Industry Week in Review – July 24, 2015

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Aerospace & Defense Update

Lockheed Martin has entered into a definitive agreement to acquire Sikorsky Aircraft from United Technologies Corp (“UTC”) for $9.0 billion approximately 13.0x Sikorsky’s LTM EBITDA.  Lockheed Martin estimates the transaction will generate ~$1.9 billion of tax benefits over the next several years.  With the acquisition of Sikorsky, Lockheed Martin will become the world’s largest manufacturer of military helicopters.  This move accelerates Lockheed Martin’s goal of shifting focus towards its core capabilities of building defense platforms, as opposed to providing information technology and technology solutions.  Lockheed Martin plans to align Sikorsky under its Mission Systems and Training (“MST”) business segment.  MST and Sikorsky have already worked together on numerous programs including the VH-92 Presidential Helicopter.

In Boeing’s second quarter earnings call on Wednesday, new CEO Dennis Muilenburg indicated that the Company would take another earnings charge related to continued delays on the KC-46 tanker development.  Boeing Commercial Aircraft continued to deliver strong results, with a record of 197 aircraft deliveries.  Mr. Muilenburg also hinted that Boeing has the tanker problems sorted out and will not need to invest in any new technology to resolve the issues.    Overall, the company reported profit of $1.1 billion in the second quarter, down ~$540 million from the same period last year, bought back 14 million shares for $2.0 billion, and paid $265 million in dividends.

Government Technology Solutions Update

Recent forecasts by International Data Corporation (“IDC”) anticipate a rebound in the Department of Defense’s (“DoD”) IT spending over the near-term.  IT spending by the DoD is expected to reach $30.5 billion in FY2016, up 1.6% from the $29.9 billion expected by the end of FY2015, and is projected to growth at a Compound Annual Growth Rate (“CAGR”) of 0.5%.  The projected growth reverses the declining spending trends witnessed over the last few years given sequester-led budget cuts.  IT spending growth is anticipated to be driven primarily by cloud solutions and enterprise-wide services, which will serve to reinforce the DoD’s focus on fostering coalition partnerships as well as facilitating cross-department ventures.

Lockheed Martin announced that it will conduct a strategic review of its government IT & technical services businesses, likely to result in a spin-off to shareholders or a full sale of the businesses.  The programs under review would primarily contain those within Lockheed’s Information Systems & Global Solutions unit, as well as some portion of its Missiles and Fire Control segment.  A sale or spinoff of these business units would be expected to significantly shift the government services landscape as the segments under review would constitute one of the larger service providers in the market, with ~$6 billion in estimated 2015 revenue and over 17,000 employees.  Additionally, Alion Science and Technology Corporation (“Alion”) announced that it has abandoned plans for its scheduled Initial Public Offering (“IPO”), despite filing preliminary papers with the Securities and Exchange Commission (“SEC”) in April.  Backed by private equity firm American Securities, the government and defense contractor has instead opted for a sale to New York-based private equity firm, Veritas Capital.  Veritas reportedly plans to commit approximately $300 million in equity to the deal, out of its recently raised $1.9 billion fund.

Big Movers

United Technologies Corp (Down 10.3%) – Shares were down this week as 2Q15 revenue decreased 5.0% YoY.

B/E Aerospace (Down 11.8%) – Shares were down this week in response to 2Q15 earnings missing analyst estimates.

Transactions

Veritas Capital to acquire Alion Science and Technology, a provider of engineering, information technology, and operational solutions for defense, civilian government, and foreign governments.  Terms of the deal were not disclosed.

Blackberry Limited to acquire AtHoc, Inc., a provider of networked crisis communication solutions to the Departments of Defense and Homeland Security.  Terms of the deal were not disclosed.

Cyient Ltd. to acquire Pratt & Whitney Global Services Engineering Asia, a provider of repairs, development, and validation for aero gas turbine engine components.  Terms of the deal were not disclosed.

ShoreView Industries acquired Esterline’s subsidiary, Pacific Aerospace & Electronics, a manufacturer and supplier of micro-electronic hermetic products and metal components for defense, space, medical, and commercial industries.  Terms of the deal were not disclosed.

TASER International BV acquired Tactical Safety Responses Limited, a provider of tactical safety products, services, and training.  Terms of the deal were not disclosed.

Lockheed Martin Corp. to acquire Sikorsky Helicopter, a designer and manufacturer of commercial helicopters and fixed-wing aircraft.  The deal is worth an estimated $9 billion.

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Industry Week in Review – July 17, 2015

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Aerospace & Defense Update

Bombardier Aerospace will likely experience delays on another program in the coming months as it has announced a “full review” of its new Global 7000 and 8000 business jet programs.  The announcement of the review follows continuing revenue pressure, cost overruns, and other demands from the CSeries airliner as well as its halt in production of its Learjet 85 program.  The Global 7000 was planned to be released in 2016 but still has yet to partake in its first flight as the first flight-test aircraft is still in final assembly.  Current CEO, Allain Bellemare plans to keep their current commitments and proceed on once the review is complete.

