Industry Week in Review – February 10, 2017

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Aerospace & Defense Update

Navy and Marine F-18 availability has dropped from traditional in-service levels of ~70% to under 40% due to decades of reduced aircraft procurement and the limitation of aviation support services from the 2013 budget sequestration.  Reduced procurement dates back to the end of the Cold War when the Navy bought fewer F-18s than originally expected and the Marine Corps didn’t buy any because of beliefs in decreased future military operations and anticipation for the new Joint Strike Fighter.  However, with the F-35 being billions of dollars over budget and still in the low rate initial production (“LRIP”) stages, the Navy and Marine Corps have been struggling to keep up with the heavier than expected use of F-18s to fight terrorism.  Decreased procurement is then compounded by an increase in grounded strike fighters due to limited availability of maintenance funds and personnel.

In a recent congressionally chartered study, the Center for Strategic & Budgetary Assessments (“CSBA”) concluded the Navy needs a larger fleet consisting of smaller ships as compared to the Navy’s proposed amount in its official Force Structure Assessment (“FSA”).  When including smaller patrol aircraft in the ship total, the CSBA believes the Navy will require 382 ships compared to the Navy’s own FSA amount of 368 ships.  While both parties stand in agreement about many big ticket items like the number of aircraft carriers (12) and the number of attack submarines (66), the CSBA sees the need for 42 patrol vessels while the Navy requested only 13.  Additionally, the CSBA calls for 71 Frigates / Littoral Combat Ships (“LCS”) while the Navy FSA only requested 52.

Government Technology Solutions Update

At Tuesday’s meeting of the House Veterans Affairs Committee, Representatives and other Federal officials pushed for the Department of Veterans Affairs (“VA”) to consider adopting a commercial replacement for Vista, the VA’s proprietary electronic health record (“EHR”) system.  Rob Thomas, the current acting Chief Information Officer (“CIO”) of the VA has noted that his preference was to utilize commercial solutions as much as he could.  Many in the industry think that Vista is not an adequate solution to the VA’s current issues with its IT infrastructure. This is despite the VA finishing up the five-year Vista Evolution program, which was aimed at improving and modernizing the Vista system.  While the VA decides on whether or not to proceed with its legacy EHR system or to replace it with a commercial solution, the Department of Defense (“DoD”) has begun rolling out a commercial EHR solution of its own.  On Tuesday, Cerner’s MHS Genesis system went live at Fairchild Air Force base. The installation and maintenance of the MHS Genesis system is being performed by Leidos in a 10-year, $4.3 billion contract.

On Wednesday, Avi Bender, Director of the National Technical Information Service (“NTIS”), provided some additional color on its joint venture partnership (“JVP”) program.  The NTIS originally selected 35 JVPs back in October, which included a mix of large government contractors, small contractors, universities and research groups, and non-profit organizations.  The JVPs include organizations such as Booz Allen Hamilton, Deloitte Consulting, Stanford University, Govini, Palantir Technologies, and HP Enterprise Services.  According to Mr. Bender, the plan is for Federal agencies to outline their unique technological issues, goals, or strategic modernization priorities to the NTIS.  The NTIS would, in turn, more succinctly summarize what that particular agency needs, and meet with the JVPs who would further analyze, condense, and redefine what the necessary solution for that agency would be.  Once the NTIS has a clear, planned, and detailed solution for the problem, it will then go out to the JVPs and solicit bids to perform that work.  This entire process would be expected to take less than three months from start to the awarding of a contract.  According to Mr. Bender, by awarding work in this manner, the NTIS and JVPs essentially handle the bulk of drilling down to the crux of an agency’s issues, allowing that organization to more efficiently perform its own core functions.

Big Movers

Elbit Systems (up 4.7%) – Share prices were up this week after the Company was awarded a roughly $110M contract to upgrade M-17 helicopters.

Transdigm (up 12.4%) – Share prices were up this week after the Company raised its EPS and EBITDA guidance for FY2017.

Transactions

Accenture Federal Services has acquired the Federal Services business of Endgame, Inc., a provider of sophisticated cybersecurity solutions specializing in proactive cyber defense, hunt-as-a-service, and red-teaming for Federal government customers.  Terms of the deal were not disclosed.

Accenture Security has acquired iDefense Security Intelligence Services from VeriSign, Inc., a provider of information security and cyber threat intelligence services relating to vulnerabilities, malicious code, and global organizational threats.  Terms of the deal were not disclosed.

Salient CRGT, Inc., a portfolio company of Bridge Growth Partners and the Frontenac Company, has agreed to acquire Information Innovators, Inc., a portfolio company of DFW Capital Partners, Inc., and a provider of healthcare IT services, enterprise IT solutions, agile development capabilities, and cloud services for a variety of Federal customers.  Terms of the deal were not disclosed.  KippsDeSanto & Co. served as exclusive financial advisor to Information Innovators in this transaction.

Soaring Pine Capital has acquired ETI Tech, a provider of more than 200 flight hardware parts for military aircraft and ground support equipment for fixed and rotary wing aircrafts.  Terms of the deal were not disclosed.

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Industry Week in Review – February 3, 2017

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Aerospace & Defense Update

This past week, Defense Secretary James Mattis officially introduced his plan for rebuilding the U.S. Armed Forces to address President Trump’s national defense strategy.  Mattis issued a memo to Pentagon budget planners announcing his desire to “build a larger, more capable, and more lethal joint force” and provided guidance for the FY2017 budget amendment, the FY2018 President’s Budget request, and the FY2019 – FY2023 Defense Program.  Mattis plans to increase immediate readiness by focusing on defense programs that are behind schedule and upgrading important military facilities.  He is also advocating for increased defense funding so the U.S. can strategically increase its presence around the world.

