Outside its Box

Outside its Box

A Gulf Coast unit of an international behemoth succeeded in dominating sales of a niche market. Now it has to figure out how to grow in other ways.

COMPANIES by Mark Gordon | Managing Editor

The corporate dictum, straight from the top corporate brass in New York, is clear: The Sarasota-based division of L-3 Communications, a $14 billion publicly traded defense contractor, must grow revenues at least 10% a year.

Tough demands for a $50 million-plus manufacturing business where the market for its core product, airplane cockpit voice and flight data recording systems known as black boxes, has essesntially already peaked. With so few planes currently being built, the industry for new black boxes has all but dried up, even for a company such as L-3, which has about a 70% control on the global black box market through its Sarasota division, L-3 Aviation Recorders. The company also holds about an 80% stake on black boxes for the maritime industry.

"The only way we can grow like that isn't by selling black boxes," says John Kerwin, L-3 Aviation's vice president of operations. "We need to keep developing new products."

Indeed, from about 1955 through 2000, the company was basically all about black boxes, all the time. It has since added 15 new products to its catalog.

Those products include one it has high hopes for in 2008, an electronic flight bag. The 'bag' replaces the actual bag airplane pilots are required to carry that contain maps and airport guides. L-3 Aviation's bag puts that data in a Windows-based hand-held system. Other new, non-black box products the company is marketing include power supply components for airplanes and navigation aids for the maritime industry.

One new challenge L-3 Communications faces is how to deal with the impending loss of Medical Education Technologies, Inc., a Sarasota based subsidiary that L-3 had held an 80% stake in since 2006. Known as METI, the company, a runner-up for the Review's Technology Innovation Award in 2005, is a pioneer in the field of computerized mannequins - lifelike human patient and surgical simulators for use in medical training and education.

But METI ended its relationship with L-3 earlier this month. In a deal announced Oct. 9, METI founder and chief executive Lou Oberndorf said he would be buying back the company, along with Chicago-based private equity firm Baird Capital Partners.

Officials from both companies declined to disclose the amount Oberndorf and Baird paid to buy back METI. L-3 Aviation Recorders, in conjunction with METI, reported sales of about $123 million last year, according to the Economic Development Corp. of Sarasota County.

An L-3 Aviation spokeswoman said the departure of METI will have little impact on the local company's future growth plans or its desire to create and market new products.

Meanwhile, METI officials hope the company's upward growth track will continue. "[L-3] has been a very good parent company," says METI spokeswoman Tess Mitchell. "But Lou really felt that we needed to go private again in order to grow the way we wanted to."

at a glance:

L-3 Communications Holdings

Headquarters: New York City

CEO: Michael Strianese

FY 2007 Revenues: $13.96 billion

Stock symbol: LLL

Recent stock price: $80

52-week stock-price range: $75.93-$115.33

Price-earnings ratio (trailing 12 months): 11.45

Dividend: 0.30

Market capitalization: $9.71 billion

Source: Google Finance

To Stay or Go

The sustained success of L-3 Aviation Recorders and Medical Education Technologies, a pair of technology manufacturers in Sarasota, presented one of those "good" problems for local economic development officials over the past few months.

The good: The combined efforts of the companies produced a sizable economic impact in 2007, with numbers including a payroll of $25.5 million on an average annual salary of $55,000; paying $85,000 in property taxes; and making $4.5 million a year in material purchases from vendors, according to the Economic Development Corp. of Sarasota County. On a combined basis, L-3 Aviation and METI reported $123 million in sales last year.

The problem: The companies were so successful that other areas wanted to woo them away from Sarasota.

The latest effort to lure METI happened over the past few moths, as the company sought a new building, having outgrown the space it shared with L-3 Aviation on Fruitville Road in Sarasota.

METI spokeswoman Tess Mitchell says the company, through a real estate consultant, had narrowed down its options to three places it could put up a new building: Lakewood Ranch; Bee Ridge Road just east of Interstate 75 in Sarasota; or Ruskin, in Hillsborough County.

METI was all set to choose the Bee Ridge location, Mitchell says, when, "at the 11th hour, the Hillsborough developer came back with a very aggressive offer."

That offer set Sarasota County economic officials into action. In a statement, EDC President Kathy Baylis said, "METI is exactly the kind of business we want to keep in Sarasota County." County commissioners agreed and recently approved a $330,000 incentive package for METI that includes breaks on permits and impact fees and taxes.

METI will be using those incentives to stay in Sarasota and build its new home, a projected 70,000-square-foot building to be developed by the Sarasota-based Starling Group.

"METI has enjoyed being a part of the Sarasota County business community ever since we started our company in 1996," said Lou Oberndorf, METI's founder, president and chief executive in a statement. "It was important for us to stay in Sarasota and we are grateful to the county commissioners and the EDC, who embraced us and really got busy to turn this around quickly."

The METI incentives come on the heels of incentives county officials approved for L-3 Aviation Recorders to stay in Sarasota. Those incentives, announced in August, revolve around $100,000 the county agreed to pay to cover costs for the company to hook up with county water lines. As a result, L-3 Aviation officials announced they would be renewing its 10-year lease on the 100,000-square-foot building, in addition to building a 35,000-square-foot expansion.

REVIEW SUMMARY

Businesses. L-3 Aviation Recorders, Sarasota; Medical Education Technologies, Inc, Sarasota

Industry. Technology, manufacturing

Key. Both companies need to adapt as they go through a transition period.