Without much fanfare, General Electric announced in April that it was selling most of its homeland protection business to a French company for $580 million. The news caught my eye because the sale involved a company once called InVision Technologies that I wrote about several times in the wake of the Sept. 11, 2001, terrorist attacks.
InVision makes a sophisticated airport scanner, and it seemed a no-brainer back then that the company would be a major beneficiary of the boom in security spending everyone was predicting. GE acquired InVision for $900 million in 2004.
Now, five years later, here was GE unloading InVision and some other pieces of its homeland security business for a lot less than it paid. That got me wondering what happened to InVision and the expectation that security spending would create a boom market for Silicon Valley companies.
As it turns out, that flood of spending never really materialized.
It appears InVision’s fate shows even that catastrophic event of Sept. 11, 2001, didn’t do much to change the short attention span our nation has when it comes to security.
“The homeland security market has been grossly overestimated,” said David Fishering, a security industry analyst at Frost & Sullivan. “And GE is not the only one that made these kinds of mistakes. The opportunity there was not as great as we were all led to believe.”
After the terrorist attacks, a range of Silicon Valley tech companies believed that this potential windfall in security spending might benefit their bottom lines. They had to perform a delicate balancing act, trying to capitalize without appearing to profit from misery. But companies that made video conferencing products, satellite phones and facial recognition software, to name just a few, all saw an opportunity that couldn’t be ignored.
No one seemed more likely to benefit than InVision. Based in Newark, the company had developed an airport baggage scanning technology that used the sophisticated imaging created for medical CT scans. By January 2002, InVision’s shares had risen 12-fold.
When I visited InVision’s headquarters in February 2002, the company was waiting for the rush of government orders.
“We have focused all our energy since Sept. 11 on getting ready for this,” Don Mattson, InVision’s chief operating officer, said at the time. “We expected orders far earlier than now.”
Business did eventually pick up. But even with overwhelming political and public support, once-ambitious plans to purchase 2,200 explosive-detection systems to install in every airport within a year were delayed and then scaled back. Orders eventually started coming, with InVision signing contracts for 700 machines in 2002 and 800 in 2003. Revenue climbed from $70 million before the attacks to $416 million in 2003.
But soon after, spending on airport security tapered off. By 2007, GE was already trying to unload the business in a deal that fell apart.
Finally, in April, GE announced it was selling 81 percent of its Homeland Protection division, which includes the InVision operations and several other products, to Safran, a French aerospace company, for $580 million. That deal values the division at $716 million, about 20 percent less than what GE paid just for InVision five years ago.
I recently caught up with Mattson. He left InVision after the GE purchase but still advises a number of security-related ventures.
In his view, a number of factors contributed to the security business not continuing to grow in the way GE had expected. Some politicians wanted a scanning technology that was foolproof, which no technology can guarantee. And some consumers raised privacy concerns over a scanning technology that has the ability to look through their clothes.
But ultimately, the sense of urgency waned, as it always does. InVision had experienced this twice before, more recently when the midair explosion of a TWA plane in 1996 led to plans to invest in airport security that fell far short of initial expectations.
Mattson and Fishering, the analyst, agreed that the security at airports had improved since Sept. 11. But in terms of betting on government security contracts to build a business, Mattson said the grim truth is that only another attack would likely provide a catalyst for more security spending.
“There’s no question in my mind, we’re one catastrophic event away from an outpouring of funds to tighten up security,” Mattson said. “I think the government and people get complacent. The further we get from these things, the less concerned we get.”
On the eighth anniversary of the Sept. 11 attacks, it seems even this horrific event might have changed us less than we thought.
(c) 2009, San Jose Mercury News. Source: McClatchy-Tribune Information Services.