After the Raytheon / Leonardo-Finmeccanica team publicly withdrew from the competition last week, Northrop Grumman has officially become the second company that has declined to submit a bid for the U.S. Air Force’s T-X advanced pilot training program.  This news comes after Northrop’s earnings call last week, during which the Company’s CEO implied that Northrop was considering withdrawing from the competition.  This ~$16.0 billion T-X jet trainer program will require the production of 350 aircraft by the end of 2024.  Presently, Boeing, Lockheed Martin-Korean Aerospace Industries, and Sierra Nevada & Turkish Aerospace Industries are still in the competition.

Government Technology Solutions Update

On Wednesday, it was announced that cloud.gov, the Platform as a Service (“PaaS”) developed by the General Services Administration’s 18F agency, has been granted provisional authority to operate (“P-ATO”) by the Federal Risk and Authorization Management Program (“FedRAMP”).  This makes cloud.gov the first fully-open source solution to be authorized by FedRAMP.  Cloud.gov is a PaaS which allows Federal agencies to host their websites and applications online.  The open-source nature of the site allows these agencies to more easily and efficiently connect with both employees and contractors to maintain and develop online solutions.  With the P-ATO from FedRAMP, agencies will have a much more streamlined process in building or updating their own solutions, since the FedRAMP’s Joint Authorization Board (“JAB”) has already vetted cloud.gov’s security and compliance standards.  This means that agencies who host and build solutions on cloud.gov do not have to go through the compliance process themselves.  Cloud.gov went through the FedRAMP Accelerated, becoming just the second cloud provider to do so after Microsoft did so back in September of 2016.

On Tuesday, a draft of President Donald Trump’s planned executive order on cybersecurity was leaked, giving some insight into how his administration might approach the issue.  In the draft, the Department of Defense (“DoD”) would be given an equal role to the Department of Homeland Security (“DoD”) in carrying out cybersecurity policies.  When President Trump originally promoted this order, he noted that he would hold agency heads responsible for developing and maintaining a sound and secure cyber infrastructure within their own departments.  The executive order would have also called for, and promoted, modernization initiatives aimed at creating and maintaining secure IT infrastructure within the Federal government.  While not specifically outlined in any of the versions of the draft of Trump’s cybersecurity order, the President has maintained that the Federal government needs to continue to work with the private sector in developing these solutions.  Mr. Trump was expected to sign this order into action on Tuesday evening, but as of right now, the order has been put on hold for the time being.

Big Movers

CACI (up 6.3%) – Share prices were up this week after the Company raised its top and bottom line guidance for FY2017.

Spirit AeroSystems (down 5.7%) – Share prices were down this week after the Company reported a 21.8% decrease in profit during 4Q16.

Transactions

Acuity Technologies Holding Company, a portfolio company of DC Capital Partners, has agreed to acquire Owl Computing Technologies, a designer, developer, and manufacturer of advanced network security products and cyber defense solutions.  Terms of the deal were not disclosed.

Altuiiq, LLC has acquired Alcyon, Inc., a provider of systems engineering, laboratory, and IT services to various Federal agencies and aerospace companies.  Terms of the deal were not disclosed.

Analytic Services, Inc. (“ANSER”) has acquired Advanced Technology International, an organizer and manager of research and development consortia for the Federal government. The deal is worth an estimated $25.0 million.

Concept Plus, LLC has acquired Thao, Inc., a provider of Federal-specific expertise in electronic health record (“EHR”) interoperability, identity management, and care delivery. Terms of the deal were not disclosed.

Dos Rios Partners has acquired Pathfinder Aviation, Inc., a provider of helicopter services and logistical support, specializing in remote operations and extreme climates.  Terms of the deal were not disclosed.

Liberty Hall Capital Partners, L.P. has acquired Quatro Composites, LLC, a provider of highly engineered advanced composite structures, components, and assemblies for the aerospace industry and medical and industrial markets.  Terms of the deal were not disclosed.

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Industry Week in Review – January 27, 2017

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Aerospace & Defense Update

Boeing, Lockheed Martin, Northrop Grumman, and Raytheon all announced year-end earnings this week, with only Boeing receiving a positive market reaction from the earnings calls.  Boeing beat forecasted quarterly earnings and raised guidance on its 2017 cash flow and profit compared to 2016, even as the company faces questions transitioning from the 777 to the 777X program.  The company also hopes to increase 737 output by 15 planes per month to reach 57 planes per month by the end of the decade.

While Boeing had an overall positive earnings outlook, Lockheed, Northrop, and Raytheon guidance dropped below market expectations.  Lockheed Martin tried to assuage investor fears spurned from President Trump about F-35 cost overruns by announcing the program will become more profitable even as the price per plane dips below $100 million.  This good news was overshadowed by Lockheed’s initial 2017 profit guidance falling short of expectations.  Northrop Grumman reported strong 12% revenue growth in 4Q16 stemming from 20% aerospace systems growth, and the unit is now larger than the company’s mission systems division in terms of revenues.  However, similar to Lockheed, Northrop lowered its 2017 profit guidance, which cause the stock to drop.   Lastly, Raytheon had 4Q YoY revenue decline and quoted 2017 revenue of ~$25 billion, which fell below analyst expectations of ~$25.5 billion.  Though earnings announcements caused these stocks to fall, the stock prices for these three companies have since rebounded.

