KippsDeSanto’s DealView — Top 10 M&A Deals of the Quarter

 KippsDeSanto & Co., a leading aerospace / defense and government technology solutions investment bank, would like to share its thoughts on the “Top 10 M&A Deals of the Quarter” for the period ended March 31, 2018.  The following table is our take on the most notable announced M&A transactions — not only based on size, but also on strategic importance and / or impact.

Click here to download the table above

Of the above transactions, the following were especially noteworthy:

The aerospace / defense deal of the quarter is TransDigm Group’s acquisition of Extant Aerospace.  The proposed acquisition is worth $525 million, or more than 6x fiscal year 2018E pro-forma revenue.  Aircraft aftermarket sales are expected to drive 80% of Extant’s 2018E revenue, with a majority of revenue derived from the military end-market.  The company licenses or acquires aftermarket products form aerospace and defense original equipment manufacturers, and then provides maintenance and support for these products throughout the rest of its useful life.  Extant support various military aircraft platforms such as the F-16, AH064, F-18, F-15, and C-130.  Its commercial platforms include the King Air series, MD 900 / 902, B747, B757, and B777 as well as various business jets.  TransDigm expects the acquisition to provide significant opportunities for growth and believes that Extant’s unique business model will be a natural fit within its aftermarket-focused value generation strategy.  TransDigm plans to finance the acquisition through a combination of cash on hand and its existing revolving credit facility.

The government technology solutions deal of the quarter is General Dynamics’ (“GD”) announced acquisition of CSRA.  The proposed transaction is worth approximately $9.9 billion, or 11.7x LTM EBITDA.  Recently, GD increased its original February 12th offer of $40.75 per share to $41.25 after CACI made a counter bid on March 18th for $44 per share in cash and stock.  GD ultimately prevailed in the bidding war because its offer was all cash, unlike that of CACI’s, which consisted of cash and stock.  CACI’s stock traded down approximately 7% the week after their counter-offer was made public, making its offer less compelling given the stock component.  The deal highlights sector buyers’ continued focus on increasing scale and next-generation IT (“NGIT”) capabilities via M&A.  Following the acquisition, GD’s federal IT business will generate nearly $10 billion per year in revenue.  This will make GD the second largest government contractor, slightly behind $10.6 billion Leidos, which became the largest government IT and services contractor through its merger with the former Lockheed Martin IT business in 2016.  General Dynamics and CSRA have received clearance from anti-trust officials, and the deal is expected to close in the first half of this year.

(1)       KippsDeSanto & Company is not affiliated with any other company mentioned herein

KippsDeSanto’s DealView — Top 10 M&A Deals of the Quarter

KippsDeSanto & Co., a leading aerospace / defense and government technology solutions investment bank, would like to share its thoughts on the “Top 10 M&A Deals of the Quarter” for the period ended December 31, 2017.  The following table is our take on the most notable announced M&A transactions — not only based on size, but also on strategic importance and / or impact.

Click here to download the table above

Of the above transactions, the following were especially noteworthy:

The aerospace and defense (“A&D”) deal of the quarter is Mercury’s announced acquisition of Themis Computer, Inc.  The proposed acquisition is an all cash deal worth $180 million, in excess of 3x 2017E revenue and approximately 14x 2017E EBITDA.  The deal is expected to be immediately accretive to Mercury’s earnings and will be financed through Mercury’s existing revolving credit facility.  Themis Computer is a leading designer, manufacturer, and integrator of commercial, SWaP-optimized rugged servers, computers, and storage systems that serve some of the largest Navy and Army server programs in the U.S. Department of Defense (“DoD”) as well as international defense programs.  The acquisition will provide Mercury with a strategic platform acquisition that will enable Mercury to continue penetrating the Command, Control, Communications, Computers, and Intelligence (“C4I”) market and provide important new capabilities for its customers.

The government technology solutions deal of the quarter is the announced merger between DXC Technology’s U.S. Public Sector (“USPS”) business, Vencore Holding Corporation, and KeyPoint Government Solutions.  DXC Technology was formed in April 2017, through the merger of Hewlett Packard’s Enterprise Services division and what remained of Computer Sciences Corporation, following the spinoff of its government services business to SRA International, which became CSRA Inc.  Vencore is a provider of information solutions, engineering, and analysis to the U.S. Intelligence Community, the Department of Defense, and federal and civilian agencies worldwide, and KeyPoint is a provider of specialized investigative and risk mitigation services to the U.S. Federal Government.  DXC is spinning off its USPS business to combine it with Vencore and KeyPoint to create a competitive, large-scale, government-focused IT services provider.  The proposed transaction will be tax-free to DXC and its shareholders through a Reverse Morris Trust transaction structure, which is the same structure used for the formation of DXC as well as Leidos’ acquisition of Lockheed Martin’s IT business in 2016.  The DXC USPS deal is expected to close by March 31, 2018, and the still-unnamed, public, combined entity will have 14,000 employees and ~$4.3 billion in annual revenue.  DXC shareholders will own 86% of the combined business and receive $1.05 billion of cash upon closing.  Veritas Capital, the prominent private equity firm that owns both Vencore and KeyPoint, will retain approximately 14% of the combined entity’s equity and receive $400 million of cash at closing.  This transaction follows the recent trend of mega-mergers (~$1 billion in revenue) across the government technology solutions landscape and is the third of its kind behind CACI’s acquisition of L-3’s NSS business unit and Leidos’ acquisition of Lockheed Martin’s IT business.