The Defense Sector Wades Into ‘Blue Tech’
While fascinating, ocean exploration and revenue generation don’t always go hand-in-hand. Experts say one exception could be in applying robotics to the marine defense market
The desire to study the depths of the world’s oceans is human nature, with stories of sea expeditions and lore of marine monsters going back back millennia. Thanks to technological advances, explorers today have more opportunity than ever to venture into the deep blue.
As ocean exploration tools like remotely operated vehicles (ROVs) and autonomous underwater vehicles (AUVs) excite scientists and marine explorers, investors are also beginning to wade into the waters of so-called Blue Tech. Innovations in the field span a variety of use cases, from coral reef monitoring and protection, to water pollution mitigation, to metal mining below the seafloor.
The challenge for dealmakers, however, is identifying which technologies have growth—and revenue—potential.
“While fascinating, deep-sea exploration isn’t exactly a lucrative field for the sake of sciences. Deep sea mining, while lucrative, has been hit with controversy as of late,” notes Victor Vescovo, founder and CEO of private equity firm Caladan Capital and, in his personal life, an underwater explorer. “I myself have yet to invest in a ‘blue,’ or sea-based, company, and I have been approached by many. The issue is, what is the revenue model, and is this anything other than a bit of a niche business?”
But, he adds, “one area of Blue Tech where investors could see potential is in government defense.”
One area of Blue Tech where investors could see potential is in government defense.
Victor Vescovo
Caladan Capital
A Pragmatic Industry Approach
Recent analysis from IP-focused investment bank and tech accelerator SkyQuest Technology forecasts a $6.84 billion AUV market by 2031, with military and defense applications emerging as key drivers for the segment’s growth.
It’s an enticing figure, but experts warn that mixing robots with salt water is not for the faint of heart. The technical difficulties of marine exploration are vast, and even as tools become better able to withstand oceanic conditions, unlocking a profitable application for these technologies is often itself a challenging task.
For these reasons, the leaders of the Blue Tech world will be those that take a pragmatic approach, according to Ben Kinnaman, CEO of Greensea IQ, an intelligent ocean-robotics company.
“We manage risk everywhere,” he says of innovators in the field. “When it comes to technology, we tend to manage risk very pragmatically. We look for robustness, we look for stability, we look for solutions that can be deployed at scale.”
Kinnaman founded the company in 2006 in response to the growing need for ocean technologies with enhanced autonomous movement and more robust data collection capabilities. After a decade of development, Greensea IQ began to commercialize its core software platform OPENSEA, which stands for Open Software Equipment Architecture. The tool can be deployed by other members of the ocean robotics community to expand the functionality of their own ROVs and robots.
The company has since introduced its Robotics-as-a-Service offering, launching its latest growth phase by focusing on shallow waters—a space that is, in many ways, more challenging than the depths thanks to potentially damaging surf conditions.
Warfare Beneath the Waves
Kinnaman acknowledges the importance of not only developing Blue Tech solutions that can withstand harsh conditions and enhance data collection but identifying effective use cases for those tools. “If it doesn’t improve the efficiency of the required task in the ocean, it doesn’t have value,” he says.
If it doesn’t improve the efficiency of the required task in the ocean, it doesn’t have value.
Ben Kinnaman
Greensea IQ
Greensea IQ’s focus application for its tools is in marine defense, an area Kinnaman says will need greater investment in the years ahead. In 2017 the company began focusing on the use case of mitigating the threat of underwater explosives like mines. “The problem to solve was, stated very simply, get the human out of the minefield,” he explains. That means using deep sea robotics that can identify whether an object is a threat. Ongoing product development aims to eventually enable autonomous robots to diffuse and neutralize the mine without the need for human intervention.
Innovation in marine defense has been overlooked in recent years as attention shifted to desert environments after the Cold War, according to Kinnaman. “We really turned our back from ocean technology and defending the ocean and managing threats,” he notes, adding that in the meantime, ocean warfare strategy has shifted dramatically from a reliance on nuclear submarines and battleships to mines and other underwater explosives.
As a result, mine detection and data collection are now more important than ever. “We have to catch up on this,” continues Kinnaman. “We have to come up with a way to defend ourselves at scale, because many of our adversaries came up with ways to aggress at scale while we were focused on hot, sandy areas.”
The State of Dealmaking
Middle-market search engine Grata reveals 1,524 companies operating in the ocean defense market. Only 96 of them, however, are using robotics technologies.
M&A dealmakers have been active in the broader marine defense space as of late. Earlier this year, Arcline Investment Management portfolio company Fairbanks Morse Defense, a naval defense solutions company, announced its acquisition of AMMCON, which manufactures fittings and components for marine customers. In June, defense electronics and IT company Hanwha Systems and shipbuilder Hanwha Ocean acquired U.S. shipbuilder Philly Shipyard.
As the ROV, AUV and ocean robotics market expands, it’s likely to spawn more applications for marine defense. Kinnaman says there are several technologies that could make robotics solutions for marine defense more attractive to potential investors, including capabilities like intervention autonomy (technology that can both detect a threat and act on it), as well as enhanced imaging and sensing capabilities.
Key to value creation for companies operating in this segment will be scalability, he adds. “A sensor that costs a quarter of a million dollars is going to have limited scalability. It just creates a cost problem. But a sensor that costs $20,000 or $10,000, now that’s fascinating,” Kinnaman says.
Further, intelligence and analytics technologies that can add value to the troves of data being collected underwater will also be important spaces to watch.
Looking ahead, Kinnaman points to other use cases for these solutions, from monitoring and combatting climate change to implementing clean energy technology, that could also find their footing as scalable and profitable acquisition targets for investors.
“Investors should pay very close attention to those technologies,” he says. “When it comes to the ocean, it’s easy to get distracted by the fancy stuff. But we don’t value fancy. We value scale and safety. Those are the technologies that are going to win, that will carry a huge valuation. They’re going to grow rapidly, see a strong level of adoption—not just a flash in the pan, but for the next decade.”
Carolyn Vallejo is Middle Market Growth’s digital editor.
Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.