The Brazilian jet manufacturer, Embraer, had one of its best quarters in history, as the company delivered more planes and reported record high backlog.  The company announced that deliveries amounted to 60 jets in the period, two more than in the same period, a year prior.  Meanwhile, total backlog rose $2.5 billion to $22.9 billion, an increase of 26.5% year-over-year and 12.3% over 1Q15.  This growth stemmed from a reported 104 new firm orders, of which roughly 50 came from a successful showing at the Paris Air Show in June.

Government Technology Solutions Update

The Federal Government spending season is underway.  According to Bloomberg Government, 32.0% to 34.0% of large Federal Agency contract obligations are made in the fourth quarter of the government fiscal year (“GFY”) (July 1st to September 30th).  This behavior among Federal Agencies is spurred by a mandate to spend their entire budget, or potentially see a reduction in future funding.  Of particular note, the General Service Administration’s (“GSA”) Schedule contracts historically receive almost half of their orders during the fourth quarter.  To help deal with the increase in orders during the period, the GSA implemented an electronic purchasing system in June.  Federal Agencies can use the system, eBuy, to electronically search for goods and services and prepare Request for Quotes (“RFQ”) and Request for Proposals (“RFP”).  According to the GSA, there are 80,000 RFQs issued under eBuy to date.

Federal Agencies are increasingly using Simplified Acquisition Procedures (“SAP”) to speed up the purchase of goods and services that fall below the price limit set by regulation ($150,000 for non-commercial, $6.5 million for commercial).  SAP spending is approximately 54.0% products and is dedicated solely to small businesses, unless none can perform the contract.  Despite Government-wide sequestration, the spending under SAP regulations increased 4.3% from GFY2013 to GFY2014, growing faster than the overall market.  Federal Agencies are turning to SAP procurement as an efficiency measure to save time and reduce administrative costs for simple purchases.  Looking forward, the pending GFY16 National Defense Authorization Act would more than double the current price limit for noncommercial items, potentially directing further funding to small businesses.

Big Movers

Airbus (Up 4.3%) – Shares were up this week in response to the U.S. – Iranian agreement.  Iran’s aviation industry is expected to replace as many as 400 jets over the next ten years, representing at least $20 billion in aircraft sales.

VSE Corp. (Down 3.4%) – Shares were down this week in response to an announcement that the company will begin trading ex-dividend on July 20th.

Transactions

Precision Castparts Corp. to acquire Composite Horizons, LLC, a supplier of high temperature carbon and ceramic composite components, including ceramic matrix composites for use in next generation aerospace engines.  Terms of the deal were not disclosed.

DCX-CHOL Enterprises Inc. acquired Southern California Braiding Co., Inc. from IEC Electronics Corp., a manufacturer of custom cables and wire harness assemblies.  Terms of the deal were not disclosed.

CounterTack acquired the commercial software division of ManTech, ManTech Cyber Solutions International, a provider of real-time endpoint threat detection and response solution.  ManTech is expected to become an equity investor in CounterTack.

The Radiant Group acquired HumanGeo, a provider of data analytics software and development services to defense, intelligence, and commercial markets.  Terms of the deal were not disclosed.

NatHealth acquired Harris Corporation’s commercial Healthcare Solutions business, the provider of FusionFX, an information-exchange solution for healthcare providers.  Terms of the deal were not disclosed.

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Industry Week in Review – July 10, 2015

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Aerospace & Defense Update

The Wall Street Journal reported that Lockheed Martin is in advanced talks to acquire United Technologies Corp’s (“UTC”) Sikorsky Aircraft business for approximately $8 billion, making it Lockheed’s largest acquisition in the past decade.  Sikorsky has been struggling as of late due to a steep downturn in the oil and gas sector, but is expected to have long-term potential gains due to its next-generation technologies.  Lockheed and Sikorsky have strong existing relationships through prior work on a number of helicopter programs.    Recent Sikorsky contract wins, including a deal to supply the next-generation presidential helicopter and another for U.S. Air Force rescue helicopters, as well as a $40 billion backlog, helped drive Lockheed’s acquisition interest.  An agreement could be reached in the coming days.

The U.S. Air Force award of a contract for the long-range strike bomber (“LRSB”) continues to be delayed.  The announcement of the LRSB award was originally expected last spring, but may be delayed for another three months.  Northrop Grumman and a joint consortium of Lockheed Martin and Boeing continue to make their case for the ~$80 billion next-generation bomber contract, which would have a significant impact on the future of the winning company.    Along with delays in the contract award, the Air Force has faced challenges in Congress, with the House of Representatives suggesting a $460 million decrease in funding for the program.

