Industry Week in Review – October 2, 2015

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Aerospace & Defense Update

With the CR passed, Congress will now shift its focus towards passing the 2016 defense authorization bill, despite rumblings that the newly proposed bill will be vetoed in the White House. Supporters of the bill argue it provides authorization to spend money on many programs during this uncertain geopolitical landscape, while those opposing believe it disincentives a deal that eliminates the spending caps from the Federal budget.

Frank Kendall, the Pentagon’s acquisition chief, says the Department of Defense (“DoD”) is worried about the consolidation of the defense industry and individual prime contractors having too much influence. Under the current law the Pentagon does not have the ability to address competition, an implication of these mergers, which could lead to a future where the DoD can only choose from two or three large suppliers for all major weapon systems. As prime contractors become larger and more influential, they become less incentivized to continue striving for high levels of innovation. Although Kendall did not mention any specific deals, his announcement comes at a time when the Department of Justice recently approved Lockheed Martin’s purchase of Sikorsky, the largest domestic producer of military helicopters. While no actions to date have been taken to halt this trend, Kendall expects more serious discussions between the Pentagon and Congress to occur over the next few months.

Government Technology Solutions Update 

Monday marked the release of new design standards for Federal websites, aimed at increasing traffic and reducing inefficiencies. Currently, government websites often lack intuitive navigation and uniformity that benefit users accessing multiple services. Whereas previously each agency built digital tools under their own unique programs and brands, the new push aims to eliminate this compartmentalized design approach and instead set one style guide to cut costs and standardize the layout and user interface across websites. The idea was the result of direct collaboration between 18F, the agile software development shop within the GSA, and the United States Digital Service, a government management consultancy within the Office of Management and Budget.   The primary goal of this new standard is to align the tools provided on Federal websites with the needs of individuals accessing them while simultaneously driving down long-term costs by standardizing the process.

The General Services Administration (“GSA”) has released a draft Request for Proposal (“RFP”) for its Veterans Technology Services (“VETS 2”) Governmentwide Acquisition Contract (“GWAC”). The current iteration of the VETS vehicle began in 2007, and is set to expire in 2017; GSA officials are looking to gather feedback from the industry on the draft RFP well in advance of the expiration to prepare the next generation VETS 2 vehicle. VETS 2 is expected to have a $5 billion ceiling, and a five-year base period plus an additional five-year option for contractors selling at least $500,000 during the base period. The new vehicle will focus on IT services offered by service-disabled veteran-owned small businesses (“SDVOSB”) with the seven key solution areas of : (i) Data Management; (ii) Information and Communication Technology; (iii) IT Operations and Maintenance; (iv) IT Security; (v) Software Development; (vi) Systems Design; and (vii) New and Emerging Technologies. The new vehicle aims to support both the SDVOSB contractors, as well as agencies looking to meet their set-aside requirements.

As cloud technologies play an increasing role in Federal agencies infrastructure, spending on cloud computing has tripled between 2013 and 2014, and is expected to see another significant increase in 2015. Cloud spending on software-defined data services reached $2.5 billion in 2014, with only four agencies including Education, Health and Human Services, Veterans’ Affairs, and Housing and Urban Development, accounting for 45% of that spending. Given the quick growth in use of cloud computing, some departments still face challenges implementing new systems, and many agencies, including the Department of Defense (“DoD”), have raised concerns over cloud security. The Defense Information Systems Agency (“DISA”), previously the exclusive cloud broker for the DoD, has recently allowed agencies to partner with commercial providers; however a recent report found that 83% of DoD respondents suggested that security was a challenge when migrating to the cloud. DISA’s role is to provide standards to help guide agencies’ decisions as cloud spending adapts to become an integral component of operations.

Big Movers

Boeing (Up 1.2%) – Shares were up this week in response to an announced deal with India for 37 military helicopters worth $3 billion.

Comtech Telecommunications (Down 18.6%) – Shares were down this week as it missed FQ4 estimates and announced guidance for FY16 below consensus analyst estimates.

Transactions

Addtech Components AB to acquire RECAB Embedded Computers AB, a provider of innovative embedded computer systems for demanding applications to OEM customers. The terms of the deal were not disclosed.

LGS Innovations acquires Axios, Inc., a provider of communications and signal processing solutions and mission support services for the Department of Defense and Intelligence communities. The terms of the deal were not disclosed.

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Industry Week in Review – September 24, 2015

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Industry Week in Review – September 24, 2015

Aerospace & Defense Update

BBA Aviation PLC (“BBA”) announced its plans to acquire one of its largest competitors, Landmark Aviation, for $2.07 billion from private equity firm The Carlyle Group. The acquisition represents BBA’s big bet on a recovery in the U.S. business-jet market, following slow and steady recovery from the past couple of years, and its expectations for “accelerated growth” in the medium to long term for the sector. Although the transaction will bring together two of the world’s largest business-jet facility operators, BBA’s Chief Executive Simon Pryce believes it is unlikely to undergo regulatory hurdles since the market is still highly fragmented. Despite this acquisition, Mr. Pryce said BBA is open to additional deals, and is particularly vigilant on the European and Asia-Pacific markets to potentially expand business-jet servicing capabilities.

