Industry Week in Review – May 15, 2015

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Aerospace & Defense Update

The U.S. Air Force released a Justification and Approval notice this past week on FedBizOpps, which indicates its plans to award Northrop Grumman $4 billion in contracts between 2016 and 2020 to sustain and develop the RQ-4 Global Hawk Unmanned Aerial Vehicle.  This step solidifies support for the program and ends its tumultuous acquisition history.  Before the RQ-4 Global Hawk received its milestone C approval from the Pentagon, there was debate over whether Lockheed Martin’s U-2 Dragon Lady should replace it, causing customers to rethink investment in the program.  However, the recent milestone C and justification notice, which argues that it would take four years and about $300 million to $500 million to qualify another prime contractor for the role, provides a positive signal to Global Hawk customers that the U.S. Air Force is committed to the program.

The U.S. Army and U.S. Navy will have new leadership if President Obama’s nominations are confirmed.  On Wednesday, May 13th, President Obama nominated General Mark Milley and Admiral John Richardson to replace current Army chief of staff, General Ray Odierno, and current chief of naval operations, Admiral Jon Greenert.  Milley will leave his position as commander of Army Forces Command and Richardson will leave his position as head of Naval Reactors. These nominations follow the appointment of a new chairman, Marine General Joe Dunford, and vice chairman, Air Force General Paul Selva, to the Joint Chiefs of Staff, and will round out the committee that will lead the Pentagon past Obama’s final term in office.

Government Technology Solutions Update

Computer Sciences Corporation (NYSE: CSC), a provider of IT and professional services and solutions, is expected to separate its Government business from its commercial IT business unit.  A formal announcement is anticipated to be made as early as May 19th, when the Company releases its FY2015 earnings.  CSC’s North America public sector division generated $998 million in revenue between 1Q15 and 3Q15 (ending January 2, 2015) and serves the Department of Defense (“DoD”), Federal civilian agencies, foreign governments, and state and local governments.  The division has been in the process of a cost-cutting campaign spurred by Federal budget pressures and sequestration; however, it is still expected to draw attractive potential buyers as the Government market which faces high barriers of entry.  CSC shares ended the trading day up 4.3% after the split was reported on May 14th.

The Program Management Improvement and Accountability Act of 2015, introduced in the House of Representatives, seeks to improve Federal program and project management and cut wasteful spending.  Third party organizations have estimated that Government organizations spend an unnecessary $119 million for every $1 billion spent as a result of poor project performance.  The Act proposes a formal job path for program managers within the Federal Government and would designate a senior executive as the “Program Management Improvement Officer” for each Federal agency.  Additionally, the bill would require the Office of Management and Budget (“OMB”) to develop and adopt government-wide standards and policies for program management and review agency projects on an annual basis.

Big Movers

Ametek Inc. (Up 4.7%) – Shares were up this week following the Company’s recent announcement that it will acquire Global Tubes from The Watermill Group for approximately $200 million.

Transactions

H-D Advanced Manufacturing Co. acquired Precision Aero Corporation, a manufacturer of machined products for aerospace wheel and brake assemblies.  Terms of the deal were not disclosed.

Emerging Markets Communications, LLC signed a definitive agreement to acquire MTN Satellite Communications, Inc., provider of communications and content services for remote locations around the world.  Terms of the deal were not disclosed.

Danaher Corporation entered into a definitive merger agreement to acquire all the outstanding shares of Pall Corporation, a provider of filtration, separation, and purification solutions that remove contaminants or separate substances from a variety of solids, liquids, and gases.  The deal is worth an estimated $13.8 billion.

Genstar Capital has acquired Boyd Corp. from Snow Phipps Group, LLC, a provider of precision-engineered, specialty material-based energy management and environmental sealing solutions.  Terms of the deal were not disclosed.

The Watermill Group’s portfolio company, Tenere, Inc., has acquired Mountain Molding, LLC, a provider of plastics injection molding services including new mold design and development, transfer of existing molds, assembly, contract manufacturing, inventory management, and full product life cycle support.  Terms of the deal were not disclosed.