Government Technology Solutions Update

The Federal CIO Council recently released a report titled “The State of Federal IT,” for the Trump administration’s use.  The report provides a foundation for understanding the current status of the nation’s IT infrastructure, as well as a glimpse of how various Federal agencies are planning on modernizing legacy systems and /or processes.  The report suggests that the new administration work with Congress on setting up a working, centralized fund for the procurement of modernized IT systems.  An attempt to do this was made towards the end of last year, with the Modernizing Government Technology Act (“MGT”).  This effort, spearheaded by Representative Will Hurd, was not able to pass through the Senate, due in part to the roughly $9 billion cost attributed to the bill.  The report makes several other recommendations, including the use of centralized IT systems for smaller government agencies, which they believe could be useful in reducing inefficiencies, and serve as a proof-of-concept for similar IT centralization in the future for larger government agencies.

On Friday, Harris Corporation announced the sale of its government IT services business to Veritas Capital, a New York-based private equity firm, for $690 million.  This transaction comes roughly three months after the $425 million sale of Harris’ CapRock energy and maritime business; it also comes roughly five months after Jana Partners acquired a 1.9% stake in Harris, which fueled speculation that Harris would be pressured to sell off some of its non-core assets by the hedge fund.  The sale of the government IT business is just the latest in a spate of divestitures by Harris.  Harris exited its commercial healthcare solutions business in 2015, its $210 million aero structures business last February, and the aforementioned CapRock Communications in November.  However, Harris will maintain ownership of its air traffic control business, which is currently working on a $3.5 billion contract for the FAA.  The government IT business, which mainly serves NASA, among other Federal agencies, is expected to have roughly $1.07 billion of revenue in 2017.

Big Movers

Boeing (up 5.1%) – Share prices were up this week after the Company raised its 2017 cash flow and profit guidance.

KeyW (down 14.3%) – Share prices were down this week after the Company announced its plans to price 8.5M additional common stock shares at $10.50 per share.

Transactions

Millstein & Co. has acquired the government services business of PRA Group, which provides technology, revenue enhancement and discovery, compliance, and consulting services to government customers.  The deal is worth $91.5 million.

Octo Consulting Group has acquired Aquilent’s SeaPort business unit, a provider of strategic sourcing, systems, and program management, including the operation of the SeaPort-e portal.  Terms of the deal were not disclosed.

Veritas Capital has acquired Harris Corporation’s Government IT Services business, a provider of IT, communications, and engineering services to Federal and civilian customers, with a particular focus on serving NASA’s Space Communications Network and Deep Space Network programs.  The deal is worth an estimated $690 million.

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Industry Week in Review – January 20, 2017

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Aerospace & Defense Update

On Friday, the Senate confirmed General James Mattis to be the new Secretary of Defense hours after President Donald Trump’s inauguration.  Earlier that day, Trump signed legislation granting Mattis a one-time exemption from the law requiring the Secretary of Defense to not be employed by the armed services for at least seven years.  This legislation was approved by Congress last week and is meant to retain civilian oversight of the military.  Additionally, the Senate Armed Services Committee overwhelmingly approved Mattis by a 26 to 1 vote earlier this week.  Mattis retired from the Marine Corps in 2013 after spending 41 years in uniform.

French aircraft manufacturer Safran S.A. announced it has entered into exclusive negotiations to acquire Zodiac Aerospace, a seating and cabin interior manufacturer, for ~$9.0 billion.  Adding to the recent aerospace sector consolidation, this transaction will make Safran one of the world’s largest aerospace suppliers, with leading positions in landing gear, seats, cabin interiors, wheels and brakes, nacelles, power systems, actuation and avionics, and oxygen and fluid systems.  The combined company is expected to strengthen Safran’s presence across all major aircraft programs while limiting its exposure to aircraft delivery cycles.  Safran attempted to acquire Zodiac in 2010, but was thwarted by Zodiac’s family-controlled shareholders before it could place a bid.  Safran expects the acquisition to yield over $210 million in savings during the first two years by reducing manufacturing costs.

Government Technology Solutions Update

Last week, the Technology CEO Council (“TCC”) released a report claiming that the Federal government could potentially save as much as $1 trillion over the next ten years through the procurement and use of optimized, modernized, and efficient practices and solutions in regards to the nation’s IT infrastructure.  The report lists several key areas of focus where the TCC envisions there to be significant opportunities for cost reductions, the largest of which is related to the reform of the Federal government’s supply chain and acquisition practices.  The TCC believes that improvements in this area alone may lead to up to $500 billion in cost savings over the next decade.  The TCC also suggested that the government continue to adopt its implementation of modernized technology solutions and hardware.  Increasing the adoption of big data, analytics, and cognitive computing could potentially save over $200 billion, while IT modernization initiatives could lead to aggregate savings of over $100 billion.  The TCC initially prepared and shared their report, titled “The Government We Need,” for the use of President-elect Trump’s transition team, though it is still unknown how his administration will approach issues surrounding government IT.

Microsoft Corporation’s Azure Government and Office 365 cloud services was recently given Level 5 provisional authority by the Department of Defense, making it the first commercial cloud solution to achieve that rating.  Level 5 authority allows commercial cloud platforms to handle controlled unclassified information (“CUI”) and is the second-highest authority rating, just below Level 6 authority, which involves handling information classed as Secret. Level 5 authority also gives government users of Azure and Office 365 increased flexibility in terms of the type of information that can be handled in applications they build and design.  Part of Microsoft’s ability to handle sensitive information comes from the use of its dedicated DoD data centers, which are designed to the strict standards of DoD’s Level 5 classification requirements.

Big Movers

Zodiac Aerospace (up 22.3%) – Shares were up this week after Safran announced its plans to acquire Zodiac for ~$9.0 billion.