The Navy has delayed delivery of its newest aircraft carrier, the Gerald R. Ford, to late May 2016. Originally expected to deliver on March 31, 2016, the ship must first undergo further tests and trials. Commander Thurraya Kent, spokesperson for the Navy’s acquisition directorate, stated that any costs associated with the delays are being “managed within budget and below the [congressionally –mandated] $12.89 billion cost cap.” According to Kent, the ship is 93 percent complete, and will be the first of a new class of carriers that will replace the already-retired carrier Enterprise and the Nimitz-class carriers.

Government Technology Solutions Update

The Department of Homeland Security (“DHS”) recently awarded a contract with a ceiling value of up to $1 billion to protect agency networks. According to former government officials, the Development, Operations, and Maintenance program (“DOMino”) is aimed at maintaining and improving the intrusion and detection system known as EINSTEIN as well as other cyber tools. DOMino represents a new acquisition vehicle rather than a consolidation of previous contracts. The fiercely contested contract was awarded as part of the DHS’ evolving cyber strategy focused on developing an integrated system of intrusion detection, analytics, and information sharing. Due to its release from the classified DHS acquisition shop, public details are scarce; DOMino is a limited competition, five-year IDIQ contract. Raytheon was awarded the contract.

Despite optimism that Congress will reach a budget compromise by year-end, uncertainty has prompted many Federal agencies to review contingency plans in advance of the October 1st deadline. The Office of Management and Budget (“OMB”) is working with Federal agencies to prepare for the potential fallout of a government funding lapse, but is hopeful those plans will ultimately not be needed. Many agencies are forced to decide which programs are essential, and which employees will be needed to maintain operations. While Congress aims to reach a finalized agreement by the end of the fiscal year, the possibility of a continuing resolution provides some hope that a short-term funding bill would give Congress the additional time needed to negotiate a budget for the 2016 Government Fiscal Year.

Big Movers

Digital Globe (Down 19.2%) – Shares were down this week in response to profits underperforming expectations in the 1H15

Airboss of America (Down 15.5%) – Shares were down this week in response to weak macroeconomic trends

Transactions

Lauren International acquired Theiss UAV Solutions, a provider of homebuilt and ultralight aircraft for General Aviation. The terms of the deal were not disclosed

Honeywell International acquired Aviaso Inc., a provider of software solutions to the aviation industry. Terms of the deal were not disclosed.

Meggitt PLC to acquire EDAC Composites, a provider of highly engineered aerospace components used in jet engine and airframe applications. The deal is worth an estimated $340 million.

Veritas Capital to acquire GE Intelligent Platforms Embedded Systems, Inc., a supplier of open architecture computing and electronic systems for aerospace, defense, and industrial solutions. Terms of the deal were not disclosed.

BBA Aviation PLC to acquire Landmark Aviation, a provider of refueling and other ground services at airports. The deal is worth an estimated $2 billion.

CM Equity partners acquired Graco Supply & Integrated Services, a provider of adhesives, paints, coatings, and maintenance, repair, and overhaul products to the aerospace and industrial markets.

Red Aviation acquired DFW Instrument, a provider of critical aircraft flight instruments

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Industry Week in Review – September 18, 2015

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Aerospace & Defense Update

Boeing has rejected Aerojet Rocketdyne’s $2 billion bid for United Launch Alliance (“ULA”), a rocket launch joint venture with Lockheed Martin. Chris Chadwick, President and CEO of Boeing Defense, Space & Security, said no serious consideration was given to the unsolicited bid, as he expects ULA to be an instrumental part of their portfolio moving forward. Boeing’s commitment to ULA is evident through their recent agreement with Blue Origin, a company owned by Amazon CEO Jeff Bezos, to design the engine for ULA’s new rocket. Some analysts believe that Aerojet’s offer was a strategic move to shut out rival Blue Origin, whose engine is favored by ULA. Lockheed Martin has since declined to comment, but sources say that its refusal to comment indicates an agreement with Boeing to reject the offer. Despite Boeing’s expressed commitment to ULA in the long term, Aerojet is still interested in ULA and is engaged in talks about providing a more formal offer.

Airbus Group opened its first jetliner factory in the United States on Monday, as the company faces the challenge of increasing its production rates. The new plant, located in Alabama, will help Airbus meet its 2017 expected production of 50 narrow-body jets a month, an increase from the current 42. With a backlog of more than 5,400 planes, Airbus is considering raising the monthly production even further, to 60 potential jets. Beyond just meeting production targets, Airbus hopes the new plant will help it establish a stronger customer base in the United States, with an end goal of capturing 50% of the U.S. market (current order books result in a 40% market share). With an expected delivery of its first U.S. made A321 aircraft to JetBlue in 2Q16, Airbus is poised to become a more prominent player in the United States market moving forward.

Government Technology Solutions Update

The General Services Administration (“GSA”) has signaled that it is preparing to release the Request for Proposal (“RFP”) for its Enterprise Infrastructure Solutions (“EIS”) contract valued at $50 billion over 15 years. While the RFP was originally scheduled to drop in July, over 1,600 responses to the draft RFP prompted the agency to delay the release by approximately two months. As of September 10th, the GSA posted a pre-solicitation notice on FedBizOps. EIS covers communications technologies, such as traditional telecom services, voice-over-IP, virtual private networks and emerging communications technologies. The agency’s aim is for the contract to serve at least 30% of the $6 billion annual Federal communications market. Though EIS is a replacement for Networx, it is expected to be used by additional agencies as it offers more flexible and customized solutions. GSA officials also anticipate more awardees on the contract than the five previously under Networx.