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Industry Week in Review – May 8, 2015

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Aerospace & Defense Update

Commercial applications of unmanned aerial vehicles (“UAVs” or “drones”) were among the highlights at this past week’s annual AUVSI conference in Atlanta, Georgia.  Venture investors continue to plow money into commercial UAVs businesses (noted by Accel Ventures’ investment this week of $75 million into Chinese drone firm DJI, valuing DJI at ~$8 billion).  These commercial enterprises have a variety of business models, from the sale of airframes, to maintenance / training / support, to an end-to-end solutions that offer data-as-a-service.  Meanwhile, larger, established UAV players that heretofore have focused on the military end market (Boeing, Aerovironment, many others) have made a notable effort to leverage their existing technologies to address demand in other industry verticals, from infrastructure to mineral exploration to agriculture.  All of this investment and attention have placed greater focus on the gatekeeper to the National Airspace System – the FAA – to both implement and execute upon a strategy for the safe and efficient deployment of UAVs.

The U.S. and Japan agreed upon new military guidelines to strengthen ties between the two countries and build Japan’s global presence.  The update outlines major changes to Japan’s military structure in order to fortify its defense and protect itself and its neighboring allies against potential aggression from North Korea and China.  This suggests that Japan will be able to deploy missile defense systems with the sole purpose of protecting allies including the U.S. if weapons are launched with the intent of injuring those countries.  As a follow-up to the agreement, the U.S. State Department approved a multi-billion dollar weapon sale to Japan for 17 V-22B Block C Osprey and a package of accessories.  The island nation has already agreed to purchase the Global Hawk unmanned system and may consider additional anti-missile systems going forward.

Government Technology Solutions Update

The Office of Management and Budget (“OMB”) released guidance to agencies this week for the GFY2017 Federal budget.  The report suggests Federal agencies should plan for a 5% cut from their discretionary budget compared to levels laid out in the President’s GFY2016 budget proposal.  However, the OMB also detailed priority areas for investment despite the anticipated decline in the broader budget.  Included in these categories were: (i) data-driven management reviews; (ii) digital service teams; (iii) solutions to reduce the Federal real property footprint; and (iv) shared service capabilities migration.  The OMB continues to push for an end to sequestration and cost cutting in more “commonsense” ways, such as the closing of tax loopholes, to fund priority areas.

The U.S. Navy announced a five-year cyber strategic plan this week to build up defenses and in-house skills within the Fleet Cyber Command.  The plan is centered around five priorities to turn the U.S. Navy cyber network into a more offensive “warfighting” platform with intelligence and remediation capabilities by 2020.  In the categories of leadership, operational excellence, agility, transparency, accountability, and partnership, the Fleet Cyber Command has set 18 month milestones for each.  These benchmarks will be used to provide quantifiable markers of progress in evolving cyber capabilities to become both a weapons and defense system.  The Fleet Cyber Command’s plan also focuses on building the cyber workforce as the U.S. Navy is responsible for creating 40 of the 133 teams that will ultimately make up the U.S. Cyber Command’s Cyber Mission Force.

Big Movers

Huntington Ingalls Industries, Inc. (Down 11.4%) – Shares were down this week after the Company released earnings for the first quarter of 2015.  Profit dropped as oil and gas companies cancelled or deferred projects and the Company announced it will lay off 30% of its workforce.

Triumph Group Inc.  (Up 11.5%) – Shares were up this week after the company reported first quarter revenue of $1,080.3 billion, up 15.4% from the same period last year.

Transactions

Pacific Architects and Engineers Incorporated has entered into a definitive agreement to acquire A-T Solutions, Inc., a provider of training and identity operations solutions, full lifecycle forensic and biometric support, and identification and analysis of asymmetric threats.  Terms of the deal were not disclosed.

Seabury Enterprise Solutions, LLC acquired Aero Transport Engineering Consulting S.A., a provider of integrated and flexible maintenance, repair, and overhaul software solutions for the aerospace industry.  Terms of the deal were not disclosed.

Industrial Growth Partners acquired FMH Aerospace Corp., a producer of highly-engineered components and assemblies for the commercial aerospace, defense, space, and industrial sectors.  Terms of the deal were not disclosed.

Information Innovators Inc. (“Triple-I”) acquired Creative Computing Solutions, Inc. (“CCSi”), a provider of cyber security, health services, and program management support to Federal agencies.  Terms of the deal were not disclosed.

