By Stockpickr Staff
Posted at 12:04 p.m. on March 13, 2009

On Wednesday afternoon, Axsys Technologies (AXYS) announced that it has put itself up for sale in an auction that has already drawn first-round bids from various defense contract companies.

Axsys said in a public statement that the company’s declining stock price has led to an “increasing number of overtures from interested strategic buyers.”

Rumors are that one of the major defense contractors, such as Northrop Grumman (NOC), General Dynamics (GD), Boeing (BA), Lockheed Martin (LMT) or Raytheon (RTH), will be the ultimate buyer of Axsys.

Axsys Technologies is a global leader in the design and development of high-performance surveillance cameras, imaging systems and related motion-control technologies used in various military applications around the world. The company makes cameras and ultra-high-powered lenses whose uses range from highway surveillance to unmanned bombers in Afghanistan and Iraq.

Since Axsys put itself up for sale, many investors are looking for the next winner in this space. While Axsys will likely be bought out at a hefty premium even at current valuations, CEO Stephen W. Bershad is also busy creating value for shareholders of GSI Group (GSIG), of which he recently bought 3.3 million shares for his own personal account.

In early February, Bershad filed a 13D, or an "activist" filing, because he has acquired 7% of the company since late January, at around 75 cents per share.

Shares of GSI are currently trading at 70 cents, up 15 cents from their Thursday close, making his statement that shares of GSI “represent an attractive investment opportunity” an even more compelling long-term case.

Additionally, according to the SEC filings, on Feb. 3, Bershad met with President and CEO Gergio Edelstein at the GSI offices to discuss Bershad's interest in the company.

GSI has had some trying times lately. Accounting irregularities, acquisitions and a complex balance sheet make this company complex to value. Investors hate accounting errors and duly punished the stock, sending it down from $9, a price it hasn't seen since January 2008.

The beauty here is that Bershad, the CEO of an extremely successful defense contractor who obvious knows the industry better than most, sees long-term value in GSI.

In the third quarter of 2008, GSI bought out Excel Technology for roughly $300 million. Excel Technologies is the leading designer and manufacturer of precision motion component products, lasers and laser systems.

Excel saw 2007 revenue of $160 million, with adjusted EBITDA of $23.9 million. That equates to 15% gross margins, slightly higher than the industry average of 10% or so. Second-quarter 2008 results for Excel Technology, which is the last public filing by the company before the merger agreement, showed that on a quarterly basis, earnings per share were up 13.5% at 42 cents, vs. 37 cents for the second quarter of 2007.

For full-year 2007, GSI and Excel reported sales of $478 million, which is third in the industry behind Coherent (COHR) and Rofin-Sinar (RSTI).

On Feb. 17, GSI was granted additional listing time by the Nasdaq, and on Wednesday March 11, it filed that the company has hired a financial advisor as part of its forbearance agreement with bondholders.

The financials here are complex, but in all likelihood, GSI will earn $200 million in 2009, which is at the low end of estimates. Taking into account its $80 million in cash, $200 million in debt and 50 million shares outstanding, that's an intrinsic value of $1.60 per share. Factor in valuation on a per-segment basis, and it could be as high as $3. (This also does not factor in any of Excel’s business, which could add an additional $1 per share.)

Stephen Bershad is unusual CEO who knows that the ultimate goal of any publicly traded company is the maximize shareholder wealth. Unlike some of his peers, who typically entrenches themselves into a company, Bershad is selling Axsys to create shareholder value. Investors should consider what his plans might be for GSI Group.

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