David Luxton, president and CEO of Allen Vanguard. (Darren Brown, OBJ)

Allen-Vanguard Corp. bought another rival in the bomb detection and disposal market recently.

Then again, it's now a fairly routine act for the Ottawa company, intent on being the world's largest supplier of explosives detection, jamming and detonating equipment.

Analysts are excited about the deal, which saw the firm buy local rival Med-Eng Systems Inc. for $650 million. In fact, some are raising target prices for Allen-Vanguard's stock to $19, up from the current $9.50 it had been circling for a while.

"It's not often that we run across companies that make acquisitions that triple (their size) overnight, leave it in a significant competitive position to continue to grow organically at a double digit rate, and do it without massive dilution or significant leverage. That is the situation here," said Doug Cooper, an analyst with Paradigm Capital Inc., the firm which set the high target price.

After equity offerings, the buyout of Med-Eng will leave some $300 million of debt, which Mr. Cooper predicted would be fairly easy to pay down.

"Given the expectation of strong free cash flow, estimated at $100 million by fiscal year 2009, such a debt level could easily be paid down within three years," he said.

"It has been one of our best performers, and we are quite keen on them," added Michael Decter, CEO of Lawrence Decter Investment Counsel in Toronto, which owns shares in the firm. "Usually, the company doing the buying goes down in price . . . but Allen-Vanguard has gone up quite significantly since (Med-Eng) was purchased."

Together, the two companies have consolidated revenues of $335 million for the trailing 12-month period ended last March 31. Combined, sales for both should reach $500 million in 2008, the company said.

"This is certainly the best thing for both companies," said Allen-Vanguard CEO David Luxton. "This is something that should have happened, there were synergies there, and we have a fair bit of history together."

It was a "natural act" to bring the two firms together, he said, and "everyone in the industry recognizes that. Together, they will be able to accomplish more things than they were able to do, and more efficiently. There are a lot of strengths in this union."

Third quarter financials from the company are expected this week, which might illustrate more clearly where the company is headed, although more accurate figures can probably be expected in one or two quarters from now.

"I expect the (numbers) to be good," said Mr. Decter. "I don't have a particular number I'm looking for. I think the growth after this one will be the better one. We'll see the extent to which the theory of two-plus-two-makes-five is true."

Despite its growth, the company has every intention of staying put in Ottawa, said Mr. Luxton. He said his company is committed to its Ottawa headquarters, and has no plans to move closer to international or U.S. clients, including Lockheed Martin and various U.S. police forces.

He said he wasn't sure whether his firm was bucking a trend by staying put or if Allen-Vanguard was unique among Canadian companies, many of whom sell out to foreign interests rather than buying rivals.

"I guess to the extent that most companies in Ottawa are being sold to foreign interests, this is contrary to the trend," he said. "I take some satisfaction in that."

"I don't see any reason it couldn't stay in Ottawa," added Mr. Decter. "It's marketing essentially to governments all over the world. Last time I looked, Ottawa has pretty good air service to most places. I think probably there's some advantage to being headquartered in Canada, a NATO country, rather than the U.S."

Mr. Luxton said there are no plans to lay off any of the firm's 625 or so global staff. "The company's in growth mode," he said.

While Allen-Vanguard will consolidate its Ottawa facilities and restructure production operations for Med-Eng's North American manufacturing base and Allen-Vanguard's U.K. facilities, Mr. Luxton said he was happy with the locations of the two "footprints" his company has here and in Europe.

"Both companies have been very successful at selling globally from Ottawa," he said. "(It's) to their advantage in having a strong footprint in North America and overseas . . . A platform that has that kind of dual footprint is what both companies have always needed. Now we have that, (and we can move) more aggressively on a global basis."

While the two firms are now one, Mr. Luxton said he expected Med-Eng, with an internationally-recognized brand, to keep its name.

He added, however, that the limited auction process sale of Med-Eng to Allen-Vanguard was due in some measure to the wishes by Med-Eng's board to keep the firm under local control.

"We're pleased, obviously, to have been the bigger bidder," he said. "But price wasn't the only consideration. The aspirations of (Med-Eng) management, I think, on the legacy that they would be leaving behind, was a consideration. They saw the merits, and we're grateful that those were considerations in their thinking.

"It's good for the company and for Ottawa that (Med-Eng) remain here, and not become foreign-owned or a branch plant of some much larger multinational."

Mr. Luxton is set to become the CEO of the merged entity, as soon as the deal is formalized Aug. 31.

The acquisition has truly cemented Allen-Vanguard's reputation as the world's leading supplier in a very niche market.

"This is small, growing company, that has made a very big acquisition that has taken it to the next level," said Mr. Decter. "If you think about us losing a raft of big companies, like Inco . . . the only way the country prospers is if it has a whole bunch more Allen-Vanguards.

"It's a very niche company, but it's a global niche. It's a sad commentary on the world in which we live that this niche is as big as it is, but it is good that a Canadian company is helping to protect people."