The Department of Veterans Affairs (“VA”) has released a solicitation seeking companies with agile development expertise to help build the VA’s website, VA.gov. The website is set to debut on November 11, and strives to become the “go-to” site for veterans and consolidates self-service and information into one portal. The RFP details task orders that go beyond website design, and includes maintenance, user authentication, and hosting services, exhibiting adoption of agile throughout various capabilities. The VA has become the latest of many agencies turning to agile for quicker deliverables at lower costs.

Big Movers

Zodiac Aerospace (Down 17.5%) – Shares were down this week following an announcement of extended production difficulties in the aircraft interiors business.

Aerojet Rocketdyne Holdings Inc. (Down 8.0%) – Shares were down this week in response to Boeing rejecting Aerojet’s offer for United Launch Alliance, a rocket launch joint venture between Boeing and Lockheed Martin.

Transactions

ADS, Inc. to acquire Theodor Wille Intertrade, a provider of supply chain management services for defense, government, and energy sectors. Terms of the deal were not disclosed.

Communications & Power Industries acquires ASC Signal Corp., a designer and builder of satellite communications, radar, and high-frequency antennas and controllers. The deal is worth an estimated $50 million.

Versar to acquire Johnson Controls’ Federal Security Systems Integration Business, a provider of design, installation, and support services for physical and network security systems.  The agreed acquisition price was $20 million, satisfied with cash and contingent consideration.

Carlyle-Chertoff Alliance acquires majority share of Coalfire Systems, a provider of cyber risk management and compliance services. Terms of the deal were not disclosed.

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Industry Week in Review – September 11, 2015

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Aerospace & Defense Update

According to industry reports, Aerojet Rocketdyne is in discussions with Boeing and Lockheed Martin about acquiring their joint venture, United Launch Alliance (“ULA”), for approximately $2 billion.  If a deal is finalized, the agreement will be subject to regulatory approvals.  Recently, ULA has faced financial and political pressure as competition from lower-cost services, particularly SpaceX, increases, and reliance on Russian-built engines continues.  Aerojet Rocketdyne currently serves as a major supplier of engines for many ULA rockets, and has been looking to provide hardware for its next-generation boosters.  The deal would provide ULA with a more unified leadership, and perhaps an improved way to fund the company’s plans to develop a new fleet of all-domestic rockets.

This past week Boeing announced plans to increase its monthly production of the 767 widebody to 2.5 units per month by late 2017, to accommodate a 50-plane order from FedEx.  Currently, the company builds around 1.5 jets monthly, but had previously detailed plans to raise production to two early next year.  In addition to the FedEx order, a heavily modified version of the 767 is gearing up for production as the Air Force’s next refueling tanker. A spokesperson for the company states that increasing production “provides the flexibility needed to address additional commercial orders, while meeting all of our customer requirements.”

Government Technology Solutions Update

With the end of the government fiscal year approaching, Congress is set to vote on 12 spending bills in order to avoid automatic budget cuts.  Given the economic effects associated with sequestration and a government shutdown, many in Washington are anticipating a Continuing Resolution (“CR”) over the coming weeks which would maintain current funding levels in the interim.  While this mitigates the negative effects associated with sharp budget cuts or a shutdown, government contractors do lose contract and revenue visibility until Congress approves a final funding plan.  While uncertainty still remains, many are optimistic that Congress will be motivated to reach a compromise by year-end.

The General Services Administration (“GSA”) has issued a Request for Information (“RFI”) in an effort to more efficiently facilitate working relationships between suppliers and the Federal government.  The request proposes changes to the GSA’s IT Schedule 70, the largest and most widely used acquisition vehicle in the Federal government, focusing on aggregating input from industry leaders to understand how contractors can more successfully access the Federal market.  The goal is to streamline processes so that more small businesses and even companies unfamiliar with government practices can access opportunities provided by the Federal, State & Local governments, with the hope that government customers will benefit from increased access to innovative companies, enhanced technology solutions, and a wider range of contracting options.

Big Movers

Esterline (Up 7.8%) – Shares were up this week following a $21 million contract award by General Dynamics UK for displays and video processing units on the armored SCOUT Vehicle Program

Curtiss-Wright Corp. (Up 6.1%) – Shares were up this week in response to the introduction of a rugged mission display for avionics applications

Transactions

Inland Technologies acquired Boreas Holdings, a provider of outsourced airport services in North America and Europe.  Terms of the deal were not disclosed.

Versar to acquire Johnson Control’s Federal Security Systems Integration Business, a provider of design, installation, and support solutions for physical security, network security, and facilities management systems for the Federal government.  The deal is worth an estimated $20 million, including $9.5 million of contingent payments.

SageNet acquired Turberry Solutions’ Cybersecurity Division, a provider of consulting and professional services delivering large-scale technology projects.  Terms of the deal were not disclosed.