Government Technology Solutions Update

The Department of Homeland Security (“DHS”) has made recent efforts within cybersecurity and procurement processes to become a more nimble and innovative agency.  In order to better combat cybersecurity threats, DHS Secretary Jeh Johnson has turned the focus of the National Cybersecurity and Communication Integration Center (“NCCIC”) towards near-real time communication of emerging cyber threat information among civilian agencies.  NCCIC is charged with communicating vital information about cyber threats and coordinating civilian agency and private sector response.  Johnson expects multiple civilian agencies and companies to start receiving information from the automated system by October.  Based on NCCIC information, the DHS now has the authority to force agencies to make cybersecurity changes by issuing a Binding Operation Directive.  In another effort to spur innovation, the DHS has created a virtual Procurement Innovation Lab (“PIL”).  PIL will give the contracting community an opportunity to put forward ideas on how to streamline the procurement process and shorten lead times.  It is set up to mimic the “fail fast” culture of Silicon Valley which allows ideas to be tested and developed in a fast-paced environment.  While the center does represent more calculated risk for the agency, PIL plays the role of a cultural catalyst for innovation within the Federal Government.

Big Movers

Bombardier (Down 15.0%) – Shares were down this week in response to the announcement of a full review of its timeline for the Global 7000 and 8000 business-jet programs, sparking speculation that the programs are likely to be delayed.

Lockheed Martin (Up 3.7%) – Shares were up this week in response to an announcement that the company is the frontrunner to buy the Sikorsky helicopter unit for up to $8 billion.

Transactions

Cree, Inc. acquired Arkansas Power Electronics International Inc. (“APEI”), a designer and manufacturer of high power density and high efficiency power electronic solutions and products.  KippsDeSanto & Co. advised APEI on the deal.  Terms of the deal were not disclosed.

A management group backed by Alaris Royalty Corp. acquired KLH Capital’s Federal Resources Supply Co., a value-added provider of mission-critical products and solutions to defense, first responder, homeland security, and maritime end users.  Terms of the deal were not disclosed.

Handyman & Harman Ltd. acquired JPS Industries, Inc., a manufacturer of sheet and mechanically formed glass and aramid materials for specialty applications in markets requiring highly engineered products.  The deal is worth an estimated $110 million.

Cisco Systems to acquire OpenDNS, a provider of cybersecurity services, including Web filtering, threat intelligence, and phishing protection.  The deal is worth an estimated $635 million to be paid in cash and is expected to close during the first quarter of next year.

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Industry Week in Review – July 3, 2015

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Aerospace & Defense Update

The explosion of SpaceX’s Falcon 9 rocket on June 28th has ignited discussion among military officials over the feasibility of running a competitive space launch program.  Implications for a company that encounters a failure could be fatal as it would likely require shutting down that company for a significant period of time to investigate.  Under the scenario that United Launch Alliance remains without competition, it would be able to defer to its Delta IV system if the Atlas V failed or vice-versa in order to remain in operation despite a failure.  Although it is too early to stipulate the effects of SpaceX’s launch failure on future Department of Defense launch missions, the Pentagon is committed to the continuity and strength of its National Security Space missions.

Pentagon officials released the FY2014 small business scorecard last month which announced that 24.9% (~$91.7 million) of all prime contracts awarded last year were given to small businesses.  This represents the highest percentage of funding allocated to small businesses since the 23% goal was established in 1997.  About half of the total sum was allocated to defense contracts and accounted for ~$54.3 billion.  These results confirm efforts by the Pentagon to focus on small business contracting in order to protect what is viewed as an economic driver throughout the industry.

Government Technology Solutions Update

The General Services Administration (“GSA”) is looking to partner with the Defense Information Systems Agency (“DISA”) for its upcoming Enterprise Infrastructure Solutions (“EIS”) telecommunications contract vehicle.  EIS, worth an estimated $50 billion over 15-years, is part of the GSA’s broader Network Services 2020 strategy.  The GSA has added a new clause in the geographic coverage section of the vehicle, to better incorporate the needs of the Department of Defense (“DoD”) by aligning the contract with the Defense Federal Acquisition Regulation System (“DFAR”).  The potential partnership comes at a time when DISA is preparing to open bidding on several other key acquisition efforts including its Systems Engineering Technology and Innovation (“SETI”) contract vehicle and Encore III, the follow-on to its current $12 billion ceiling IT services contract.

The DoD recently announced that it is ramping up Defense Mobile Classified Capability – Secret (“DMCC-S”) from pilot stage into full production.  DMCC-S mobility capabilities allows users to securely access secret data and voice communications from anywhere in the world.  DISA is using the program to replace the technologically dated Secure Mobile Environment Portable Electronic Device (“SME PED”) system and aims to have 3,000 secure mobile users by government fiscal 2Q16.  In a related move, the National Institute of Standards and Technology (“NIST”), has released technical specifications for the next generation of digital smart cards, which allow for remote identity verification.  These mobility developments by both the DoD and NIST enhance the Federal mobile cybersecurity strategy.

