Industry Week in Review – February 5, 2015
Aerospace & Defense Update
On Friday, Harris Corp. announced it has reached an agreement to acquire Exelis Inc. in a cash and stock transaction with a purchase price of $4.4 billion. The deal, which is expected to close in June, features a $23.75 per share price tag, representing a 34% premium over the stock’s closing price on Thursday. Under the terms of the deal, shareholders of Exelis will receive $16.63 in cash per share and approximately 10% of a share of Harris stock per share of Exelis stock. Ultimately, Harris anticipates it will achieve cost synergies in the range of $100 – $120 million as a result of the acquisition. Harris shareholders will own roughly 85% of the combined entity, which will generate over $8 billion in annual sales and 23,000 employees. The announcement follows Exelis’ September spinoff of its government-services business, Vectrus Inc.
Airbus recently announced plans to acquire control of MBDA, a European missile manufacturer, after Finmeccanica put its stake in the company up for sale. Currently, Airbus owns a 37.5% stake in MBDA and intends to take over Finmeccanica’s 25% stake. The remaining 37.5% is held by BAE Systems, which would be forced to decide whether to accept becoming a minority shareholder, sell outright, or increase its ownership stake alongside Airbus. In September, Airbus placed MBDA at the center of a non-aircraft portfolio focused on aeronautics and space. As MBDA’s remaining shareholders, Airbus and BAE Systems have first right of refusal on the sale of Finmeccanica’s stake, which is worth an estimated $793 million. Meanwhile, Finmeccanica’s CEO, Mauro Moretti, has indicated that the company also intends to divest roughly $224 million of assets in DRS Technologies by the end of 2015. Finmeccanica plans to sell select divisions of DRS, a defense electronics company, while it seeks an industrial or financial partner for the U.S. unit.
Government Technology Solutions Update
On January 2nd, President Obama proposed a record $4 trillion GFY2016 budget, representing a 6.4% increase over estimated GFY2015 spending and an end to the possibility of sequestration. The Department of Defense (“DoD”) would receive $37.3 billion, while civilian agencies would receive $49.1 billion, which respectively are $1.1 billion and $1.2 billion increases. Additionally, $86.4 billion is to be allocated to the Federal IT budget. The White House reported that agencies have saved $2.7 billion in unnecessary IT spending since 2012. Efficiencies have been largely due to the consolidation of data centers, provisioned services such as cloud computing, and improved agency oversight. The additional $2.3 billion budget increase proposed is to encourage focus on IT innovation particularly through digital services teams, additional oversight and accountability, improved procurement processes, and cyber readiness.
The Department of Commerce’s (“DOC”) Chief Information Officer (“CIO”) has reported that IT modernization efforts will be led by a four-pronged shared services approach. The department will be examining the use of shared services in technology, finance, human resources, and acquisition. Once opportunities are identified in each area, the DOC will likely look to create an internal organization to select and manage providers, facilitate service level agreements, and ensure the quality of shared services. The initiative is still in its early stages, but the department is planning on issuing a request for information (“RFI”) toward the end of this year.
Big Movers
Exelis Inc. (Up 41.0%) – Shares were up this week after it was announced that the Company will be acquired by Harris Corp.
Harris Corp. (Up 13.5%) – Shares were up this week after the Company announced it has reached an agreement to acquire Exelis Inc.
FLIR Systems, Inc. (Up 12.5%) – Shares were up this week after the Company reported fourth quarter revenue of $434.4 million, an 8.5% increase year over year.
Transactions
ANSYS, Inc. acquired Newmerical Technologies International, a developer of in-flight icing simulation software and associated design, testing, and certification services. Terms of the deal were not disclosed.
Babcock International Group plc acquired S MacNeillie & Sons, a provider of specialist converted armored vehicles. Terms of the deal were not disclosed.
Harris Corp. to acquire Exelis Inc., a provider of C4ISR related products and solutions. The deal is worth an estimated $4.4 billion.
HDT Global, Inc. acquired DHS Technologies LLC, a provider of rapidly deployable expeditionary equipment. Terms of the deal were not disclosed.
HEICO’s Flight Support Group, Inc. acquired an 80.1% equity stake of Harter Industries, Inc., a provider of component and accessories maintenance, repair, overhaul, and engineering services for commercial and military aircraft. Terms of the deal were not disclosed.
Millstein & Co. acquired DLT Solutions, a provider of Government IT software and services such as cybersecurity and project management. Terms of the deal were not disclosed.
SAE International Industry Technologies Consortia (“ITC”) acquired ADS Aerospace Technical Standards, an organization that supports aerospace and defense manufacturing with product design standards. Terms of the deal were not disclosed.
Teledyne Technologies, Inc. acquired Bowtech Products Limited, a manufacturer and supplier of underwater harsh environment vision systems. Terms of the deal were not disclosed.
