Industry Week in Review – October 05, 2018
KippsDeSanto & Co. Industry Week in Review – October 5, 2018
Summary
Updates and overhauls continue to stand out as prevalent trends in the Aerospace, Defense, and Government Technology communities. This week, the U.S. Army came closer to finding a supplier for its defense radar system, and Boeing and Embraer mentioned the prospect of building an assembly line for Embraer’s cargo aircraft to make up for lagging interest from Brazilian buyers. In the Government Technology sector, digital transformation remains a pressure point as agencies pursue alternative avenues to facilitate cloud modernization and increased cyber functions.
Aerospace & Defense Update
The U.S. Army has narrowed its selection of awardees to develop a next-generation air and missile defense radar (“AMD”) system to Raytheon and Lockheed Martin. The Department of Defense Ordnance Technology Consortium originally had awarded contracts to four companies to develop designs for the Patriot AMD radar replacement system but has removed Northrop Grumman’s and Technovative Application’s from the process. The concept design contracts were given a period of performance of 15 months, but the down-select came early. Raytheon currently manufactures the legacy Patriot System while Lockheed Martin currently is developing the Medium Extended Air Defense System as competition. Radar technology is becoming more prevalent as Congress has mandated that the U.S. Army find a way to produce more capable radars that will fit into the future Integrated Air and Missile Defense framework by 2025.
Boeing and Brazilian aerospace company, Embraer, are reportedly discussing the prospect of building an assembly line for Embraer’s KC-390 cargo planes in the United States. This discussion comes on the heels of Boeing’s 80% stake in Embraer’s commercial business, and it is widely speculated that a similar deal on the companies’ defense businesses might be negotiated in the coming months. Boeing and Embraer had previously established agreements in 2012 and 2014, but a defense-related joint venture would allow for the development of much broader market opportunities. The KC-390 is a multi-mission aircraft built to haul cargo, transport passengers, insert special operators, and even help refuel other aircraft. Embraer has struggled to draw serious interest from international buyers as Brazil currently remains its only customer, however Embraer believes this agreement could change that.
Government Technology Solutions
With their innovative and agile solutions offerings, commercial companies have begun to increase their desire to more effectively penetrate the federal contracting space. This is largely driven by a change in the historic reluctance of federal agencies to adopt commercial technologies, given a heightened focus on, and need for, more robust cybersecurity measures and enhancements to outdated legacy systems. Government contractors have turned to partnerships with commercial companies in order to more quickly deliver commercial solutions as contractors typically have required contracting vehicles in place. Raytheon (NYSE: RTN) has been one of the leaders in this movement and recently teamed with Florida-based Cybraics, Inc. and California-based Authentic8, Inc., to deliver cyber and cloud solutions to federal and state and local agencies. Intended solutions include enhanced security for various voting and healthcare platforms. These companies will provide their services through a subscription model, deemed cyber-as-a-service, that will allow Raytheon “to deliver security faster and at a lower total cost,” according to John DeSimone, Vice President of Cybersecurity and Special Missions at Raytheon’s Intelligence, Information, and Services (“IIS”) segment. With government spending at all-time highs, Raytheon’s decision to collaborate with innovative commercial companies could give it a serious competitive advantage as the demand for departmental IT overhauls continues to grow.
On Thursday, the senate passed a bill that solidifies the role of the Department of Homeland Security’s (“DHS”) Cybersecurity and Infrastructure Security Agency (“CISA”). Formerly known as the National Protection and Programs Directorate (“NPPD”), the agency was rebranded amid increasing cyber threats and tasked with securing federal networks and protecting critical infrastructure. The elevation of CISA comes in the wake of a long line of cyber breaches, including alleged Russian meddling in the U.S. election in 2016 and the recent Chinese hardware hack that made its way into Apple and Amazon Web Services’ data center equipment. This move, coupled with the recent passage of the Cyber Deterrence and Response Act in September, further reinforces U.S. prioritization of combatting the increasing cyber vulnerability of federal agencies and commercial companies as they modernize.
Transactions
Air Transport Services group, Inc. has agreed to acquire Omni Air International, LLC, a provider of airline and charter services for commercial and government clients. The transaction is worth an estimated $845 million.
Artech Information Systems, LLC has acquired The Talent & Technology Solutions Business Unit of CDI Corporation, a provider of IT and engineering talent sourcing services and technology solutions to clients across North America. Terms of the deal were not disclosed.
Behrman Capital has acquired kSARIA, a provider of mission-critical connectivity solutions for the aerospace and defense end markets. Terms of the deal were not disclosed.
Bel Fuse, Inc. has acquired BCMZ Precision Engineering Limited, a provider of precision machined components to customers in the automotive, aerospace, defense, telecommunications, fiber optic, and medical industrial sectors. Terms of the deal were not disclosed.
Bytecubed, LLC has acquired InterKN, a provider of proprietary technology platforms that connect enterprise buyers with innovative suppliers by dynamically surfacing available funding, technology needs, and data insights. Terms of the deal were not disclosed.
Gulfstream Aerospace Corp. has acquired a manufacturing line of The Nordham Group, Inc., a provider of nacelles for the Gulfstream G500 and Gulfstream G600. Terms of the deal were now disclosed.
Enlightenment Capital has made a strategic investment in Emagine IT, Inc., a provider of information technology services, with a focus on cyber, data analytics, and cloud, to government and commercial customers. Terms of the deal were not disclosed.
Hilcrest Holdings, Inc., in partnership with Akoya Capital, LLC, has acquired Evolver, Inc. and eVigiliant Security, merging the two to create Converged Security Solutions (“CSS”), a provider of comprehensive converged security managed services solutions spanning cyber and physical security. Terms of the deal were not disclosed.
Standex International Corp. has acquired Regional Mfg. Specialists, Inc. (d.b.a. Agile Mechanics), a provider of high-reliability magnetics, including transformers, inductors, and coils for mission critical applications for blue chip OEMs. The transaction is worth an estimated $39 million.