TransDigm (down 10.0%) – Shares were down this week after the Company announced its plans to extend its leveraged loan deadline.

Transactions

Polaris Alpha, a portfolio company of Arlington Capital Partners, has acquired Intelesys Corporation, a provider of computer network operations, software engineering, embedded development, network engineering, and cyber solutions primarily for the Intelligence community. Terms of the deal were not disclosed.

Safran S.A. has agreed to acquire Zodiac Aerospace S.A., a provider of on-board systems, safety systems, and cabin interiors for the aerospace industry.  The deal is worth an estimated $9.0 billion.

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Industry Week in Review – January 13, 2017

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Aerospace & Defense Update

Earlier this week, the Senate began confirmation hearings to vet President-elect Donald Trump’s Cabinet nominees.  General James Mattis, the Secretary of Defense nominee, received broad bipartisan support after taking a strong stance against Russia and vowing his support for the Iran nuclear agreement.  General John F. Kelly, Trump’s nominee for Secretary of Homeland Security, also received widespread support after insisting that his top priority would be to secure the southern border.  ExxonMobil CEO Rex Tillerson, the Secretary of State nominee, received some opposition from both parties after refusing to call Vladamir Putin a “war criminal,” but gained support after insisting that it is imperative for the U.S. to push back against Putin’s attempts to increase Russian influence around the world.

During the opening remarks of President-elect Donald Trump’s first official press conference since the election, he restated his criticism for the high costs of the F-35 joint strike fighter program.  Trump was responding to Lockheed Martin’s projected seven-month delay of the F-35 and a $500 million cost overrun.  The President-elect indicated he aims to make the process more competitive in an effort to reduce costs and increase efficiency.  In a Senate confirmation hearing, Trump’s Secretary of Defense nominee, General James Mattis, noted that Trump is supportive of the program, but wants more accountability in defense spending programs.  Mattis believes that the F-35 program is critical to the defense of the U.S. and its allies.

Government Technology Solutions Update

On Wednesday, the Government Accountability Office (“GAO”) ruled against the final remaining bid protests on the Alliant 2 contract.  These final protests were based around a variety issues, mostly regarding how bid pricing would be analyzed and whether or not the number of awards on the contract was enough to ensure adequate competition.  The GAO’s ruling denied these arguments, stating that there were no regulations against their decision to pursue the highest technically rated bids as long as the price was reasonable; the GAO also claimed that the number of awards on the $50 billion Alliant 2 contract would be adequate to ensure competition and that they had specifically put safeguards in place to promote and ensure a proper level of competition.  With this decision, the GAO is now free to begin making awards on the contract and up to 60 winners are expected to be announced within the next few months.

John Kelly, a former U.S. Marine general and Donald Trump’s nominee for Secretary of Homeland Security, had his Senate confirmation hearing on Tuesday.  During that hearing, Mr. Kelly answered several questions on a range of topics, including his thoughts on the current state of the nation’s cybersecurity infrastructure.  Kelly claimed that he would work in closer proximity with commercial companies in order to field ideas as to how the Department of Homeland Security (“DHS”) could address and develop solutions for pressing cyber threats.  He further went on to say that he planned on working to thoroughly review the current status of the country’s cyber infrastructure, especially with respect to defensive capabilities.  His goal would be to find, identify, and correct any shortcomings and vulnerabilities through technological innovation and advancement in both the public and private sectors.

Big Movers

Bombardier (up 13.2%) – Shares were up this week after Germany’s economic minster announced that Bombardier will not close its plants in the country.

 L3 Technologies (down 3.4%) – Shares were down this week after the Company agreed to pay $1.6 million to settle accusations of improper accounting techniques.

Transactions

Atec, Inc. has acquired Vital Link, Inc., a provider of military and commercial jet engine test cells, hush houses, and associated facilities and systems.  Terms of the deal were not disclosed.

LLR Partners Inc. has acquired BluVector, Inc., a subsidiary of Northrop Grumman and a provider of cyber threat detection and hunting solutions for commercial and government clients. Terms of the deal were not disclosed.

Odyssey Investment Partners, LLC has acquired Avtron Aerospace, a provider of electronic and hydraulic aircraft component test solutions for the global commercial and military aerospace markets.  Terms of the deal were not disclosed.

Research Triangle Institute has acquired Engility Holdings Inc.’s International Resources Group Ltd., a provider of critical solutions to the US Agency for International Development (“USAID”) in developing nations around the world.  The deal is worth $24 million.

The Safariland Group has acquired Aegis Engineering Limited, a provider of personal protective apparel and equipment, including body armor, ballistic helmets, shields, and rifle plates.  Terms of the deal were not disclosed.

The Safariland Group has acquired LBA International Limited, a provider of protective equipment, including hard armor plates and ballistic helmets to law enforcement officers.  Terms of the deal were not disclosed.

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Industry Week in Review – January 6, 2017

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Aerospace & Defense Update

President Elect Trump has made strong remarks about indicating a desire to increase the U.S. Navy’s ship count by 28%, from its current 274 to 350.  Based on these remarks, the U.S. Navy stands to be a substantial ‘winner’ in gaining additional funding in the coming years.  Trump’s recent comment referring to China as an enemy of the U.S. would create an increased need for a strong presence in the Pacific Ocean.  Additionally, as Trump continues to propagate the idea for nuclear modernization, the Navy’s Columbia-class ballistic submarine may receive additional attention.  In contrast to these positive messages for the Navy, key Army and Air Force missions have been the rhetorical target of the President Elect.  Trump has sought to smooth ties with Russia, which would eliminate one of the Army’s main mission areas in Europe and has criticized the extensive cost for the Air Force One and F-35 aircraft.

