy deal
will add another 400. ArmorGroup has been
operating in Afghanistan since 2002, supporting
commercial, governmental and
non-governmental-organization clients. In the bid
process, ArmorGroup beat the current holders of
the contract, Global Security Inc, while US
competitors Herndon, Triple Canopy and DynCorp
were also thought to have applied.
One
well-informed industry insider, who would only
speak off the record, said: "They have a fantastic
base of operations in Kabul. Between the FCO
[Foreign and Commonwealth Office] contract, the US
Embassy and their hardened man camp, they pretty
much own Kabul. That's a significant portfolio of
assets and contracts."
Shares in the
company increased 2% when the contract win was
announced, giving the company a market value of
$104 million.
ArmorGroup chief executive
officer Dave Seaton said the contract win is
evidence of a diversification of its business
beyond Iraq, which currently accounts for 49% of
its total revenue.
The fact that toward
the end of last year, ArmorGroup lost a contract
to provide training for 1,000 bodyguards for the
judiciary in Iraq, which led to full-year profits
falling 21%, doubtlessly was another reason for
seeking diversification.
Roughly one-third
of ArmorGroup's direct revenue comes from the
British and US governments. The company operates
across the globe, including in Afghanistan, Russia
and Nigeria.
There is no doubt that war
has been good for business. ArmorGroup's revenue
has grown from about $110 million in 2003 to $273
million. This week, The Guardian newspaper
reported that the United Kingdom has spent $165
million on hiring private security companies in
Iraq in the past four years - the equivalent of
about a quarter of the entire Iraq aid budget. A
further $43 million has been spent on private
guards in Afghanistan since 2004.
From a
financial viewpoint, ArmorGroup can be seen as a
good deal. At the time of the contract
announcement its stock was the equivalent of $1.03
per share, just below the net tangible asset value
of $1.06 per share, and well below the stated book
value of $1.47. Its dividend yield is more than
4%.
ArmorGroup first listed its shares on
the London Stock Exchange in late 2004 - during
the peak of the "Iraq bubble" for private security
firms in Iraq. The shares went public and
skyrocketed to more than $5 in early 2005. The
share price began plunging when some contracts in
Iraq were delayed later that year.
But
things are looking up for the firm because it has
room for growth in diversifying its operations
geographically (away from Iraq) and in
diversifying and broadening its service offerings.
Second, it could be an attractive takeover
candidate for another British PSC in what is
anticipated will be a sector consolidation inside
the UK.
Third, ArmorGroup could be an
attractive takeover candidate for a US PSC. It has
a history of working for both the US government
and US corporations. It has two bases in the
United States (in Virginia and Texas) operating at
full capacity. And it doesn't hurt that Stephen
Kappes - who left his job as deputy director of
the US Central Intelligence Agency after a
disagreement with then-director Porter Goss only
to return to that post under the new director -
had been ArmorGroup's chief operating officer.
In fact, in terms of growth, Afghanistan
has been far more lucrative for ArmorGroup than
Iraq. Although ArmorGroup's revenues from Iraq
rose 10% last year, this was far outstripped by
growth of 107% in Afghanistan, Africa and South
America. As a consequence, last year 49% of
ArmorGroup's revenues came from Iraq, down from
59% in 2005.
David Isenberg is a
senior research analyst at the British American
Security Information Council, a member of the
Coalition for a Realistic Foreign Policy, a
research fellow at the Independent Institute, and
an adviser to the Straus Military Reform Project
of the Center for Defense Information, Washington.
These views are his own.
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2007 Asia Times Online Ltd. All rights reserved.
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