Industry Week in Review – May 15, 2015
Aerospace & Defense Update
The U.S. Air Force released a Justification and Approval notice this past week on FedBizOpps, which indicates its plans to award Northrop Grumman $4 billion in contracts between 2016 and 2020 to sustain and develop the RQ-4 Global Hawk Unmanned Aerial Vehicle. This step solidifies support for the program and ends its tumultuous acquisition history. Before the RQ-4 Global Hawk received its milestone C approval from the Pentagon, there was debate over whether Lockheed Martin’s U-2 Dragon Lady should replace it, causing customers to rethink investment in the program. However, the recent milestone C and justification notice, which argues that it would take four years and about $300 million to $500 million to qualify another prime contractor for the role, provides a positive signal to Global Hawk customers that the U.S. Air Force is committed to the program.
The U.S. Army and U.S. Navy will have new leadership if President Obama’s nominations are confirmed. On Wednesday, May 13th, President Obama nominated General Mark Milley and Admiral John Richardson to replace current Army chief of staff, General Ray Odierno, and current chief of naval operations, Admiral Jon Greenert. Milley will leave his position as commander of Army Forces Command and Richardson will leave his position as head of Naval Reactors. These nominations follow the appointment of a new chairman, Marine General Joe Dunford, and vice chairman, Air Force General Paul Selva, to the Joint Chiefs of Staff, and will round out the committee that will lead the Pentagon past Obama’s final term in office.
Government Technology Solutions Update
Computer Sciences Corporation (NYSE: CSC), a provider of IT and professional services and solutions, is expected to separate its Government business from its commercial IT business unit. A formal announcement is anticipated to be made as early as May 19th, when the Company releases its FY2015 earnings. CSC’s North America public sector division generated $998 million in revenue between 1Q15 and 3Q15 (ending January 2, 2015) and serves the Department of Defense (“DoD”), Federal civilian agencies, foreign governments, and state and local governments. The division has been in the process of a cost-cutting campaign spurred by Federal budget pressures and sequestration; however, it is still expected to draw attractive potential buyers as the Government market which faces high barriers of entry. CSC shares ended the trading day up 4.3% after the split was reported on May 14th.
The Program Management Improvement and Accountability Act of 2015, introduced in the House of Representatives, seeks to improve Federal program and project management and cut wasteful spending. Third party organizations have estimated that Government organizations spend an unnecessary $119 million for every $1 billion spent as a result of poor project performance. The Act proposes a formal job path for program managers within the Federal Government and would designate a senior executive as the “Program Management Improvement Officer” for each Federal agency. Additionally, the bill would require the Office of Management and Budget (“OMB”) to develop and adopt government-wide standards and policies for program management and review agency projects on an annual basis.
Big Movers
Ametek Inc. (Up 4.7%) – Shares were up this week following the Company’s recent announcement that it will acquire Global Tubes from The Watermill Group for approximately $200 million.
Transactions
H-D Advanced Manufacturing Co. acquired Precision Aero Corporation, a manufacturer of machined products for aerospace wheel and brake assemblies. Terms of the deal were not disclosed.
Emerging Markets Communications, LLC signed a definitive agreement to acquire MTN Satellite Communications, Inc., provider of communications and content services for remote locations around the world. Terms of the deal were not disclosed.
Danaher Corporation entered into a definitive merger agreement to acquire all the outstanding shares of Pall Corporation, a provider of filtration, separation, and purification solutions that remove contaminants or separate substances from a variety of solids, liquids, and gases. The deal is worth an estimated $13.8 billion.
Genstar Capital has acquired Boyd Corp. from Snow Phipps Group, LLC, a provider of precision-engineered, specialty material-based energy management and environmental sealing solutions. Terms of the deal were not disclosed.
The Watermill Group’s portfolio company, Tenere, Inc., has acquired Mountain Molding, LLC, a provider of plastics injection molding services including new mold design and development, transfer of existing molds, assembly, contract manufacturing, inventory management, and full product life cycle support. Terms of the deal were not disclosed.