SpaceX plans to resume rocket launches as early as January 8th by launching 10 Iridium Communications satellites.  This comes after an unmanned Falcon 9 rocket explosion during fueling back in September, which caused the destruction of a $200 million satellite.  SpaceX originally aimed to have the rocket operational by November, but delays have pushed the reintroduction date into 2017.  The Company believes faulty fuel procedures caused a failure inside a second stage helium bottle, which caused the Falcon 9 rocket to explode.

Government Technology Solutions Update

Shaun Donovan, the outgoing chief of the Office of Management and Budget (“OMB”) released an exit memo on Thursday in which he advised Presidential-elect Trump’s transition team to follow the precedent set by President Obama in making information technology (“IT”) modernization a priority in the new administration.  Currently, Trump’s stance on IT modernization is still somewhat unclear, as is that of Rep. Mick Mulvaney, the nominee chosen to replace Donovan as head of the OMB.  However, Mulvaney has shown an appetite for reducing costs and increasing Federal reliance on private outsourcing, both of which could be achieved to some degree by continuing IT modernization efforts.  Some of these initiatives include an increase in usage of cloud-based services and solutions and platforms-as-a-service, among others, which may work to create a suite of increasingly commoditized and reusable solutions.  By streamlining and simplifying the way in which Federal IT solutions are created and delivered, the OMB hopes to drive down costs.  According to Donovan, IT modernization initiatives carried out in the past eight years have been responsible for saving the Federal government up to $4.7 billion in aggregate.

The General Services Administration (“GSA”) issued a request for information (“RFI”) under its Unified Shared Services Management (“USSM”) office, seeking industry input on if, and to what degree, software-as-a-service (“SaaS”) solutions can be used to handle certain back office administrative functions for the Federal government.  According to the GSA, these would primarily be focused on meeting needs for shared services such as financial management, human resources, or acquisitions.  The RFI wanted further industry input on whether or not these SaaS solutions, if developed, could be delivered in a modular capacity, increasing interoperability between Federal agencies.  Part of the rationale behind this would be that, in creating services and solutions which can be streamlined and easily shared, back-office administrative functions can become cheaper and less complex.  The GSA plans to field responses to this RFI through to the end of February.

Big Movers

Raytheon (up 4.4%) – Shares were up this week after Raytheon won a $163 million contract for training services to Qatar.

Sturm, Ruger & Company (up 2.8%) – Shares were up this week after the Company announced it had repurchased ~280,000 shares during the fourth quarter.

Transactions

Airborne Maintenance and Engineering Services, Inc. has acquired PEMCO World Air Services, Inc., a provider of heavy maintenance, repair, and overhaul aircraft services and passenger-to-freighter aircraft conversion solutions.  Terms of the deal were not disclosed.

BBA Aviation’s Aircraft Management and Charter Business to merge with U.S. Business of Gama Aviation plc, a provider aircraft management services for aircraft owners, such as fuel and insurance, crew, and maintenance services.  Terms of the deal were not disclosed.

Belcan, LLC, a portfolio company of AE Industrial Partners, has acquired The Kemtah Group, Inc., a provider of IT support services, enterprise-wide IT services, software development, and cybersecurity solutions for the Federal government.  Terms of the deal were not disclosed.

Corbel Capital Partners closed a non-control investment in ARES Security Corporation, a provider of products and services used to prevent, detect, and assess risks to critical infrastructure for Federal government clients.  Terms of the deal were not disclosed.

Dynetics, Inc. has acquired Camber Corp.’s stake in Aviation and Missile Solutions, LLC (AMS), a provider of engineering and precision technology solutions to Defense and Intelligence agencies.  Terms of the deal were not disclosed.

Macaulay-Brown, Inc. has acquired Enlighten IT Consulting, Inc., a provider of advanced and mission-critical big data infrastructure, secure cloud engineering, and analytic solutions for Federal, state, and local government clients.  Terms of the deal were not disclosed. 

The Phacil Employee Stock Ownership Plan (ESOP) has acquired Phacil, Inc., a provider of software services, systems engineering, integration & operations, cybersecurity, and service desk operations solutions primarily to Federal government clients.  Terms of the ESOP were not disclosed.

Puglia Engineering, Inc. has acquired the San Francisco Ship Repair, Inc. business of BAE Systems, a provider of maintenance, alteration, and repair services to cruise liners, military support vessels, local bay traffic, bulk carriers, and container ships.  Terms of the deal were not disclosed.

 Rockwell Collins, Inc. has acquired Pulse.Aero Ltd, a provider of self-service bag drop solutions and airline applications to enhance the company’s passenger processing services for airports and airlines.  Terms of the deal were not disclosed.

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Industry Week in Review – December 30, 2016

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Aerospace & Defense Update

Since October 1st, the United States has already eclipsed the GFY2016’s total foreign weapon sales by almost $12 billion, bringing the total to $45.2 billion.  The sharp increase can be attributed to 72 F-15s sold to Qatar and 32 F-18s sold to Kuwait.  These two transactions, which were originally expected to close in GFY2016, represent $31.2 billion of GFY2017’s current $45.2 billion.  When including all transactions, Gulf region sales account for 90% of GFY2017 sales.

