A busy year for defense dealmakers continued Monday with Safran SA's $1.19 billion purchase of L-1 Identity Solutions Inc. (NYSE:ID). And industry bankers say that with the forces pushing these companies together only intensifying, more transactions, and perhaps even a blockbuster, could be on the horizon.

L-1 ended a six-month auction with the Safran deal, which also includes a side agreement for BAE Systems plc to buy certain L-1 assets for $303 million. In the time since L-1 put itself on the block, Boeing Co. (NYSE:BA) has snapped up Argon ST Inc. for $775 million, 3M Co. (NYSE:MMM) has agreed to buy Cogent Inc. (NASDAQ:COGT) for $943 million, and government IT and services companies DynCorp International Inc., Stanley Inc. and ICx Technologies Inc. (NASDAQ:ICXT) were sold for $1.5 billion, $1.07 billion and $274 million, respectively.

This flurry of dealmaking comes as the U.S. and other Western governments are seeking ways to cut costs and are targeting military spending. U.S. Defense Secretary Robert Gates (pictured) has declared that after a decade of fighting two wars and ever-growing deficit spending it is time for the Pentagon to go on a diet.

While the deal targets are spread across different markets, what they all have in common is activity in areas expected to be spared the worst of the streamlining. The cuts have large contractors and other firms jockeying to boost their portfolios in areas of continued Pentagon focus, and have smaller firms with fewer revenue streams -- the ones at higher risk should a single contract not be renewed -- seeking the safety of being part of a bigger organization.

Meanwhile, a crop of companies that emerged after the attacks of Sept. 11, 2001, to develop next-generation surveillance and identification technologies has reached a critical mass where they are of interest to larger firms and can benefit from a buyer's larger reach.

Or, as L-1 chairman and CEO Robert V. LaPenta said Monday, the industry is "at an important inflection point where a strong global infrastructure, greater scale and reach, larger investments in R&D and increased resources from human capital to cash are a necessity in order to position optimally for the opportunities of tomorrow."

For the most part, the focus is likely to be on small to midsize deals such as the L-1 transaction, and companies including Mercury Computer Systems Inc. (NASDAQ:MRCY), Flir Systems Inc. (NASDAQ:FLIR) and Applied Signal Technology Inc. (NASDAQ:APSG), businesses similar to those already acquired, have become the subject of M&A parlor talk.

There has also been speculation in recent weeks about Boeing's potential interest in Northrop Grumman Corp. (NYSE:NOC). Most analysts have downplayed that talk, noting the government's reluctance to see the handful of remaining U.S. prime contractors further consolidate. Regulators blocked Lockheed Martin Corp.'s (NYSE:LMT) planned merger with Northrop back in the late 1990s, slamming the brakes on tier-one consolidation.

But one defense banker notes that there is little overlap between Boeing and Northrop -- which has a market capitalization of $17 billion -- and argued that if the government is serious about shrinking overall defense spending it might feel some pressure to accept further consolidation.

Another source said Boeing, even after buying Argon, "is hungry for more" and is drawn to Northrop's unmanned vehicles business and other high-tech armaments.

"I believe Boeing would like to own Northrop," the source said. "I am less certain the two sides could agree to a price."