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Industry Week in Review – September 4, 2015

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Aerospace & Defense Update

According to an article by Reuters on August 30 labeled, “Boeing uses its clout to control supplier consolidation”, Boeing has played an important role in some recent M&A transactions in the aerospace industry.  The article describes Boeing use of its “assignability clause” to refuse or delay the transfer of ownership for some of its supply contracts.  While Boeing states it has not changed the process it uses to evaluate acquisitions, many company owners believe approvals are taking longer than usual. From Boeing’s perspective, a change in ownership increases the company’s risk, as delays caused by key suppliers could postpone its delivery of an aircraft. With recent acquisition trends in the space, Boeing is likely to continue its close evaluation of all transactions involving its suppliers, irrespective of size.

Lockheed Martin’s Aeronautics division continues its F-35 hot streak, announcing its win of the U.S. Navy contract for the F-35 Lightning II Block 3F upgrade.  The contract, which has a $311 million ceiling value and will last until September 2021, was announced shortly after Lockheed secured a $430 million F-35 fighter jet contract to provide support equipment and services.  Lockheed Martin’s success on the F-35 program is critical, as its Aeronautics division anticipates the program to be an integral part of the company’s organic growth in 2016.  In addition to the F-35, Lockheed Martin partnered with Boeing to recently submit a design for the U.S. Air Force’s new long range strike bomber (“LRS-B”). They are competing against Northrup Grumman to be the prime contractor, as both parties’ reportedly submitted designs at an unusually high level of detail for this stage in the process. The initial LRS-B will be manned and is expected to be awarded in October. However, the Air Force states that unmanned operations are possible by the mid 2020’s, several years after initial operational capability.

Government Technology Solutions Update

The General Services Administration (“GSA”) digital services innovation arm announced that it has awarded 16 vendors a spot on its 18F agile Blanket Purchase Agreement (“BPA”).  The BPA has a ceiling of $25 million over a one-year base period with four one-year options.  The announcement came after the submission deadline was pushed back twice to accommodate the large volume of questions from contractors about the new type of BPA.  Unlike typical contract vehicles, the agile BPA seeks to pool GSA Schedule 70 vendors for rapid agile or DevOps work.  In order to win a spot on the BPA, vendors participated in a two-week sprint to offer a functional deliverable in addition to a traditional proposal.  Agile processes emphasize flexibility, the creation of ongoing deliverables to clients, constant revaluation of project progress, and responsiveness to client concerns.  With this new award evaluation process, the 18F team hopes the BPA will serve as a framework for the Federal Government on how to integrate agile processes into the delivery of technology solutions to Federal agencies.

The GSA also announced the award of a BPA to address identity theft and IT network security concerns following recent breaches of Federal data systems.  Awarded to three contractors, the BPA will last 5 years and has an estimated overall value of $500 million.  The contract is in response to an Office of Personnel Management (“OPM”) hack that has prompted the Federal Government to accelerate network security evaluations.  $133 million is dedicated to identity theft insurance and identity restoration services for the 21.5 million individuals affected by the OPM breach.  However, the BPA requirements were evaluated by departments and agencies beyond OPM, with proposals also going before GSA, the Department of Homeland Security (“DHS”), the Federal Trade Commission, and components of the Department of Defense (“DoD”), as part of a wide-ranging evaluation and improvement of IT security across the Federal Government.

Big Movers

Engility Holdings (Down 3.7%) – Shares were down this week as macroeconomic trends overshadowed Engility receiving contracts from both the U.S. Army and Navy.

Boeing Co. (Down 2.6%) – Shares were down this week as macroeconomic trends overshadowed Boeing receiving a $2.6 billion order for 27 of its 737-800 aircraft.

Transactions

Resilience Capital Partners LLC acquired Porter’s Group LLC, a provider of metal fabrication solutions serving the security, military, mining, heavy equipment, and trucking industries.  Terms of the deal were not disclosed.

Donaldson Company, Inc. acquired Engineered Products Co., a designer, manufacturer, and supplier of filter monitoring devices.  Terms of the deal were not disclosed.

Keysight Technologies acquired Electroservices Enterprises Ltd., a manufacturer of test equipment services and solutions.  Terms of the deal were not disclosed.

CSC to acquire SRA, a provider of information technology (“IT”) and professional services to the U.S. Federal government.  SRA will be combined with the government services unit of CSC.  The shareholders of the government services unit will own 84.68% and SRA’s shareholders will own 15.32% of the combined company and will receive $390 million of cash as part of the transaction.

Calibre to acquire the health and life sciences and defense and public sector groups of IMC, a provider of IT services to Federal, commercial, and health and life sciences clients.  Terms of the deal were not disclosed.  KippsDeSanto & Co. acted as the exclusive financial advisor to IMC.

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Industry Week in Review – August 28, 2015

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Aerospace & Defense Update

Oshkosh was awarded a $6.75 billion contract on Tuesday to build nearly 17,000 Humvee replacements as part of the Joint Light Tactical Vehicle (“JLTV”) program.  This marks one of the largest Army contract award in recent years, and could be worth up to $30 billion.  The Wisconsin based company beat out Lockheed Martin and Humvee-maker AM General to build up to 55,000 JLTVs over the next 25 years. The JLTV program is one of the Army’s highest priorities and promises soldiers greater protection from roadside bombs and mines.  Lockheed and AM General have an opportunity to protest the award in the coming weeks.

