December 20, 2013, 6:56 PM — LGS Innovations, a company formed during the Alcatel-Lucent merger to supply technology to the U.S. government, has been sold to a pair of U.S.-based investment companies for about US$200 million.
Alcatel-Lucent created LGS as part of the 2006 merger of France's Alcatel and U.S. communications vendor Lucent Technologies. Under requirements from the Committee on Foreign Investment in the United States (CFIUS), the companies had to form LGS as a separate entity in order to continue doing classified work. It's being acquired by private equity firm Madison Dearborn, based in Chicago, and holding company CoVant, based in McLean, Virginia. All of LGS's nearly 700 employees will transition to the new ownership, the companies said.
As part of Alcatel-Lucent, LGS has operated under a Special Security Agreement (SSA) meant to keep sensitive U.S. technologies out of the hands of the foreign-owned parent company. This has made it hard for the company to carry out some kinds of business, according to LGS CEO Kevin Kelly.
"The information-sharing rules are extraordinarily burdensome," Kelly said. "Information from Alcatel could go in, but nothing could go back the other way."
It will be easier to get things done as a separate company in a partnership with Alcatel-Lucent, Kelly said. The sale will help LGS address markets and customers that were harder to work with before. Those may include state and local governments in the U.S., public safety agencies, foreign governments and some businesses. LGS hopes to play a role in a planned 4G public-safety network in the U.S.
LGS's patented innovations include ones that could be useful for both governments and enterprises, such as data compression technologies and network reconnaissance to gauge performance and detect rogue devices, Kelly said.
LGS traces its roots to the 1940s and a team that did military and other government work for Bell Labs, the brain trust of the former Bell System monopoly. Among the projects it worked on was Telstar, the first orbiting communications satellite, launched in 1962, Kelly said.
Alcatel is divesting assets and cutting jobs as part of a restructuring it says will bring the company back to profits by 2015.