Big Movers

AeroVironment (Up 4.2%) – Shares were up this week in response to better than expected earnings for 4Q15. The company reported a quarterly profit of $7.1 million.

Transactions

Atrenne Integrated Solutions, Inc., acquired the Engineered Products business of Curtiss-Wright Corp., a manufacturer of a wide range of VITA / PICMG – standard complaint and rugged application-specific electronic packaging solutions.  Terms of the deal were not disclosed.

Rift Valley Equity Partners, LLC acquired assets of M&M Manufacturing, Inc., a provider of CNC milling and turning, assembly and inspection, and value-added services such as programming, modeling, and tooling.  Terms of the deal were not disclosed.

Safariland, LLC acquired VIEVU, LLC, a manufacturer of wearable video cameras and data management software for law enforcement and private security professionals.  Terms of the deal were not disclosed.

Ballard Power Systems, Inc. signed a definitive agreement to acquire Protonex Technology Corp., a designer and manufacturer of advanced power management products and portable fuel cell solutions.  The deal is worth an estimated $30 million.

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Industry Week in Review – June 26, 2015

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Aerospace & Defense Update

On Tuesday, Boeing announced that Dennis Muilenburg will replace Jim McNerney as Chief Executive Officer, effective in July of this year.  Muilenburg joined Boeing in 1985 as an intern and throughout his tenure has held top positions in both the Defense Space & Security division and Combat Systems division.  McNerney held the top position for the past decade and will continue to serve alongside Muilenburg and maintain his position as Chairman of the Board of Directors.  Boeing stock fell slightly after the announcement, however; Muilenburg is unlikely to make significant strategy changes which should comfort investors.

Government Technology Solutions Update

The General Services Administration (“GSA”) is currently reviewing more than 75 responses to a request for information (“RFI”) concerning a cloud-based contract vehicle.  The purpose of the RFI is to collect information from both the public and private sector in order to explore different models and avenues for Federal agencies to acquire cloud-based technology.  Though the evaluation is underway, the agency has not yet committed to the contract vehicle.  The GSA currently has two cloud blanket purchase agreements (“BPAs”) on IT Schedule 70; however, they are relatively small in scope compared to the technologies that Federal agencies currently seek to acquire.  If created, the final contract is estimated to have a ceiling value of approximately $50 billion.

In the midst of congressional hearing to address recent cyber breaches, the Office of Personnel Management (“OPM”) released a cybersecurity plan to tighten its defenses.  The 15-step modernization plan involves a review of the OPM’s use of encryption in databases that is expected to be completed by July 15th and a pledge to complete the implementation of security features such as two factor Strong Authentication, which uses both passwords and personal identity verification cards.   Other significant changes include hiring a new cybersecurity advisor to work alongside the OPM Chief Information Officer (“CIO”).  In addition to these measures, OPM Director, Katherine Archuleta, will also hold a summit with industry experts to leverage lessons learned from the private sector.  The plan, expected to be completed within the next six months, has been met with support from Tony Scott, Federal CIO, but also opposition from OPM Inspector General (“IG”) Patrick McFarland.

Big Movers

Embraer (Down 3.0%) – Shares were down this week in response to an investigation regarding possible securities laws violations by Embraer in connection to certain financial statements.

MTU Aero Engines (Up 3.4%) – Shares were up this week following particularly strong performance at the Paris Air Show.  The Company booked $905 million in orders at the show of which a significant portion was for its PW1000G engine.

Transactions

Bridgepoint Capital Ltd.’s Shimtech Industries Ltd. acquired Angeles Composites Technologies, Inc., a supplier of advanced structural composite assemblies and components serving the global commercial and military aerospace markets.

Aspen Avionics, Inc. acquired Accord Technology LLC, a provider of GPS sensors and receivers to the aerospace industry.  Terms of the deal were not disclosed.

Premier Aviation Overhaul Centre, Inc. has executed an offer to acquire substantially all of the assets of Discovery Air Inc.’s subsidiary, Discovery Air Technical Services, a provider of maintenance, repair, and overhaul (“MRO”), modification, engineering, and certification services, focused on the regional aircraft marketplace.  Terms of the deal were not disclosed.

Airbus Group Australia Pacific acquired Safe Air Ltd. of New Zealand, a provider of military aerospace MRO services for the Royal New Zealand Air Force.  Terms of the deal were not disclosed.

UrtheCast International Corp. entered into a definitive agreement to acquire Elecnor’s Earth Observation business, dba Deimos Imaging, an owner and operator of two satellites and the collection, analysis, distribution, and licensing of the EO imagery captured by satellites. The deal is worth an estimated $82.8 million.