Constellis Group to merge with Olive Group, a provider of innovative risk management solutions, which include security, program management, life support, and technology solutions, to blue chip commercial customers operating primarily in the energy, aviation, and infrastructure sectors.  Terms of the deal were not disclosed.

Transom Capital Group acquired Critigen, a full-lifecycle geospatial systems integrator driving business performance through spatial IT solutions.  Terms of the deal were not disclosed.

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Industry Week in Review – May 1, 2015

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Aerospace & Defense Update

Northrop Grumman and General Dynamics, in their earnings calls earlier this week, reiterated that their stock buyback programs will remain preferred methods of cash deployment.  Recently, each of the two contractors has participated in extensive share repurchases.  Northrop Grumman has bought back roughly a quarter of its shares between 2013 and 2015, and returned nearly $1 billion to shareholders through repurchases and dividends in the first quarter of 2015.  Meanwhile, General Dynamics spent $826 million on share repurchases, or 1.3x free cash flow from operations, during the first quarter of 2015.  According to the companies, an absence of highly attractive acquisition targets and strong operating performance continue to prompt share repurchase initiatives, rather than M&A transactions.

Early Thursday morning, the House Armed Services Committee (“HASC”) approved its version of the national defense authorization act (“NDAA”).  The bill provides the Pentagon a $495.9 billion base budget and an additional $89.2 billion in the overseas contingency operations (“OCO”) account.  Notably, the HASC legislation provides the Navy with $1.15 billion to buy twelve additional F/A-18 Super Hornets, while setting aside $1 billion for the Marine Corps to purchase six F-35Bs, in addition to the nine it had already requested.  Moreover, for the second year in a row, the bill rejects the Air Force’s attempt to retire its fleet of A-10 attack planes, instead adding $682.7 million beyond what the Obama administration had requested for the program.  Ultimately, the HASC authorized legislation is viewed as largely favorable to the Department of Defense and industry, with funds allocated beyond requested levels for a number of programs.

Government Technology Solutions Update

The House of Representatives adopted a non-binding budget plan this Thursday by a 226-197 margin, which will be passed to the Senate for a vote next week.  The plan aims to balance the budget in nine years and proposes more than $5 trillion in spending cuts during this time, primarily through reduced spending on social welfare programs such as ObamaCare.  However, it would give the Pentagon an additional $38 billion of funding in GFY2016 and an additional $90 billion boost to defense spending through an off-the-books war fund.  President Obama is expected to block the defense spending boost unless Congress agrees to relief for domestic programs.

The Federal Bureau of Investigation (“FBI”) has announced a cyber solicitation seeking contractors with the ability to recruit, retain, and replace operational cyber subject matter experts (“SME”).  The FBI is looking to build a base of cleared cyber contractors to pull from on an as-needed basis for tasks of varying scope and complexity.  SMEs would work directly with the FBI on consultations, data collection and analysis, intelligence interviewing, training, policy development, and project implementation and management.  The request for proposal (“RFP”) is expected before May 6th and awards are anticipated between August and September.

Big Movers

General Dynamics (Up 4.5%) – Shares were up this week after the company released earnings for the first quarter of 2015.  Earnings per share increased 25.1% to $2.14 and beat analysts’ estimates of $1.94.

BAE Systems plc (Up 1.9%) – Shares were down this week after the company reported first quarter revenue of $2.7 billion, down 8.3% from the same period last year and missing analysts’ estimates of $2.79 billion.

Transactions

TransDigm Group, Inc. to acquire the assets of the aerospace business of Pexco LLC, a manufacturer of extruded plastic interior parts for use in the commercial aerospace industry.  The deal is valued at $496 million.

Special Aerospace Services (“SAS”) acquired C&C Manufacturing Corp., a provider of precision machining solutions in plastics, non-ferrous, and ferrous metals for aerospace, aviation, and commercial customers.  Terms of the deal were not disclosed.

Hava Elektronick Sanayii (Havelsan) to acquire Quantum3D, Inc., a provider of commercial-off-the-shelf open-architecture real-time simulation and ruggedized embedded computing solutions for government and commercial applications.  Terms of the deal were not disclosed.