As evidenced by GE’s acquisitions of Concept Laser GmbH and Arcam AB for a total purchase price of over $1 billion, additive manufacturing (also known as 3-D printing) continues to expand its market presence.  Additive manufacturing involves growing an object in layers using metal powders, which allows for light, complex, and multidimensional products that cannot be produced using traditional machining methods.  According to research firm IDTechEx, the 3-D printing powder market will grow from its current $250 million size to over $5 billion in 2025.  GE currently employs 3-D printing technology in making fuel nozzles for its LEAP engines, components in its advanced military engines, and a large portion of its general aviation turbo prop engines.  Other aerospace companies such as Boeing, Airbus, and Roll Royce have also utilized this technology with creating parts and prototyping on a small scale.

Government Technology Solutions Update

Thomas Bossert was recently appointed as the assistant to the president for homeland security and counterterrorism.  Having previously served as deputy national security adviser, Mr. Bossert has worked to develop infrastructure protection and counterterrorism policy in previous administrations.  It is believed that his appointment could lead to an increased level of cooperation between public and private organizations in the field of cybersecurity.  Mr. Bossert is expected to help shape a cybersecurity policy focused on open market innovation.  Combined with the President-elect’s emphasis on bolstering both offensive and defensive cybersecurity capabilities, there is an expectation that cybersecurity government contractors could see a significant uptick in workload under the new administration.

According to a recently released Govini report on Department of Defense (“DoD”) contract risks, 2017 could bring increased volatility to DoD IT vendors.  It is expected that over $210 billion worth of contracts are set to expire in 2017 and the associated recompetes are expected to experience a historic level of competition, given an expanded quantity of government contractors.  In particular, IT and services firms are at the greatest risk of increased competition and have the largest number of vendors and recompete risk, which is measured based on the size of expiring contracts held, total share of expiring contracts as a percentage of a company’s business, and the number of firms that submit bids on a given contract.  For example, Govini estimates that while there was an average of six competing bids for every contract expiring in 2016, that number is expected to rise to seven in the upcoming year.

Big Movers

Bombardier (up 3.1%) – Shares were up this week after Bombardier and the Austrian Federal Railways signed a ~$1.9 billion deal for the delivery of up to 300 Bombardier Talent 3 trains.

Smith & Wesson (down 4.7%) – Shares were down this week after an industry report forecasted low 2017 sales for gun makers; Sturm Ruger was also down 2.5%.

Transactions

Leonardo – Finmeccanica S.p.A. has purchased the remaining 60% of shares in Sistemi Dinamici S.p.A, a provider of remotely piloted aircraft systems.  Terms of the deal were not disclosed.

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Industry Week in Review – December 23, 2016

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Aerospace & Defense Update

On Wednesday, President-Elect Donald Trump met with Boeing CEO, Dennis Muilenburg, and Lockheed Martin CEO, Marillyn Hewson, to discuss cost reductions to Air Force One and F-35 fighter jets.  Both aircraft manufacturers came under fire earlier this month after Trump tweeted that the costs for those aircraft are ”out of control”.  Trump stated that discussions at the meetings were very productive and Hewson echoed this same sentiment.  Muilenburg assured Trump that the Air Force One replacement aircraft would not exceed $4 billion.  Hewson similarly promised she would initiate actions that would reduce costs for F-35 aircraft.

Airbus recently announced plans to delay the delivery of its new A330neo long-range aircraft, adding to the string of production setbacks the company has experienced this year.  The world’s second largest aircraft maker originally promised to deliver the new A330neo aircraft by the end of 2017, but has since announced that the first aircraft will not be delivered until March of 2018.  The new A330neo aircraft will be produced entirely with Rolls-Royce engines which will create greater fuel efficiency and range.  However, Airbus deliveries have fallen behind this year mainly due to its engine suppliers being unable to keep up with Airbus’ aircraft quantity production.  Airbus will have to deliver 94 aircraft this month if it wants to meet its announced target of 670 aircraft this year.

Government Technology Solutions Update

The recently released National Defense Authorization Act (“NDAA”) of 2017 emphasizes more limited use of Lowest Price Technically Acceptable (“LPTA”) procurements.  Over the last few years, the prevalence of LPTA contracting has been steadily rising, partially driven by tightening Federal budgets and a focus on streamlining procurements, as LPTA has been cited as a means to reduce costs and potential protest awards.  As prevalence of LPTA usage has grown, it has drawn staunch criticism from public policymakers and industry professionals who have cautioned against the simplified evaluation methodology.  Research from the Department of Defense (“DoD”) showed that LPTA may result in short-term savings but often costs agencies more money in the long-term.  The NDAA legislates a Defense Federal Acquisition Regulation (“FAR”) Supplement revision, which would limit LPTA usage to only the most straightforward commodity procurements and specifically recommends avoiding LPTA for IT and cybersecurity services, Systems Engineering and Technical Assistance (“SETA”) services, and other knowledge-based professional services.

The Air Force recently announced the list of awardees on its Air Force Network Centric Solutions 2 (“NetCents 2”) application services contract, an $800 million extension that is expected to run through 2022.  The extension provides an additional three years of work, as the original award was expected to expire in 2019.  The list is composed of 12 small businesses who will be providing services aimed at making it quicker and easier for warfighters to obtain innovative IT services and capabilities across the full spectrum of missions and operations.  Specifically, the NetCents 2 contract offers Air Force contracting offices with a primary source for sustainment, migration, integration, training, help-desk support, and testing and operation support.

Big Movers

Meggitt (down 4.0%) – Shares were down this week after Meggitt sold its defense division to QinetiQ Group.

Kratos Defense & Security Solutions (up 5.3%) – Shares were up this week after Kratos was awarded a $23.4 million contract with the U.S. Army Aviation and Missile Command.

Transactions

Advanced Integration Technology, Inc. acquired KUKA Systems Aerospace North America, a provider of new robotic technologies and flexible automation solutions for the aerospace industry.  Terms of the deal were not disclosed.