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Industry Week in Review – June 19, 2015

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Aerospace & Defense Update

Under mostly sunny skies and cool weather at Le Bourget, the Paris Air Show captured the aerospace/defense industry’s attention this past week.  Order announcements came in much greater than pre-show predictions at 1,017 commitment orders and 206 option orders summing to ~$69.0 billion new business won.  Day one was most active with 453 orders announced while day three had only 207 orders.  These results surpassed the total orders and options at the Farnborough Air Show in 2014 by 13 aircraft.  Airbus’s intake slightly outpaced Boeing’s.  Airbus landed 531 orders for a value of ~$32.2 billion, while Boeing realized ~$27.5 billion from 371 orders.  Bombardier initially had 100 orders on its new CSeries aircraft before languishing order flow for the rest of the show.

Textron debuted its light strike / ISR Scorpion jet at the Paris Air Show this past week.  The powerful yet nimble jet is a one-of-a kind aircraft that may become the next big jet platform.  The jet will provide a new capability set to the armed forces with its ability to get to trouble spots quickly while also maneuvering at lows speeds to engage ground targets on the move.  The new jet would operate at a cost of under $3,000 per hour which is significantly less than traditional high-end fighter jets including the F-16.  Textron currently does not have any known buyers but is drawing great interest from the Pentagon and overseas.  If buyers are identified the jet could be fully built and delivered in 18 to 24 months.  This interest exemplifies the bullish view towards military aircraft especially where new capabilities can be added.

Government Technology Solutions Update

On June 17th, the House Appropriations Committee approved a new $20.2 billion financial services and general government funding bill.  Adhering to sequestration caps, the bill reduces overall included agency budgets by 6%.  The Internal Revenue Service (“IRS”), the General Services Administration (“GSA”), the Federal Communications Commission (“FCC”), and the Office of Personnel Management (“OPM”) would face budget cuts in FY2016.  However, the Small Business Administration would receive $853 million, only $8.0 million short of the President’s request.  This would fund its entrepreneurial development and business loans program, a critical agency function, at a higher level than this government fiscal year.  Notably, the bill also allocates $21.0 million to the OPM to allow them react to and protect against future cybersecurity threats.  The bill will now go to the full House for a vote.

The GSA and the Federal Acquisition Service’s Integrated Technology Services office released a request for quotation (“RFQ”) of blanket purchase agreements (“BPA”) for Agile Delivery Services (“ADS I”) seeking technology vendors to supply agile development services.  The BPAs will help enable GSA’s agile development team, 18F Consulting, keep pace with skyrocketing Federal demand for agile development services and marks the beginning of a marketplace for agile development services.  Initially, only 18F will be able to award task orders on ADS I.  However, if the contract vehicle proves successful at creating a competitive marketplace, the GSA anticipates opening the vehicle up to other agencies.  The GSA estimates the value of the purchases over the five year life of the BPAs to be $25 million.

Big Movers

AirBoss of America Corp. (Up 8.8%) – Shares were up this week in response to the company’s plan to acquire Immediate Response Technologies, a provider of personal protection and safety products for Chemical-Biological-Radiological-Nuclear hazards.

SAIC (Up 5.2%) – Shares were up this week in response to SAIC winning three prime military contracts worth $3.2 billion. The contracts fall under the Tank and Automotive Command Strategic Service Solutions family of contracts.

Transactions

Aequs Aerospace, LLC to acquire T&K Machine Inc., a manufacturer and supplier of machined parts and assemblies to the aerospace industry.  The terms of the deal were not disclosed.

ManTech International acquired Knowledge Consulting Group, Inc., a provider of cyber security in both the public and private sectors focused on anticipating threats and implementing defensive countermeasures.  Terms of the deal were not disclosed.

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Industry Week in Review – June 12, 2015

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Aerospace & Defense Update

Colt Defense, a West Hartford, Connecticut based firearm manufacturer, appears to be headed into a showdown with its bondholders after missing a $10.9 million payment last month.  Colt’s modern sports rifles and handguns sales fell 30.0% in 2014 and its cash on hand diminished to a balance of $11.9 million as of May 22nd.  The company appears to be headed towards bankruptcy potentially prompting a transfer of ownership to its creditors.  However, given a projected sales growth of 24.0% in FY2015 and FY2016, the company’s private equity owners, Sciens Management, plan to retain ownership.  In an effort to raise sufficient capital to avoid bankruptcy, the owners have proposed issuing $450.0 of new securities for every $1,000.0 of outstanding bonds.  As of June 1st, only 5.9% of bondholders have expressed approval for this plan.  This plan will falter without unanimous consent.

Last Friday, the U.S. Navy announced the award of $4.3 billion in contracts to construct the new nuclear-powered aircraft carrier, John F. Kennedy.  After months of negotiations, Huntington Ingalls Inc., a parent corporation of Newport News Shipbuilding, received a $3.4 billion contract for the detail, design, and construction (“DD&C”) work on the carrier. The shipbuilder also obtained a $941.0 million contract for labor to complete the carrier’s component and steel fabrication, selected construction unit assemblies, and all remaining direct material.  Newport News Shipbuilding has already constructed 450 of the ship’s 1,100 structural units dating back to December 2010.

