Why investors are watching this ASX defence stock today

Shares in Electro Optic Systems Holdings Ltd (ASX: EOS) are edging higher today. This comes after the company announced a major acquisition aimed at strengthening its counter-drone capabilities.

At the time of writing, the EOS share price is up 0.92% to $9.89 in late morning trade.

So, what exactly did EOS announce?

A closer look at the MARSS deal

According to the release, EOS has entered into an agreement to acquire the MARSS counter-drone command and control business. MARSS is a Europe-based provider of advanced software and AI systems used to detect, track, and respond to drone threats.

Under the terms of the deal, EOS will pay an upfront cash amount of US$36 million (roughly $54 million). On top of that, there is potential earn-out consideration of up to 100 million euros, linked to how many new third-party contracts MARSS secures over the earn-out period.

Those additional payments are performance-based, meaning EOS only pays more if new sales are delivered. The transaction is expected to be completed in 2026, subject to customer, regulatory, and other standard approvals.

Why EOS wants this capability

EOS is already well-known for its remote weapon systems, sensors, and defence hardware. What MARSS brings is advanced command and control software that uses AI to link sensors, decision-making, and response systems into a single platform.

This enables military and security operators to identify drone threats more quickly, assess them more accurately, and respond more effectively, even in complex swarm scenarios.

EOS believes combining its existing hardware with MARSS software will allow it to offer full end-to-end counter-drone solutions, rather than selling individual components.

What it means for earnings and cash flow

EOS said the acquisition is expected to be broadly neutral for earnings and operating cash flow in 2026. That reflects the upfront investment and integration work required.

However, management expects the deal to contribute positively to results from 2027 onwards, assuming contract wins follow.

EOS also noted that the upfront cash payment is expected to be funded from existing cash reserves, which stood at approximately $107 million as of the end of December.

The bigger picture for investors

This announcement supports EOS’ longer-term strategy to become a global defence technology provider across autonomous systems, counter-drone solutions, and space capabilities.

Success will depend on integration and contract wins, but the deal has the potential to improve EOS’ competitive position.

The next test will be how effectively EOS converts this strategy into signed contracts.

The post Why investors are watching this ASX defence stock today appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Electro Optic Systems. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.