Recent advances in aircraft connectivity are enabling airlines to tap into a new domain of cost-saving and efficiency-gaining opportunities.  These improvements will allow airlines to communicate information at higher speeds and bandwidth, providing capabilities such as live troubleshooting, which will ideally help airlines to better schedule maintenance activities, and live telemedicine connection, which could alleviate costly medical diversions.  Increased connectivity will also provide pilots and cabin crew with real-time weather forecasts, inventory control, and passenger manifests.  The current progression in technology suggests that these examples are only a small portion of operational efficiencies that will become available to airlines as connections to and within the aircraft improves.

Government Technology Solutions Update

In an attempt to quickly support soldiers with necessary cyber IT tools, the U.S. Army has turned to a new acquisition strategy.  Known as the IT Box, the new approach aims to supply soldiers with sensors, forensics, and other essential capabilities in a fraction of the time previously needed; cutting wait times from months or even years to just weeks.  Though the IT Box was first used at the Department of Defense (“DoD”) in 2008, the Army is leveraging it as an innovative acquisition method specifically tailored to meet newly emerging cyber demands.  The IT Box has four main components: (i) requirements and oversight; (ii) capabilities and measures of effectiveness; (iii) applications and software development as well as integration costs; and (iv) estimated sustainment costs.  Along with similar efforts by other services including the Air Force and Navy, this strategy highlights a need for more flexible and efficient acquisition processes to stay competitive on the battlefield.

The Defense Information Systems Agency (“DISA”) recently released a best practices guide for DoD cloud mission owners, exhibiting a transition from its former role as the sole broker for the DoD commercial cloud market to its new role as advisor and regulator.  The new guide, posted on the agency’s website, aggregates insights from DoD IT officials who have had success in migrating systems to commercial cloud services as an introduction for potential buyers looking to do the same.  Contents of the 23 page document provide high-level guidelines on determining costs to migrate services, benefits and setbacks of cloud usage, and most importantly how to comply with DoD cybersecurity standards.  In addition to benefitting individual agencies directly, the unclassified document has the added value of providing commercial cloud vendors with insights into the services and requirements buyers may be pursuing.

Big Movers

Oshkosh (Up 11.4%) – Shares were up this week in response to the $6.7 billion JLTV contract award.

TASER (Up 11.4%) – Shares were up this week after the U.S. Department of Justice released plans to spend $20 million on body cameras in a pilot program that will spend a total of $75 million over the next three years to deploy 50,000 body cameras on law enforcement agents nationwide.

Transactions

HEICO Corporation acquired Astroseal Products Manufacturing Corporation, a provider of expanded foil mesh which is integrated into composite aerospace structures for lightning strike protection in fixed and rotary wing aircraft.  Terms of the deal were not disclosed.

HEICO Corporation acquired an equity stake in Midwest Microwave Solutions Inc.,  a producer of unique size, weight, power and cost optimized communications and electronic intercept receivers and tuners for military and intelligence applications.

Transcat Inc. acquired Anmar Metrology Inc., a provider of customized calibration and repair solutions for customers in the life science and defense market.

Libra Industries acquired Circuit Design Specialties Inc., a producer of printed circuit board assemblies.

The Carlyle Group to acquire Novetta, a provider of cybersecurity data analytics for Government agencies including the DoD and Department of Homeland Security (“DHS”).  Novetta is a portfolio company of Arlington Capital Partners.  Terms of the deal were not disclosed.

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Industry Week in Review – August 21, 2015

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Aerospace & Defense Update

The Pentagon plans to increase the number of drone flights per day from its current 61 flights to 90 flights by 2019, representing a 50% increase over the next three years.  This is the first significant increase since 2011, as pressure has been mounting on military efforts to address recent global events.  The planned increase will be supported by the Army, government contractors, and the Special Forces Command, with an additional sixteen, ten, and four daily flights, respectively.  This increased activity coincides with the expectation of continued growth in the UAV market beyond 2019. According to a recent Teal Group report, worldwide UAV production will increase from $4 billion to $14 billion annually by 2025, totaling $93 billion over the next decade.  And while commercial applications continue to increase, military spending is still expected to dominate, accounting for roughly 72% of the market.

Airbus has finalized a $26.5 billion deal with IndiGo, India’s largest domestic airline, for 250 A320neo family aircraft.  This is Airbus’ largest order based on quantity of aircraft, and its second largest order based on contract value. India’s airline market is instrumental in Airbus’s future growth strategy, as India is one of the fastest growing airline markets in the world, expecting to become the third largest global aircraft market by 2031, according to the International Air Transport Association.  Furthermore, forecasts indicate India’s market will account for nearly 1,700 aircraft orders over the next 20 years.  With IndiGo flying roughly one in every three passengers in India, Airbus’ relationship with IndiGo will be pivotal in Airbus maintaining its 80% market share in India’s commercial aircraft industry.

Government Technology Solutions Update

President Barack Obama made the Presidential Innovation Fellows Program a permanent part of the Federal government through executive order this week.  The program focuses on attracting experienced individuals from the private sector to serve one-year terms in government agencies in an effort to foster innovation throughout the Federal government, particularly in the technology sector.  Additionally, some of the most innovation-focused areas of the Federal government, such as General Services Administration’s (“GSA”) 18F and U.S. Digital Service, are fostered through the program.  While Fellows serve one-year terms, many continue in their government positions, a favored outcome for those looking to bring private sector experience and ideas to the government.