British Engines Limited to acquire Michell Bearings business of Rolls-Royce plc, a manufacturer of hydrodynamic bearings for a wide range of marine and industrial applications.  The deal is valued at $19.1 million.

American Securities, LLC acquired Royal Adhesives and Sealants, LLC, a provider of proprietary, high-performance adhesives, sealants, and specialty formulated products designed to solve complex bonding, laminating, and sealing applications.  Terms of the deal were not disclosed.

Universal Manufacturing Company, Inc. acquired Ultra Machine & Fabrication, Inc., a provider of precision cutting, bending, welding, coatings services, as well as a manufacturer of precision armor parts and weldments.  Terms of the deal were not disclosed.

ManTech acquired Welkin Associates, Ltd, a provider of mission-centric services in high-end systems engineering and advanced national security technology and business services.  Welkin was formerly a wholly-owned subsidiary of CSC.  The deal is valued at $34 million and Welkin generated 2014 revenue of $33 million.

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Industry Week in Review – April 24, 2015

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Aerospace & Defense Update

The House Armed Services Committee (“HASC”) began its markup of the National Defense Authorization Act this week to be completed by April 29th.  The HASC is in the process of marking up the following four sections; tactical air and land forces, military personnel, seapower and projection forces, and strategic forces, in that order.  There has already been word that the seapower and projection forces section has distinct verbiage demanding oversight of the Air Force’s Long Range Strike-Bomber (“LRS-B”) program.  A detailed review of the overall acquisition strategy, technology design, development and testing status, cost and schedule implications, and more is set to be due by March 1, 2016.  This oversight, led by the comptroller general’s office, will attempt to ensure the Pentagon follows through with its promise of affordability as it is projecting a $550 million per-unit cost in 2010 dollars for the LRS-B.

Following a period marred with profit uncertainty, a failed acquisition, and layoffs, Rolls-Royce has announced yet another executive shift with the retirement of Chief Executive Officer, John Rishton, to be replaced by Warren East, prior chief of ARM Holdings.  East lead the microchip supplier from 2001 to 2013 where exhibited an ability to drive growth for the Company and has also held a position on the board of Rolls-Royce serving as a nonexecutive director and chairman of the Science & Technology Committee.   This shift follows the retirement of Mark Morris, Chief Financial Officer, and James Guyette, head of the North American division.  Guyette will be replaced next month by Marion Blakey, former U.S. Federal Aviation Administration chief.  To round out these moves, the Company also appointed Tom Wood, a relative veteran within the Company to head the Aerospace unit.

Government Technology Solutions Update

The House of Representatives passed the Protecting Cyber Networks Act (“PCNA”) by a 307-116 vote on Wednesday, which will strengthen digital defenses of American consumers and businesses.  The PCBA is the first of three bills to pass related to cyber information sharing laws.  The goal of these laws is to increase the flow of cybersecurity information between public and private sectors.  Government officials and most industry groups believe the exchange of data will be beneficial to both sides in order to understand attacks and strengthen network defenses.  However, privacy advocates and some lawmakers have voiced concern over the sharing of sensitive information.  To ease these concerns, the House also adopted an amendment to the PCNA requiring the inspector general to report how personal information is removed from shared data.

The Defense Information Systems Agency’s (“DISA”) reorganization at the beginning of the year focused on transformational efforts around the “five C’s” – cyber, cloud, collaboration, command, and control.  Much of the emphasis on cybersecurity is now being led by the Infrastructure Development Directorate, a component of the Development and Business Center.  The directorate oversees DISA’s most prominent cyber initiatives and investments, and also houses active opportunities for cybersecurity vendors.  Within the directorate, the Infrastructure Software Services Division is responsible for cloud services, the Cyber Security Division focuses on end point security and configuration management, and the Cyber Situational Awareness and Analytics Division addresses the need to maintain and improve network awareness.

Big Movers

Zodiac Aerospace (Up 13.3%) – Shares were up this week after the Company released earnings for the first half of its 2014 / 2015 fiscal year.  Revenue increased by 16.3% to €2,324.1, driven by 19.8% growth in its aircraft interiors segment.

BAE Systems plc (Up 1.9%) – Shares were up this week after the Company announced that it is considering exiting some of its U.S. based information technology businesses including its U.S. manpower and services IT business which has generated external interest.