Government Technology Solutions Update

On Monday, the Federal CIO Tony Scott issued a directive mandating the use of more robust Internet protocols (“IPs”) for federal websites, following the recent Office of Personnel Management (“OPM”) hack.  The directive states that all federal websites switch from using the HTTP to HTTPS standard, which means a middleman is less likely to intercept and modify internet traffic between a website and its end user.  While it is not clear how the hackers got into the OPM database, the need for more advanced cybersecurity at the federal level is apparent.  The deadline set for adopting the new standard is the end of 2016.

Government Agencies are starting to set up infrastructure to comply with the DATA Act, which requires federal spending to be standardized, traceable, understandable, and available online.  Federal Agencies are currently spending large amounts of time and money in order to comply with this act.  The program’s efforts will make auditing each agency easier, and it will allow the government to run large scale analytics to improve government spending.  Additionally, the online standardized formatting will make it easier for private citizens to access and analyze the data.  The system set up is anticipated to provide significant contracting opportunities for the private sector.

Big Movers

Elbit Systems (Up 4.0%) – Shares were up this week in response to the company’s announcement of two new technologies, its new BrightNite helicopter visual technology and its Kollsman Enhanced Vision System-Superior Performance product for the COMAC C919 aircraft.

SAIC (Down 5.3%) – Shares were down this week following the company’s release of its 1Q15 earnings.  The company reported earnings per share (“EPS”) of $0.73, missing analysts’ expectations of $0.75 per share.

Transactions

RF Industries, Ltd. has acquired Rel-Tech Electronics, Inc., a manufacturer of cable assemblies and wiring harnesses for blue chip industrial, oilfield, instrumentation, and military customers.  The deal was valued at an estimated $3.1 million.

CoorsTek, Inc. acquired BLS Textiles, Inc., a developer and producer of hard armor systems for defense and police.  Terms of the deal were not disclosed.

Novaria Group, Inc. acquired substantially all of the assets of Sky Manufacturing, Inc., a manufacturer of fasteners, bolts, and spline heads for the aerospace industry.  Terms of the deal were not disclosed.

StoneCalibre, LLC acquired Cohu Inc.’s Broadcast Microwave Services, Inc., a manufacturer of mobile microwave communications equipment including transmitters, receivers, antennas, and accessories that enable the transmission of real-time video, audio, telemetry, and sensor data from manned aircrafts, unmanned aerial vehicles and ground platforms.  The deal is worth an estimated $8 million.

Global Defense & National Security Systems, Inc. to acquire STG Incorporated, a provider of enterprise network operations, cybersecurity, financial services, systems engineering and integration, software engineering, and linguistics and intelligence solutions.  The deal is worth $165.5 million to be paid in both cash and stock.

World Wide Technology, Inc. acquired Asynchrony, a provider of technology consulting, to include in application development, mobile computing, systems and sensor integration, enterprise architecture, and tactical collaboration.  The terms of the deal were not disclosed.

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Industry Week in Review – June 5, 2015

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Aerospace & Defense Update

As a continuation of the red-hot M&A activity that’s been occurring in the defense microwave / radio frequency (“RF”) sector, Ultra Electronics announced the acquisition of the Electronics Products Division (“EPD”) of Kratos Defense & Security Solutions for $265 million.  The purchase price represents a multiple of 10.7x LTM EBITDA.  The division produces RF and microwave integrated systems and subsystems for use in electronic warfare (“EW”).  EPD is well-positioned for opportunities on the F-35 Joint Strike Fighter, in addition to a number of other critical next-generation programs.  The acquisition establishes Ultra as a major player in the EW market, while bringing a number of long-term contracts to the table that strengthen Ultra’s order book visibility.  The transaction comes on the heels of other notable defense microwave / RF deals including the RF Micro Devices and TriQuint Semiconductor merger and Analog Devices’s acquisition of Hittite Microwave Corp.

On Tuesday, the House of Appropriations Committee approved a bill that proposes $578.6 billion in defense spending for government fiscal year (“GFY”) 2016, $24.4 billion above the amount enacted in GFY 2015.  Notably, the bill includes an $88.4 billion overseas contingency operations (“OCO”) account and $116.7 billion for weapons procurement, approximately $3 billion more than the White House’s request.  Specifically, the bill fully funds most major weapons programs, with $8.4 billion provided for 65 F-35 Joint Strike Fighters, $16.9 billion for nine Navy ships, $1.2 billion for 64 AH-64 helicopters, and $3.0 billion for 16 P-8A Poseidon aircraft.