Advanced Integration Technology, Inc. acquired Nova-Tech Engineering, a provider of critical assembly automation, materials handling and friction stir welding equipment, and tooling for the aerospace and space launch industries.  Terms of the deal were not disclosed.

Airmar Technology Corp. acquired Materials Systems, Inc., a provider of advanced materials and custom components for defense and commercial systems customers.  Terms of the deal were not disclosed.

Arlington Capital Partners acquired Molecular Products Group, Ltd., a provider advanced chemistry-based products for the defense and healthcare markets.  Terms of the deal were not disclosed.

Coalfire Systems, Inc. acquired Veris Group, LLC, a provider of cyber risk advisory, compliance assessment, technical testing, and engineering services.  Terms of the deal were not disclosed.

Corning, Inc. acquired Ace and Company, Inc., a provider of rugged fiber-optic and hybrid fiber / power connectivity solutions for harsh environments.  Terms of the deal were not disclosed.

ManTech International Corporation acquired Edaptive Systems, LLC, a provider of IT services, including software engineering, data abstraction, and business intelligence, primarily to Federal health agencies, with a significant focus on CMS.  Terms of the deal were not disclosed.  KippsDeSanto & Co. acted as the exclusive financial advisor to Edaptive Systems, LLC.

QinetiQ Group acquired Meggitt Target Systems, a provider of unmanned aerial, naval, and land-based target systems and services for test and evaluation (“T&E”) and operational training.  The deal is worth an estimated $71.2 million.

United Flexible, Inc. acquired Scotia Technology, a provider of small-diameter precision fixed tubular components for the aerospace and defense industries.  Terms of the deal were not disclosed.

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Industry Week in Review – December 16, 2016

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Aerospace & Defense Update

Boeing recently announced that it will move its’ Defense, Space, & Security business unit headquarters from St. Louis, Missouri to the Washington, D.C. area next year.  While only ~12 individuals from the senior leadership team will initially be transferred to the new headquarters, Boeing expects an additional 50 members of the defense team to be transferred over time.  The strategic decision to be in closer proximity to the Pentagon and on Capitol Hill is intended to strengthen Boeing’s relationships with its major customers and the decision makers who affect the industry.

Additionally, Boeing announced that it will reduce the production of its 777 jetliner to 5.0 aircraft per month starting in August 2017, a 40% reduction from its current rate of 8.3 aircraft per month.  The production rate is expected to drop even further in 2018 to 3.5 aircraft per month as Boeing begins to prepare for the production of the new 777X in 2020.  Thought to be a response to the slowing global sales of big jetliners, this steep cut in production is expected to slash revenue and result in significant job reductions during 2017.  However, despite this decision, Boeing plans to increase its dividend by 30% and authorized $14 billion in share repurchases over the next two years to help buoy its stock price.

Government Technology Solutions Update

Since being awarded by the Department of Homeland Security (“DHS”) in late November, the $1.5 billion Flexible Agile Support for the Homeland (“FLASH”) contract has been protested by five contractors.  The vehicle was awarded to 13 agile software companies (out of more than 100 bidders) in hopes to create a more digital government.  Awardees were selected based on qualifications across data collaboration, code development, integration support, data migration, DevOps, and metric reporting.  The award has a one-year base and two one-year options and was developed in response to the 2012 presidential memorandum “Building a 21st Century Digital Government”.  A decision on the protest is expected by March 20th, with the expectation that the number of protests could grow significantly over the coming weeks.

In Government Fiscal Year 2016 (“GFY16”), the Government Accountability Office (“GAO”) ruled in favor of companies challenging Federal procurements more often than any other year since the GAO began recording data in 2001.  The GAO sided against Federal agencies’ initial award of contracts and task orders in 139 complaints, representing ~23% of cases, up sharply from ~12% in 2015, but below the 27% high mark set in 2007.  The most common reasons the GAO ruled in protestors’ favor related to unreasonable technical capabilities, past performance, or cost and price.  GFY16 also represents the first time in more than five years that Federal agencies unanimously complied with the GAO’s recommendations.  This news comes as President Obama recently signed into law HR 5995, which permanently reinstates the GAO’s jurisdiction over protests of civilian task orders, which expired at the end of GFY16.

Big Movers

Airbus (up 6.8%) – Shares were up this week after Germany received its first tactical A400M transport plane from Airbus.

Teledyne (down 3.5%) – Shares were down this week after Teledyne announced its plans to acquire e2v technologies.

Transactions

Advanced Core Concepts acquired International Logistics Group, a provider of engineering and technical support, logistics, sustainment services, acquisition support, and IT solutions to the Department of Defense (“DoD”) and other Federal customers.  Terms of the transaction were not disclosed.

Aircraft Technical Publishers (“ATP”) has acquired CaseBank Technologies, Inc., a provider of integrated diagnostic, troubleshooting, and fault detection solutions for the aerospace and defense industries.  Terms of the deal were not disclosed.

Allcom Global Services acquired Delex Fairfax Integrated Security Systems (“DFISS”), a provider of sophisticated security software and systems as well as technology infrastructure solutions for Federal and commercial customers.  KippsDeSanto & Co. served as the exclusive financial advisor to DFISS.  Terms of the deal were not disclosed.

HDT Global, Inc. has acquired DRS Environmental Systems, Inc., a provider of rugged and transportable mobile enclosures, environmental control and decontamination units, power generators, and other ground support systems for forward deployed troops and first responders.  Terms of the deal were not disclosed.

