Industry Week in Review – August 31, 2018
KippsDeSanto & CO. Industry Week in Review – August 31, 2018
Summary
Modernization within the government contracting arena continues to be a primary emphasis for both commercial and federal enterprises. Boeing and Lockheed Martin have made significant investments in their capabilities to best fulfill fluctuating customer demands. In the government landscape, entities including the VA and Coast Guard are upgrading their IT infrastructure and software systems to become operationally more efficient and effective.
Aerospace & Defense Update
Lockheed Martin’s venture capital business doubled down on its 2017 investment in Ocean Aero, a producer of autonomous and unmanned undersea and surface level vehicles, through a multi-million-dollar strategic investment. The additional capital will enable Ocean Aero to scale its production and widen its footprint within its growing customer base, especially with respect to its ocean observation and data collection capabilities. Considering that Navy officials have lobbied to increase spending for unmanned systems to $3.7 billion in fiscal 2019, the industry is primed for significant growth opportunities and will continue to be a high-priority area for aerospace and defense companies.
Satellite producers are transitioning away from the production of geosynchronous satellites, now preferring small satellites due to their increased cost efficiencies, information relay speeds, and resiliency to harsh space conditions. By 2028 over 7,000 smallsats, worth nearly $38 billion, are expected to be launched, marking over a 600% proliferation from the 1,200 units launched throughout the past decade. Over the last few weeks, both Lockheed Martin, with its investment in Terran Orbital, and Boeing, with its acquisition of Millennium Space Systems, have expanded their smallsat presence in an attempt to keep pace with evolving market dynamics.
Government Technology Solutions
In a positive sign for the Veteran Affairs’ (“VA”) and the Department of Defense’s (“DoD”) Electronic Health Record’s (“EHR”) overhaul, VA Secretary Robert Wilkie affirmed on Wednesday the department’s commitment to the modernization initiative. Through the VA’s $10 billion MHS GENESIS contract, the department is seeking to create a continuous healthcare record for service people and Veterans, which it hopes will minimize administrative inefficiencies. This initiative is part of a broader effort at the VA to improve customer service, a point Mr. Wilkie also highlighted during his address to the American Legion this week. The VA has also launched the Office of Electronic Health Record Modernization to oversee the fulfillment of Cerner’s modernization activities. Not all at the VA are aligned with this effort, however, as the Office of EHR Modernization’s chief health information officer and implementation lead both resigned last week, citing disagreements over the direction of the program. While these resignations may create some uncertainty, the department plans to press forward with the initiative, indicating yet another instance of federal departments making substantial IT investments to upgrade cumbersome legacy systems in the name of more efficient and effective mission delivery.
The trend of government agencies increasing their reliance on commercial IT companies for higher-end, next generation IT (“NGIT”) solutions continues as the Coast Guard considers commercial software as a replacement for its auxiliary management system. The current system, AuxData, accounts for the operational and administrative activities of its auxiliary members, including safety patrols, search and rescue, aids to navigation, public education, and public affairs. The information obtained by AuxData is then used to make budgetary preparation and manage operations. The Coast Guard is seeking to relocate this data to the cloud, in an effort to make the software more efficient and accessible than their current system, which has become cumbersome and cost-inefficient over the years. Despite the fast-growing IT market, the Coast Guard’s consideration of a commercial solution is another example of large commercial IT companies like Amazon, Microsoft, IBM, and Google becoming key government solutions providers for front-end implementation, while traditional government contractors continue to provide back-end operations and maintenance support.
Transactions:
Inertial Aerospace, a subsidiary of Heico Corp, acquired Optical Display Engineering, LLC, a provider of LCD screen and display module repairs for aviation displays used in civilian and military aircrafts. Terms of the deal were not disclosed.
MAG Aerospace, a portfolio company of New Mountain Capital, has acquired Ausley Associates, a provider of advanced procurement and program development services, as well as unmanned aviation systems lifecycle and configuration management to the NAVAIR community. Terms of the deal were not disclosed.
Omni-Lite Industries Canada, Inc. has agreed to acquire Monzite Corporation, a provider of multi-chip microelectronic components for high performance electronic sensors. Terms of the deal were not disclosed.
SpeedCast International Limited has agreed to acquire Globecomm Systems, Inc., a provider of satellite-based managed network solutions to government, communications service providers, commercial enterprises, and media and content broadcasters in the United States, Europe, South America, Africa, the Middle East, and Asia. The deal is worth an estimated $135.0 million.
Big Movers:
American Outdoor Brand (up 45.4%) – Share price were up this week as company announced it had beat earnings per share estimates for the quarter by over 80%.
KeyW (up 6.4%) – Share prices were up this week after company announced it secured a $$135 Million Remote Sensing, Command Control Communications and Computer IDIQ Contract from the GSA