Transactions

Sierra Nevada Corporation acquired Kutta Technologies, Inc., a provider of high reliability mission-critical software and systems.  KippsDeSanto & Co. advised Kutta Technologies, Inc. on the deal of which terms were not disclosed.

G/Force. Inc. acquired Tri Star Engineering, Inc., provider of technical support services to NSWC Crane and other Department of Defense agencies.  Terms of the deal were not disclosed.

Amphenol Corporation acquired RG Industries LLP’s Invotec Group Ltd., a manufacturer of time-critical and technologically complex HDI, Flex and Flex-Rigid printed circuit boards for the defense, aerospace, industrial, security, and transportation markets.  Terms of the deal were not disclosed.

Raytheon to acquire Websense Inc., a provider of cybersecurity solutions to protect data and users from cyber threats, malware attacks, information leaks, legal liability, and productivity loss worldwide.  Websense is a portfolio company of Vista Equity Partners LLC.  The deal is valued at $1.9 billion, net of cash, and will be combined with Raytheon’s’ cybersecurity unit.

KPMG acquired Triad Technology Partners’ ServiceNow Professional Services Organization, a provider of enterprise IT cloud tools to Federal and Intelligence clients.  Terms of the deal were not disclosed.

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Industry Week in Review – April 17, 2015

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Aerospace & Defense Update

Earlier this week, the 2015 MRO Americas conference took place in Miami, FL.  The conference, which is the aerospace industry’s pre-eminent conference covering all topics related to maintenance, repair, and overhaul (“MRO”), featured Embraer’s Chief Operating Officer, Luis Carlos Affonso, as its opening keynote speaker.  A generally positive attitude around the current MRO environment permeated the conference, as robust airline traffic, favorable macroeconomic conditions, and low oil prices have propped up the industry.  Various deal announcements during the conference, such as Azalea Capital’s acquisition of InTech Aerospace and AE Industrial Partners’ acquisition of Kellstrom Commercial Aerospace, highlighted continued interest among strategic players and capital providers to consolidate a fragmented industry.

SpaceX indicated that it hopes the next attempted landing of its Falcon 9 reusable launch vehicle will take place on solid ground, rather than over water like all previous tests.  The most recent of these landing attempts took place on Tuesday, with the rocket touching down safely on the target shortly before toppling over.  The company is optimistic that the added stability from a ground-based landing platform would contribute to a safe, successful landing.  Meanwhile, United Launch Alliance (“ULA”) unveiled its next generation launch vehicle, the Vulcan, in an announcement at the National Space Symposium on Monday.  Notably, the vehicle will feature a reusable main engine in an attempt to reduce booster propulsion costs.  Both of these announcements indicate a growing trend towards reusability among space systems.

Government Technology Solutions Update

The Department of Homeland Security (“DHS”) approached the Senate Appropriations subcommittee this week to request budget increases for its cybersecurity programs in GFY2016.  The proposed cyber budget would provide funding in four key areas: (i) $812 million to sustain funding for cybercrime and cyber-criminal investigations; (ii) $480 million to protect government wide networks; (iii) $103 million for continuous diagnostic monitoring programs; and (iv) $5 million to develop and sustain its cybersecurity workforce.  This proposal includes increased spending over GFY2016 in all categories except cybercrime and cyber-criminal investigations.  DHS’s request makes up $1.4 billion, or 10%, of the total White House cyber program budget request for GFY2016.

The Army’s Computer Hardware Enterprise Software and Solutions (“CHESS”) component seeks to attract more small businesses (“SB”) and increase the scope on its Information Technology Enterprise Solutions-3 Services (“ITES-3S”) contract.  ITES-3S’s Request for Proposal (“RFP”) has yet to be released; however, the $11 – $15 billion contract is expected to have a five-year base period with one four-year option.  CHESS believes the structure of the contract will encourage SB companies to submit proposals and intends to classify SB as companies with annual revenue of less than $27.5 million.  The scope of work will be expanded from the current generation of the contract (“ITES-2S”) to enable the Department of Defense (“DoD”) to fulfill cyber and cloud mission requirements.