Industrial & Financial Systems (“IFS”) AB has agreed to acquire Mxi Technologies Ltd., a provider of integrated and intelligent maintenance management software solutions for the global aviation industry.  Terms of the deal were not disclosed.

Marana Aerospace Solutions, Inc. has acquired Ascent Aviation Services Corp., a provider of heavy maintenance services, aircraft modification, transition, and refurbishment work for the aerospace industry.  Terms of the deal were not disclosed.

Teledyne Technologies, Inc. has agreed to acquire e2v technologies plc, a provider of high performance image sensors, custom camera solutions, and application specific standard products for the machine vision market.  The deal is worth an estimated $789 million.

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Industry Week in Review – December 9, 2016

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Aerospace & Defense Update

After months of culminating dissent between Defense Secretary Ash Carter and Navy Secretary Ray Mabus about naval procurement strategy, the Navy has rejected the Pentagon’s proposed $17 billion in budget cuts over the next five years.  Pentagon leaders want funding allocated more to weapon systems, aircraft and less on ship procurement.  In contrast, Secretary Mabus seeks to increase the current ship count of 273 to over 300 and argues that shipbuilding programs are “least reversible” due to the multiyear long procurement cycle and contribution of highly paid jobs to the economy.  Similar to Secretary Mabus’ goal, President Elect Trump has commented he would like to see the Navy fleet possess 350 ships.

President Elect Donald Trump has nominated General John Kelly to head the Department of Homeland Security (“DHS”).  General Kelly draws on experience as Chief of the U.S. Southern Command (“USSC”) where he oversaw planning and security operations in Central and South America and the Caribbean.  This nomination marks Trump’s third military official nomination, the first being General Michael Flynn as National Security Advisory and the second being General James “Mad Dog” Mattis who will lead as Defense Secretary.  Trump has also expressed interest in appointing General David Petraeus as Secretary of State and Admiral Michael Rogers as Director of National Intelligence.

Government Technology Solutions Update

On Tuesday, it was announced that Deltek, Inc. would be acquired by Roper Technologies for $2.8 billion.  Deltek, headquartered in Herndon, VA, is a leading provider of software for project-based businesses.  The company’s primary focus is on providing software and information solutions for government contractors, who contribute just over half of Deltek’s revenue, as well as engineering and construction firms.  Roper Technologies was interested in Deltek due to its strong competitive position in what is seen as a fairly niche market, as well as its stable customer base, which has 95+% retention rates.  Deltek had originally been taken private by Thoma Bravo, a Chicago-based private equity firm, for $1.1 billion in 2012.  Since then, Thoma Bravo has helped Deltek acquire six additional companies, most of which also focused on project-based software and information management.  Deltek expects to generate roughly $535 million of revenue and $200 million of EBITDA in 2017.  According to the company, Deltek expects to be further buoyed by an anticipated ramp-up in defense, government services, and infrastructure spending under the Trump administration.

The Commission Enhancing National Cybersecurity released a report last Friday, highlighting 53 initiatives that it believes are necessary in order to strengthen cybersecurity standards across the nation.  This commission was created by President Obama in February to address concerns regarding the state of the nation’s cyber infrastructure.  According to the commission, many of its recommendations should be put into action under the new Trump administration within the first 100 days of his taking office.  Some of the recommended actions are more ambitious than others, including the implementation of a cyber training program which would produce over 150,000 new cybersecurity professionals within four years.  The report further stressed other urgent measures to be taken immediately, such as the securing of Internet of Things (“IoT”) and other public-facing systems, which may be vulnerable and pose a critical threat if exploited.  The remainder of the recommendations generally foster increased cooperation between the public and private sector, and encourages the development and implementation of new best practices surrounding cybersecurity.  While some of the report’s recommendations are more time-sensitive than others, it stressed that a strong stance must be taken on these issues in order to maintain the security of the country’s cyber infrastructure.

Big Movers

Aerojet Rocketdyne (down 9.0%) – Shares were down this week after Aerojet Rocketdyne announced its intent to offer $200 million in convertible notes.

Comtech Telecommunications (down 4.1%) – Shares were down this week after Comtech’s 1Q17 revenue fell short of expectations

Transactions

Boeing Co. has agreed to acquire Liquid Robotics, Inc., a provider of autonomous maritime systems and developer of the Wave Glider® ocean surface robot, the first wave powered, autonomous marine robot.  Terms of the deal were not disclosed.

Curtiss-Wright Corp. has agreed to acquire Teletronics Technology Corp., a provider of high-technology data acquisition and comprehensive flight test instrumentation systems for critical aerospace and defense applications.  The deal is worth an estimated $233 million and is expected to close in early 2017.

Dassault Systemes S.A. has acquired Next Limit Dynamics SL, a provider of highly dynamic fluid flow simulation software solutions used in aerospace and defense, transportation and mobility, high-tech, energy and other industries.  Terms of the deal were not disclosed.

Gores Group has agreed to acquire Triumph Air Repair, Triumph Engines – Tempe, and the Auxiliary Power Unit (APU) Overhaul Operations of Triumph Aviation Services – Asia, providers of military, commercial, and regional airline customers with a comprehensive maintenance solution for their legacy and new APU engine models.  Terms of the deal were not disclosed.

PSI Services, LLC has acquired Computer Assisted Testing Service, Inc., a provider of full service testing for licensure, certification, assessment, and educational testing programs.  Terms of the deal were not disclosed.

Roper Technologies, Inc. has acquired Deltek, Inc., a portfolio company of Thoma Bravo, a provider of software and information solutions for project-based business, primarily focused on government contracting, engineering, architecture, and construction.  The deal is worth $2.8 billion and is expected to close by the end of December.

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