UPDATE 2-Argon hires advisers to sell itself-sources

* Argon ST hires Stone Key to sell itself-sources

* Talks to begin in few weeks

* Boeing, BAE, Raytheon, L-3 expected to look at Argon

* Shares rose 16 pct on news, to 52-week high (Adds Boeing declining comment, paragraph 5)

By Jui Chakravorty

NEW YORK, Jan 11 (Reuters) - Defense manufacturer Argon ST STST.O has hired boutique advisory firm Stone Key Partners to consider a sale of itself, several sources familiar with the matter said, adding that many big defense contractors were interested in the company.

Argon, which makes sensors for intelligence, surveillance and reconnaissance systems, is expected to draw interest from Boeing Co (BA.N), BAE Systems Plc (BAES.L), Raytheon Co (RTN.N) and L-3 Communications Holdings (LLL.N), the sources said.

Two of the sources said U.S. aerospace company Boeing and British arms maker BAE had each approached Argon in the past, but discussions did not result in a sale.

Talks with interested parties are expected to begin in a few weeks, the sources said.

Argon, BAE Systems and Raytheon were not immediately available for comment. L-3 and Boeing declined comment.

Shares of Argon rose 16 percent on the news, reaching their highest level in a year. The stock closed at $23.97, up 11.7 percent, on the Nasdaq on Monday.

Argon ST focuses on an area that is drawing interest from defense companies as the U.S. administration restructures the defense budget to spend more on research and development for unmanned war and less in other areas.

Many executives of defense companies told Reuters last month that they plan to spend $500 million to $1 billion on acquisitions this year, focusing on intelligence surveillance and reconnaissance. Those included executives at L-3, Goodrich Corp (GR.N) and Lockheed Martin (LMT.N), who were all speaking at the Reuters Aerospace and Defense Summit in Washington.

VALUATIONS

Deal valuations in the aerospace and defense sector now range from seven to 10 times EBITDA (earnings before interest, taxes, depreciation and amortization), depending on the company.

Higher-multiple companies usually have key proprietary technologies, are in high-growth areas, or have access to customers in the intelligence arena. Those companies, like Argon ST, could push multiples of 12 to 14 times EBITDA, industry experts have said.

Argon's EBITDA for fiscal 2009 was $50.7 million. Reflecting a multiple of 12 to 14 times EBITDA, the company could sell for between $600 million to $700 million.

Valuations have fallen slightly from a year earlier when a sudden credit collapse and volatile stock drops created big gaps between what sellers thought they were worth and what buyers were willing to pay.

As markets and stock prices stabilized this year, those valuation gaps have narrowed slightly, making executives hopeful that 2010 will be a better year for dealmaking. (Editing by Gary Hill, Leslie Gevirtz)