Government Technology Solutions Update

The Mobile Technology Tiger Team, a group under the Federal CIO Council, released a standardized protection profile for Federal agency application development in response to the Digital Government Strategy (“DGS”), a government initiative to enhance federal digital services.  The profile creates a baseline for security and acts as a set of common standards for the evaluation and validation of mobile application security.  Mobile security has become especially important as more and more Federal employees use their mobile devices for work and hackers are focusing more of their efforts on mobile operating systems.  Already gaining traction, the Department of Defense (“DoD”) and Department of Homeland Security (“DHS”) have agreed to adopt the standards for future application development.

The General Services Administration (“GSA”) is looking to add two new special item numbers (“SIN”) on IT Schedule 70 for Health IT (“HIT”) and cybersecurity.  The Office of Integrated Technology Services (“ITS”) is expected to issue a request for information (“RFI”) within the next two weeks asking industry players and Federal agencies to comment on the requirements for a HIT SIN.  The SIN seeks to create a central location to procure HIT needs making it easier for agencies to classify work, compare costs, and compare capabilities.  Still in its infancy, the RFI for a cybersecurity SIN is expected to be released by ITS before the end of the year.

Big Movers

Esterline Technologies Corp. (Down 12.8%) – Shares were down this week after the company announced second quarter FY 2015 earnings.  The company reported earnings per share (“EPS”) of $1.20 for the period, missing analysts’ estimates of $1.33 and declining from $1.28 for the same period last year.

Transactions

AE Industrial Partners to acquire Belcan Corporation, a provider of engineering services and technical staffing in the aerospace, power generation, and industrial markets.  Terms of the deal were not disclosed.

PPG Industries, Inc. acquired Cuming Microwave Corp, a provider of specialty coatings and materials that absorb microwaves and radio waves in military aircrafts. Terms of the deal were not disclosed.

Apollo Global Management, LLC acquired the OM Group, a diversified industrial company serving the automotive systems, electronic devices, aerospace and defense, industrial, and medical markets. Terms of the deal were not disclosed.

Ultra Electronics acquired the Electronics Products Division of Kratos Defense & Security Solutions, a provider of radio frequencies and microwave integrated systems for use in electronic warfare, radar, communication, missile, and flight test and simulation applications. The deal is valued at $265 million.

Tech Data Corp. to acquire select assets of Signature Technology Group, a provider of data center and professional services to both the public and private sector.  Signature Technology Group generated 2014 revenue of $17.5 million.

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Industry Week in Review – May 29, 2015

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Aerospace & Defense Update

On Tuesday, the U.S. Air Force announced that SpaceX received certification for military space launch, making it only the second provider approved to launch military payloads into orbit.  The Air Force’s certification of SpaceX’s Falcon 9 rocket effectively ends the service’s decade long sole reliance on United Launch Alliance (“ULA”) for military launch services.  SpaceX will have its first opportunity to compete with ULA, the Lockheed Martin and Boeing joint venture, in June, when the Air Force is expected to release a Request for Proposal (“RFP”) for the launch of its next-generation GPS III navigation spacecraft.  The Falcon 9 certification, which is the result of a certification process that began in June 2013, sets the stage for the rocket to lift the Air Force’s GPS navigation satellites, missile warning platforms, weather satellites, and orbiting spy payloads.  The opportunity for the Air Force to compete launch services is expected to drive down costs related to space missions moving forward.

Sikorsky’s S-97 Raider successfully made its maiden flight last Friday, nearly one year after the rotorcraft was made public.  The S-97’s first flight included three take-offs and landings, as well as basic maneuvers to test its hover and low-speed capabilities.  More advanced test flights are scheduled to take place over the course of the next year.  The S-97, which is based on Sikorsky’s X-2 technology, features coaxial counter-rotating main rotors that enable flight at greater speeds than conventional aircraft.  Ultimately, pending successful testing, the S-97 platform positions Sikorsky as a top contender for the U.S. Army’s future vertical lift – light concept and armed aerial scout requirement.

Government Technology Solutions Update

The U.S. Army has released a draft solicitation for its Information Technology Enterprise Solutions-3 Services (“ITES-3S”) contract and extended the deadline for industry day questions.  The $12.1 billion contract, with a five-year base and one four-year option period, is open to both the Department of Defense (“DoD”) and civilian agencies.  However, the Army intends for the contract to meet specific branch needs including a single security architecture, network normalization, identity and access management, enterprise services, cloud computing, and data center consolidation.  The ITES-3S Industry Day is scheduled for June 10th and the final RFP is expected to be released in September 2015.  As a result of ITES-3S procurement delays, the Army extended ITES-2S through April 2018.

The General Services Administration (“GSA”) recently launched CALC.gov, a tool for agencies to conduct market research on professional service labor categories.  The website allows agencies to see the awarded hourly rate ceilings across eight GSA professional service schedules.  Though geared toward use by contracting officers and specialists to negotiate more effectively, the GSA also anticipates use by program managers to estimate program costs.  Users have the option of filtering by qualifications such as skill level, education, experience, and business size to find comparable labor rates.  CALC.gov was created by the GSA to facilitate smarter labor category pricing for more informed contracting decisions within the Federal Government.