GSA has released two Requests for Proposals (“RFP”) for the Human Capital Training Solutions (“HCaTS”) contract: (1) HCaTS and (2) HCaTS Small Business (“SB”). HCaTS and HCaTS SB are both multiple-award contracts that focus on the provision of training and other human resources services as part of a new Federal category management strategy.  Under the new category, the Office of Personnel Management (“OPM”) will oversee human capital-related procurement spending, with the goal of making it easier for Federal agencies to purchase these services.  The deadline for submission for RFPs is October 16th.

Big Movers

The Boeing Company (Down 9.2%) – Shares were down this week in response to both macroeconomic trends and news of a potential shortage in its production of the 737 jetliner.

Airbus Group (Down 6.1%) – Shares were down this week as macroeconomic trends overwhelmed positive news of a $26.5 billion deal with IndiGo for 250 A320neo family aircraft.

Transactions

MAG DS Corporation acquired Bosh Global Services, Inc., a provider of global support and operational services for unmanned ground, air, sea, and space programs.  Terms of the deal were not disclosed.

Air Partner Plc acquired Baines Simmons Ltd., a provider of training, consulting, and outsourced services to civil aviation, defense aviation, and regulatory authorities.  The deal is worth an estimated $9.4 million.

Pro Star Aviation acquired HL Tooling, LLC, a provider of high quality precision machining.  Terms of the deal were not disclosed.

HEICO Corporation acquired a majority stake (80.1%) in Aerospace & Commercial Technologies Inc., a producer and installer of aircraft modification kits for the F16 aircraft.  Terms of the deal were not disclosed.

Satcom Direct Communications, Inc. to acquire Airbus DS SatCom Government, Inc., a provider of government satellite communications services.  Terms of the deal were not disclosed.

American Systems acquired EM Business Holdings, a provider of engineering, science, and advanced technology solutions to classified Federal customers dealing with Intelligence, Surveillance, Reconnaissance and Targeting (“ISRT”) missions.  Terms of the deal were not disclosed

MicroPact merged with Iron Data, a provider of case management, Business Process Management (“BPM”), and vertical Commercial Off-The-Shelf (“COTS”) software solutions.  The combined company will retain the name MicroPact, and seeks to enhance their technologies and solutions at the platform level through the merger.  Terms of the deal were not disclosed.

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Industry Week in Review – August 14, 2015

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Aerospace & Defense Update

Warren Buffet’s Berkshire Hathaway has agreed to purchase Precision Castparts (“PCP”) for $37 billion, approximately 14x PCP’s LTM EBITDA.  This deal is the largest purchase by Mr. Buffet to date, and demonstrates confidence that airlines will continue to drive positive momentum for the aerospace manufacturing market.  This transaction also exemplifies the recent wave of consolidation in the aerospace industry.  Berkshire Hathaway is currently one of PCP’s largest shareholders with 4.2 million shares (~3% of PCP).  The deal is expected to close in the first quarter of 2016.

In a recent report by FlightGlobal, the General Aviation Manufacturers Association (“GAMA”) stated the general and business aviation sector experienced mixed results in Q2.  Total fixed-wing aircraft deliveries decreased, however, the sales increased from $154 million to $5.9 billion.  Single-engine pistons also experienced an increase from 176 airplanes delivered in Q1 to 234 in Q2.  Furthermore, Argus International reported an increase in business jet activity (5.6% YOY increase for July).  New models such as the Bombardier’s Challenger 350 and Embraer’s Legacy 500 helped drive business jet deliveries, which increased from 172 units last year to 181.  Finally, pre-owned business jets saw a decline of 6.1% from last year, but experienced a 17.4% increase in asking prices.

Government Technology Solutions Update

The U.S. Cyber Command (“USCYBERCOM”) is planning to establish a five-year $460 million multiple-award indefinite delivery / indefinite quantity (“IDIQ”) contract for cyber operations and planning support.  USCYBERCOM is the central command of the Department of Defense (“DoD”) cyberspace capabilities and an integrator of the DoD’s cyber expertise.  The General Services Administration (“GSA”) Federal Systems Integration and Management Center (“FEDSIM”) issued a request for information (“RFI”) in June and is expected to release a request for proposals (“RFP”) next month on behalf of USCYBERCOM.  Work on this contract will include a focus on directing operations and defense for the DoD Information Network (“DoDIN”) in addition to managing the full-spectrum of defense cyberspace operations.

Multiple Federal agencies are searching for contractors to keep on call as part of a new proactive measure to manage post-cyber breach cleanup.  The Office of Personnel Management (“OPM”) demonstrated the need for revamped security measures following two recent cyber attacks.  Instead of offering one-off contracts, the GSA in conjunction with the DoD is looking to enter a five-year blanket purchase agreement with multiple contractors and is committing to spend at least $500 million over the life of the contract.  However, the agency notes that the $500 million is not a contract ceiling and the total value could exceed the initial estimates without requiring a modification to the contract.  The primary benefit of on call contractors is a quicker response times to major data breaches, facilitated by previously agreed-upon pricing structures with identified providers.

Big Movers

Precision Castparts (Up 18.9%) – Shares were up this week in response to the news of Berkshire Hathaway’s acquisition of PCP.  The offer price of $235 per share for PCP was a 21.2% premium over the closing price on August 7th.