Big Movers

Precision Castparts (Down 5.6%) – Shares were down this week after the Company announced that earnings in its fiscal quarter ended in March are expected to fall to a range of $2.90 – $2.95 per share, compared to analysts’ estimates of $3.21 per share.

Smith & Wesson (Up 18.1%) – Shares were up this week after the Company raised its fiscal fourth quarter ending in April sales and earnings guidance given stronger than expected order volume.  Sales for the quarter are now expected to be $175 million to $179 million, up from the previous guidance of $162 million to $166 million.

Transactions

IXI Technology acquired RioTech Corp., a provider of turnkey solutions to the aerospace market for electronic and software engineering, functional automated test, electronic systems, and build-to-print services.  Terms of the deal were not disclosed.

AE Industrial Partners LLC acquired Kellstrom Commercial Aerospace Inc., a provider of aftermarket parts, repairs, logistics, and supply chain management solutions for the commercial aerospace market.  Terms of the deal were not disclosed.

AGC Aerospace and Defense acquired Aerospheres (UK) Ltd., a provider of chemical and composite repair services to the commercial airline and MRO market.  Terms of the deal were not disclosed.

Sparton Corporation acquired Hunter Technologies Corp., a provider of electronic contract manufacturing services specializing in military and aerospace applications.  The deal is worth an estimated $50 million.

SolAero Technologies Corp. acquired Alliance Spacesystems, LLC, a provider of composite structures for spacecraft and other high-tech applications.  Terms of the deal were not disclosed.

Ranger Aerosystems, an Azalea Capital portfolio company, acquired InTech Aerospace, an MRO company specializing in commercial and military airplace interiors and components.  Terms of the deal were not disclosed.

Assured Information Security, Inc. acquired Information Security Solutions, Inc., a provider of cybersecurity consulting services and specializing in the areas of cybersecurity, IT security and cyber intelligence analysis.  Terms of the deal were not disclosed.

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Industry Week in Review – April 10, 2015

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Aerospace & Defense Update

Bombardier’s new Chief Executive Officer, Allain Bellemare, led the next stage in the company makeover with a refresh of the executive team.  Pierre Alary, the current Senior Vice President and Chief Financial Officer, will retire while Mike Arcamone, the current head of the commercial aircraft division will depart to pursue other opportunities.  Bellemare has identified Fred Cromer, the previous president of International Lease Finance Corp., to head the commercial aircraft unit.  Cromer has a long history in the commercial aerospace industry having held various senior positions at a range of airlines.  Bellemare has also chosen Henri Courpron, the Chairman and Founder of Plane View Partners, an aviation advisory company, and former Chief Executive Officer of Airbus, North America, to come onboard as a strategic adviser to the firm.  This revamp in the executive team highlights Bellemare’s urgency to transform the ailing company and to realign with customer taste in order sell the CS3000.

Government Technology Solutions Update

A memorandum regarding the appropriate use of Lowest Priced, Technically Acceptable (“LPTA”) source selection processes was issued within the Department of Defense (“DoD”) this week in an effort to narrow the use of LPTA procurements.  When used correctly, LPTA is an effective method to drive down costs; however, agencies are realizing that solutions originally procured as LPTA often must be replaced or recreated, eliminating the cost savings and creating a need for additional funds. The memorandum, circulated by Frank Kendall, the Under Secretary of Defense for Acquisition, Technology, and Logistics, defines four conditions that are all to be met for the use of LPTA: (i) contract requirements must be well defined; (ii) risk of poor contract performance is minimal; (iii) price is a driving factor in the source selection; and (iv) there is no value, need, or willingness to pay for higher performance.  With these stipulations, the DoD signals a shift away from LPTA procurements for technical or professional service and solution bids.

Over the next six months the General Services Administration (“GSA”) will continue to work with professional service vendors to launch the first consolidated GSA schedule.  The schedule seeks to increase efficiencies for and spending by Federal agencies, as well as simplify contracting requirements for vendors.  Under the consolidated schedule, the GSA hopes to increase its share of the professional services addressable spending to 31% of the market by 2017 – more than $7 billion in contractor spending.  The GSA will be consolidating 4,400 of its current schedules, which will effectively migrate approximately 440 professional services vendors.  Once migrated, each vendor will receive a new 20-year contract for the new, consolidated schedule.

