Industry Week in Review – February 7, 2014
With the March 4th submission of the fiscal 2015 budget approaching, more information detailing plans of future spending and potential cuts continue to be determined. Among the departments soon to realize their respective fates, the Air Force is expecting to take severe cuts to personnel and platforms. The overall theme of the budget is the question of capability and necessity today or in the future, creating a difficult landscape as current and previous programs are being cut to keep future modernization programs, such as the KC-46A tanker and F-35 joint strike fighter programs, moving forward. Air Force Secretary Deborah Lee James confirmed that service personnel will decrease to sustain a smaller force in the near term in order to resource needed modernization programs. Some of the cuts do not come as a surprise, including the A-10 platform in favor of multifunction platforms, as well as the KC-10 and MC-12 aircraft and surveillance platforms. Other notable changes include shifting funding from the highly-favored U-2 manned spy plane program to the Global Hawk long-range drone system and reducing the number of Reaper and Predator unmanned combat air patrols. However, even with program and funding cuts, Air Force officials remain confident that the department will remain sharply focused and highly capable on the cutting edge of new technology to meet the country’s needs moving forward.
Engility Holdings, Inc. completed its $120 million acquisition of Dynamics Research Corporation, Inc. (“DRC”) on January 31st. Investors have responded positively to the acquisition, with Engility’s stock price up ~21% since the deal was announced on December 23rd. The acquisition is expected to be immediately accretive to Engility’s full-year 2014 earnings, and expands the company’s presence within high-end defense, intelligence, and healthcare markets, as well as its access to key prime contract vehicles such as CIO-SP3.
Big Movers
MAXIMUS, Inc. (Up 11.5%) – Shares were up this week after the Company announced positive fiscal quarter results with $406.6 million in revenue, a 42% increase from the same period last year.
Spirit AeroSystems Holdings, Inc. (Down 20.2%) – Shares were down this week after the Company reported disappointing fiscal quarter results, which included a net loss of $587 million.
Relevant Transactions
CapitalWorks, LLC acquired Meriwether Capital’s Capewell Components Company, a provider of specialized industrial, commercial, and military components and tools for the aerospace and defense industry. Terms of the deal were not disclosed.
Héroux-Devtek, Inc. acquired BBA Aviation Plc’s APPH Ltd. and APPH Wichita, Inc., providers of landing gear and hydraulics systems and assemblies for original equipment manufacturer and aftermarket applications. Héroux-Devtek paid $124 million for the acquisition.
Wesco Aircraft Holdings, Inc. to acquire Haas Group International Inc., a provider of chemical management, product distribution, and supply chain management for the aerospace, defense, electronics, and manufacturing industries. Wesco will pay $550 million for the acquisition.