LMI Aerospace (Up 12.3%) – Shares were up this week in response to a strong 2Q15 earnings report, with an increase in top-line revenue of ~5%.  Through the Company’s revamping efforts, operating profit in the aero structures business in the first half of 2015 increased $5 million over the same period a year ago.

Transactions

Berkshire Hathaway to acquire Precision Castparts, a manufacturer of metal components and products for aerospace, power, and general industrial markets.  The deal is worth an estimated $37 billion.

Meggitt PLC to acquire the advanced composites businesses of Cobham plc, a developer of highly engineered aerospace composite engine components, radomes, and complex secondary structures.  The deal is worth an estimated $200 million.

Impresa Aerospace LLC acquired Dynamic Solutions LLC, a supplier of electro-dynamic vibration test equipment, and test solutions. Terms of the deal were not disclosed.

Air Industries Group, Inc. to acquire Compac Development Corporation, a manufacturer of RFI / EMI shielded enclosures for electronic components. Terms of the deal were not disclosed

Victory Park Capital to acquire GLE Precision, a provider of tungsten carbide machining, ceramic machining,  and other hard exotic material machining.  Terms of the deal were not disclosed.

CSC to acquire Fruition Partners, Inc., a provider of cloud service management focusing on technology-enabled tools and solutions.  Terms of the deal were not disclosed.

Salient Federal Solutions to merge with CRGT.  Salient is a provider of IT engineering, and intelligence analytic services.   CRGT is a provider of information management and technology services.  The combined company, Salient CRGT, will be backed by Bridge Growth Partners, LLC and Frontenac Co.  Terms of the deal were not disclosed.

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Industry Week in Review – August 7, 2015

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Aerospace & Defense Update

In an effort to increase national defense spending, defense contractors have ramped up lobbying efforts in Washington.  In the second quarter of 2015, the top 50 defense contractors spent over $58 million on lobbying, an increase of 28% from the same quarter last year.  The two firms with the largest investments, General Dynamics and Lockheed Martin, spent a combined $6.2 million during 2Q15 on defense issues.(1)  Since 2011, the defense base budget has decreased from $528 billion to $496 billion due to budget caps.  Defense firms are hoping the millions spent in lobbying the budget controls, set forth in the National Defense Authorization Act, will help increase or eliminate these caps moving forward.

Both BAE Systems and Airbus Group recently reported first half 2015 earnings.  While BAE’s 2015 first half revenue increased by 11% (compared to 2014 first half revenues), its earnings per share (“EPS”) decreased by 3% from the same period last year.  BAE’s second half guidance anticipates the company winning additional business from its Eurofighter Typhoon combat jet contract before year end.  BAE’s Eurofighter partner, Airbus, also reported earnings this past week, reiterating confidence the two companies will be able to retain the current contract orders for the jet.  Airbus reported strong first half 2015 results, including a 34% increase in EPS from the same period in 2014.

Government Technology Solutions Update

General Services Administration (“GSA”) Commissioner, Thomas Sharpe, has announced that the agency is continuing to review feedback on its proposal for contractors to submit pricing data for every transaction.  In an effort to facilitate better, more cost-effective decisions among agencies, the proposal would require vendors to electronically report prices paid for services purchased through GSA vehicles.  However, some contractors have expressed concern that the proposal would limit wages, stunt growth, and hurt small businesses.  While the GSA estimates an average additional burden of six hours per month per company, one independent contractor association places the burden at 238 hours for infrastructure setup and 38 additional hours per month to report data.  The GSA intends for its current review of contractor concerns to help officials better understand the effect of the burden, with an appreciation that it may ultimately lead to increased contractor prices.

The U.S. Department of Veterans Affairs (“VA”) announced this week the departure of its Deputy Chief Information Officer (“CIO”), Stephen Warren.  Warren is expected to leave the VA on August 28, 2015 and transition to a position as the CIO of the Officer of the Comptroller of Currency (“OCC”).  During his time as Deputy, Warren received some criticism for ineffective or vulnerable IT systems.  However, others at the VA credit his recent efforts to create effective cybersecurity defense systems and formation of a new cybersecurity strategy team as the foundation for the VA’s continued efforts to improve its defenses against cyber attacks.  A replacement for Warren has not been announced, temporarily leaving in question who will run the $4 billion VA IT department, which Warren handled on an acting basis during his two-and-a-half year tenure.

Big Movers

Engility Holdings (Up 38.9%) – Shares were up this week in response to both 2Q15 earnings beating analyst estimates and improved management EPS guidance.

Leidos Holdings (Up 8.9%) – Shares were up this week in response to 2Q15 earnings beating analyst estimates.

Transactions

Rockwell Collins, Inc. to acquire International Communications Group, Inc., a designer, developer, and manufacturer of communications systems and solutions for the aerospace industry.  The deal is worth an estimated $64 million.

Weinberg Capital Group acquired Accessory Overhaul Group, Inc., an FAA and EASA certified repair station specializing in the repair and overhaul of aircraft brakes and wheel assemblies.  Terms of the deal were not disclosed.

Cohort plc to acquire Empresa de Investigacao e Desenvolvimento de Electronica, S.A., a Portuguese supplier of naval communication systems for the Royal Navy and other NATO navies.  The deal is worth an estimated $17 million.

