KippsDeSanto & Co. advises Mission Microwave Technologies, LLC, a portfolio company of GaAs Labs LLC, on its sale to an investment affiliate of J.F. Lehman & Company

KippsDeSanto & Co. advises Locana, a portfolio company of Transom Capital Group and Angeleno Group, on its sale to TRC Companies, Inc.

KippsDeSanto & Co. advises advises Outside Analytics, Inc. on its sale to SMX, a portfolio company of OceanSound Partners

KippsDeSanto & Co. advises SixGen, Inc., a portfolio company of Chart National L.P., on its sale to Washington Harbour Partners

Aerospace/Defense & Government Services 2019 M&A Survey

KippsDesanto & Co is pleased to share its second annual survey of mergers and acquisitions (M&A) activity and sentiment in the Aerospace/Defense, Technology and Government Service sectors. In this study, we asked key dealmakers from relevant sectors to share their predictions about M&A deal activity and valuations over the next year.

We also asked them to share their insights on strategic drivers of M&A activity and the impact of recent events, including the 2018 United States midterm elections.

In this survey, we find dealmakers remain quite positive about 2019, with most expecting moderate economic growth and predicting M&A activity will increase somewhat or remain about the same as 2018. These are quite positive findings, given last year’s robust activity levels.

Click here to download the M&A Survey Report

2013 Aerospace / Defense M&A Activity Wrap-Up

M&A activity in the aerospace / defense industry in 2013 was decidedly mixed.  The headline is that 158 industry transactions were announced during the year, down from 2012’s 177 transaction announcements (see chart below).  Essentially all of this decline in transaction volume was attributable to activity involving companies primarily serving the defense sector, where the number of deals slid from 77 to 58.  Deal volume involving target companies operating primarily in the commercial aerospace sector, on the other hand, was flat (albeit at a very high level), with 100 announced transactions in both 2013 and 2012.  Clearly, the uncertain defense budget environment had a significant impact on deal activity in 2013.

Valuations are extremely difficult to generalize since there is a greater amount of buyer selectivity than there has been in previous years.  But general valuation trends mirror the trends in volume – multiples for transactions involving defense companies settled into a lower range, while multiples in the aerospace sector remain at cyclical highs.

From a size perspective, 2013 witnessed the continuation of a trend that has prevailed in the aerospace / defense industry for several years:  the predominance of middle-market sized deals.  Fully 97% of the transactions in the industry were for enterprise values of less than $500 million (see chart below).  Moreover, mega-deals of greater than $1 billion in enterprise value were few and far between, with only two such transactions (Rockwell Collins’ acquisition of ARINC for $1.4 billion and Textron’s acquisition of Beechcraft for $1.4 billion) announced in 2013.

What do we predict will happen for aerospace / defense M&A activity in 2014?  The commercial aerospace market continues to roar along, with healthy backlog and strong visibility for years’ worth of production.  Barring an economic slowdown, we would expect transaction volume to proceed at already robust levels, with perhaps a pause in valuations that seem to be cresting.  In the defense sector, one of the factors that created the biggest drags on activity in 2013 – the lack of certainty around the budget / funding environment – has been removed with the budget deal struck in December 2013.  We predict that this will loosen the constraints on deals in 2014, providing a confidence boost to buyers eager to do strategic deals.  That said, the defense market is still in the early stages of an anemic “growth” cycle, which will put a crimp on super-premium valuations.

M&A Deals by Announce Date and Size

Source: CapitalIQ and KippsDeSanto Research




Tailwinds for Sponsors with Recent Aerospace Exits

The healthy aerospace market in 2012 has proved an opportune time for many financial sponsors to realize successful investments.  Cyclical commercial aerospace firms have bounced back from the downturn, and despite global macroeconomic concerns, are benefiting from positive industry dynamics such as traffic growth (29 straight months of growing passenger traffic and capacity) and record backlogs at OEMs (~7 years at Boeing and Airbus).  Strong financial performance at commercial aerospace businesses has propelled stock price gains (up 10.4%(1) in 2012 through December 14th), and long-term confidence and accessible capital markets have helped fuel M&A.

Portfolio company exits in the aerospace industry have taken off since the market trough, with five in 2010, 16 in 2011, and 22 in 2012 through December 14th.  Investors have been rewarded with solid returns, including the more than three times return on Vance Street Capital’s sale of Klune Industries to Precision Castparts in a hold period of just two years.  Precision Castparts also announced the acquisition of another private equity portfolio company, Synchronous Aerospace Group, in November to continue their aerostructures expansion.  Other high-profile exits include Warburg Pincus’ $675 million sale of CAMP Systems and Platte River’s sale of roll-up PRV Aerospace to Court Square.

With recently released 20-year forecasts from Boeing and Airbus pointing towards high-rates of production for the foreseeable future, long-term prospects appear sound.  Despite the occasional turbulence, the skies ahead look clear, with continued opportunities for successful investments in the aerospace market in 2013 and beyond.

Industry Week in Review – November 25, 2011

This week, the Joint Select Committee, better known as the “Super Committee,” failed to identify $1.2 trillion in reductions to the federal deficit. The committee’s failure triggers automatic spending cuts and sequestration beginning in 2013. If defense budget cuts are not softened, the defense base budget in 2013 would be cut to approximately $472 billion, nearly $100 billion under the Pentagon’s 2012 budget request for the following year.

While defense cuts seem inevitable, the amount and timing are under debate. A main factor in the debate is the 2012 Presidential election; Committee failure and pending job loss from defense cuts in a tough economy are key considerations in the President’s re-election. Several members of Congress and the White House agree the defense cuts under sequestration go too far. Policymakers are likely to seek spending reductions and revenue increases in other places in order to avoid the full effects of defense cuts.

Big Movers

Zodiac Aerospace (Up 5.4%) – Shares are up this week after the company announced a bullish view on aerospace growth, projecting Q1 organic sales up 20% when its fiscal quarter ends next week. The company which supplies plumbing, power and parts for Airbus and Boeing Co jetliners, said on Tuesday their supply chain was robust enough to keep up with record production needed to meet demand in the Middle East and Asia.

Northstar Aerospace Inc. (Down 21%) – Shares are down again this week as investors remain wary of weak earnings reports and agreements made with employees to end a 30-day workforce strike. The company, which produces flight-critical parts for military and commercial aircraft applications, ratified a new collective bargaining agreement in which it conceded cost-of-living allowances and job security clauses.

Recent Acquisitions

NetScout Systems acquired Sterling-based Simena, a provider of network monitoring switching technology. The acquisition expands NetScout’s capabilities in packet-flow switching technology that will help its enterprise, public sector and service provider customers tackle diverse traffic requirements and improve monitoring. Terms of the deal were not disclosed.

Czech arms and aircraft company Omnipol AS acquired ERA AS, a subsidiary of U.S.-based company SRA International, Inc. for an undisclosed amount. The acquisition solidifies ERA’s position in the global market and gives Omnipol ownership of ERA’s passive surveillance system, known as “Vera,” which is touted as being capable of detecting stealth jets.

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