Big Movers

B/E Aerospace (Down 5.2%) – Shares were down this week after the company revised its earnings guidance for FY 2015.  The company provided earnings per share guidance of $3.03 for the period, compared to consensus estimates of $3.09 per share.

Transactions

Veritas Capital to acquire StandardAero, a provider of services including engine and airframe maintenance, repair, and overhaul, engine component repair, engineering services, interior completions, and paint applications.  Terms of the deal were not disclosed.

L-3 Communications Corp. acquired CTC Aviation Group Ltd., a provider of high-quality, global airline pilot training and crew resourcing services.  The deal is worth an estimated $220 million.

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Industry Week in Review – May 22, 2015

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Aerospace & Defense Update

The annual Special Operations Forces Industry Conference (“SOFIC”) kicked off this past week in Tampa, FL bringing together military, government, and industry stakeholders alike.  This year, defense giants such as Boeing, General Dynamics, and Polaris showed off a range of new ultralight vehicle offerings in response to the U.S. Army’s pre-solicitation for new ultralight combat vehicles (“ULCV”) that can take advantage of tactical lift.  The U.S. Special Operations Command has also voiced a request for 68 lighter, more expeditionary vehicles that can fit inside a CV-22 Osprey.  This spark in demand appears to stem from a growing capability gap in land transportation vehicles as the military focused on more heavily armored options during the past two wars.

Boeing, Lockheed Martin, and Textron have been rumored to be among the most interested potential buyers, according to various industry reports, for United Technologies Corp.’s Sikorsky helicopter unit.  All three are considering structures to avoid potential negative tax consequences to United Technologies and its shareholders.  The unit may also be spun-off as a stand-alone entity.

Government Technology Solutions Update

A House of Representatives panel approved the $51 million spending measure to provide the National Aeronautics and Space Administration (“NASA”) and Justice Department with modest budget increases.  Under the bill, NASA would receive additional funding for space exploration and fighting cybercrime.  The Justice Department measure would establish a $50 million fund with $15 million allocated toward body-worn police cameras; this proposed budget falls short of President Obama’s request.  The White House has issued a letter in response deeming the budget to be insufficient for improving relations between communities and the police.  The bill, one of the 12 annual spending measures passed through Congress, will be sent for a House floor vote next month; however, it is expected to be vetoed by President Obama, a continuation of his vow to veto bills until domestic programs receive greater funding.

The Technology Business Management (“TBM”) Council is bringing together Federal and private sector Chief Information Officers (“CIOs”) to improve reporting on Federal IT spending.  Federal agencies collectively spend ~$80 billion a year on IT solutions and services, but tracking where the money is spent is often difficult.  The TBM Council is creating a Commission on IT Cost, Opportunity, Strategy, and Transparency (“IT COST”) to focus on increased IT spending transparency / visibility and to develop a set of recommendations for the Federal Government.  Furthermore, one of the main goals will be to develop a taxonomy system to standardize reporting across agencies and departments and increase accuracy of self-reporting.

Big Movers

Booz Allen Hamilton (Down 11.4%) – Shares were down this week following the Company’s recent earnings announcement for the period ending March 31, 2015.  Revenue fell 4.3% to $1.34 billion for the quarter due to a reduction in billable hours and lower than expected margins.

Transactions

Magellan Aerospace Corp. acquired Euravia Engineering & Supply Co. Ltd., a provider of maintenance, repair, and overhaul (“MRO”) solutions for a wide range of aircraft and helicopter gas turbine engines.  The deal is worth an estimated $56.5 million.

Portfolio Company of Trive Capital, Valence Surface Technologies acquired Flextronics San Carlos, a provider of a full range of surface treatments for the semiconductor, aerospace, laser, microwave, and medical device industries.  Terms of the deal were not disclosed.

Zentech Manufacturing, Inc. acquired Colonial Assembly & Design, LLC, a provider of circuit design and layout, systems level design, machining and sheet metal, and complex cable assembly / wire harness manufacturing.  Terms of the deal were not disclosed.

JLL Partners received FTC approval to acquire Sun Capital Partners V, L.P.’s portfolio company, Point Blank Holding Corp., a manufacturer of high performance protective solutions, including bullet, fragmentation and stab resistant apparel and related accessories.  Terms of the deal have not yet been released.

CYBERBIT LTD, a subsidiary of Elbit Systems, to acquire NICE Systems’ cyber and intelligence division, a provider of tools for generating intelligence from communications for law enforcement agencies and intelligence organizations.  The deal is worth an estimated $157.9 million with $117.9 million paid at close and $40 million subject to the business’ future performance.

Computer Sciences Corporation officially announced a spin-off its U.S. public sector business, a provider of IT and professional services and solutions to Federal, state, and defense customers.  The U.S. public sector generated $4.1 billion of revenue and $591 million of operating income in FY2015. 

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