Battery Ventures to acquire NICE Systems Ltd., Physical Security Business, a provider of video surveillance technologies and capabilities to security-aware organizations.  The deal is worth an estimated $100 million including $15 million of contingent future payments.

Accenture acquired FusionX, a provider of cyber attack simulation, threat modeling, cyber investigations, and security risk advisory services.  Terms of the deal were not disclosed.

Blue Coat Systems, Inc. acquired Perspecsys, a provider of cloud data protection solutions that enable mission-critical cloud applications to be adopted throughout the enterprise.  Terms of the deal were not disclosed.

CA Technologies to acquire Xceedium, Inc., a provider of privileged identity management solutions that protect on-premise, cloud and hybrid IT environments. Terms of the deal were not disclosed.

(1) The Center for Public Integrity

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Industry Week in Review – July 31, 2015

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Aerospace & Defense Update

Italian aerospace and defense group Finmeccanica has taken DRS Technologies off the market following results that beat expectations for the first half of 2015.  Finmeccanica acquired DRS, a U.S. defense electronics business, in 2008 before major cuts in defense spending.  Last summer, CEO Mauro Moretti indicated his plans to sell DRS as part of a business review and debt reduction program. DRS reported $1.87 billion in annual sales for 2014, a decline from the $3.2 billion DRS had in 2008, the last full year before the acquisition by Finmeccanica.

Precision Castparts Corp. (“PCC”), a manufacturer of complex metal components and products, plans to acquire Noranco, a supplier of complex machined and fabricated components for aero-engine, landing gear, and airframe applications.  The deal is worth an estimated $560 million and is expected to close during 3Q15.  Noranco’s offerings are expected to strengthen PCC’s existing market position in airframe products while also expanding PCC’s current product offering.  Noranco will take advantage of PCC’s forging and fasteners capabilities, and add its machining and fabrication capabilities to PCC’s airframe products segment.  Currently, Noranco serves a variety of Tier 1 manufacturers including Honeywell, Safran, and Bombardier.

Government Technology Solutions Update

The Department of Defense (“DoD”) announced this week that the Defense Healthcare Modernization Management System Modernization (“DHMSM”) contract has been awarded.  Originally anticipated to have an $11.0 billion lifetime cost through 2030, the actual award stands at $4.3 billion over ten years, including all option years.  Awarded on the basis of best value, the contract will be performed by the Leidos-led team which includes Accenture and Cerner.  The DHMSM program seeks to enhance operation coordination between the Department of Veterans Affairs (“VA”) and DoD by developing a single, commercial product that includes full interoperability between the Veterans Health Information Systems and Technology Architecture (“VistA”) health records system, private records, and DoD’s healthcare management system.  DHMSM is expected to be tested in eight Pacific Northwest sites in 2016, and rollout fully by 2022.  The system will run along ~50 legacy systems and gradually facilitate the consolidation of military health services.

The Office of Management and Budget (“OMB”) is drafting new cybersecurity guidelines for contractors to bolster protection against cyber breaches via third-party vendors.  As agencies provide more services online, store digital data, and rely on contractors for these IT services, cyber threats to the Federal IT system have dramatically increased.  Additionally, current regulations involving protocols for reporting possible cybersecurity breeches are often unclear or confusing, resulting in delayed reactions to potential threats.  The new OMB effort intends to diminish vulnerabilities in third-party vendor security protocols that hackers may exploit to gain access to sensitive information and are expected to clarify existing regulations.  Furthermore, though the framework will require a high degree of judgement from contractors, it will set a clear standard for precautions and defense from cyber threats.

Big Movers

DigitalGlobe (Down 14.1%) – Shares were down this week in response to management keeping FY 2015 outlook the same despite strong 2Q15 results.  Analysts are concerned about DigitalGlobe’s performance over the second half of 2015.

Griffon Corp. (Up 9.7%) – Shares were up this week in response to 3Q15 earnings beating analyst estimates.

Transactions

Sensata Technologies Holding N.V. to acquire Custom Sensors & Technologies, Inc., a designer and manufacturer of sensing, control, and motion products for the aerospace industry.  The deal is worth an estimated $1 billion.

Solva S.A. to acquire Cytec Industries, Inc., a developer and manufacturer of added products for the aerospace and industrial materials, mining, and plastics industries.  The deal is worth an estimated $6.4 billion.

TransDigm Group, Inc. to acquire PneuDraulics, Inc., a designer, developer, manufacturer, and supplier of precision hydraulic components for the aerospace industry.  The deal is worth an estimated $325 million.

GKN plc to acquire Fokker Technologies Group B.V., a designer, developer, and manufacturer of aircraft components and systems.  The deal is worth an estimated $1.1 billion.

Accurus Aerospace Corp. to acquire LaCroix Industries, Inc., a manufacturer of sheet metal products for the aerospace industry.  Terms of the deal were not disclosed.

Vista Outdoor Inc. to acquire CamelBak Products, LLC, a manufacturer of hydration products and solutions for commercial and military sectors.  The deal is worth an estimated $413 million.

Precision Castparts Corp. to acquire Noranco Inc., a manufacturer of aero-structures, landing gear systems, and aero engine precision components.  The deal is worth an estimated $560 million.

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