Big Movers

Triumph Group Inc. (Up 5.8%) – Shares were up this week after the Company announced that Chairman Richard Ill will temporarily replace the existing CEO, Jeffry Frisby while the Company searches for a new CEO.

Astronics Corporation (Up 4.8%) – Shares were up this week after the Company won a $36.4 million indefinite delivery / indefinite quantity contract to manufacture, test, and deliver the Radio Frequency Distribution and Control System and parts for its submarines.

Transactions

Wencor Group acquired PHS / MWA Aviation Services, a certified FAA / EASA repair station and provider of aircraft repair solutions.  Terms of the deal were not disclosed.

Landmark Aviation to acquire Era Group Inc. Fixed Based Operation in Alaska, a provider of fixed based operation services at Ted Stevens Anchorage International Airport.  Terms of the deal were not disclosed.

Charterhouse Capital Partners, LLP acquired Mirion Technologies, Inc., a provider of radiation detection, measurement, analysis, and monitoring products and services.  The deal is worth an estimated $750 million.

Boeing Co. acquired 2d3 Sensing, Inc., a provider of motion imagery processing of critical intelligence, surveillance, and reconnaissance data generated from aerial platforms.  Terms of the deal were not disclosed.

Lindsay Goldberg made a minority stake investment in ECS Federal, LLS, a provider of technology solutions and engineering services to the U.S. Federal Government.  ECS Federal generated $300 million in revenue for FY2014.

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Industry Week in Review – April 3, 2015

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Aerospace & Defense Update

On Tuesday, President Obama lifted a freeze on arms transactions with Egypt, marking a significant step towards repairing relations with the Middle East nation during a period of regional instability.  The decision to remove the arms freeze, which had been in place since October 2013, provides an additional source of foreign military sales for American weapons manufacturers that have faced defense spending caps and budget cuts domestically.  Notably, in the near term, the change in policy will free up the delivery of 12 Lockheed Martin F-16 aircraft, 20 Boeing Harpoon missiles, and as much as 125 General Atomics M1A1 Abrams tank kits previously paid for by the Egyptian government.  Moreover, Obama pledged to support providing Egypt with $1.3 billion in foreign military assistance, which would make the country the second largest recipient of U.S. military aid.

In an investor meeting last month, United Technologies Corporation’s (“UTC”) CEO, Greg Hayes, indicated that the Company is considering a spinoff of its Sikorsky Helicopter subsidiary.  This week, in a move that could help set the stage for a possible divestiture, UTC appointed Robert Leduc as president of the helicopter manufacturer.  Prior to his retirement last year, Leduc served 35 years with UTC Aerospace Systems, Pratt & Whitney, and Hamilton Sundstrand.  His years of experience and familiarity with UTC position him as an ideal candidate to lead Sikorsky through a steady transition, should it in fact be spun off.

Government Technology Solutions Update

President Obama issued an Executive Order this week giving the Secretary of the Treasury, in conjunction with the Attorney General, and Secretary of State, the power to impose sanctions against individuals or organizations who launch cyberattacks posing a significant threat to national security.  This order follows the issuance of financial sanctions against North Korea for the cyberattack against Sony pictures.  According to Michael Daniel, the White House Cybersecurity coordinator, the Sony incident highlighted the need for the U.S. to be able to more directly target the parties, as opposed to the countries, involved in attacks.  Sanctions imposed by the Secretary of the Treasury would seize U.S. funds of named parties and ban individuals and corporations alike from the U.S. financial system.  President Obama’s Executive Order seeks to provide an additional tool to combat cyberattacks as cybersecurity is a new and quickly emerging mission for most Federal agencies.  Similar to the recent creation of the Cyber Treat Intelligence Integration Center (“CTIIC”) and the current drafting of cyber information sharing bills by the House and Senate, the cyber executive order is part of a large initiative to keep the U.S. on the forefront of cybersecurity.

Big Movers

AAR Corp. (Down 7.1%) – Shares were down this week after the Company announced 3Q15 net loss of $0.89 per sharem, compared to net income of $0.45 per share in the same period last year.

Senior plc (Up 6.0%) – Shares were up this week after the Company announced its acquisition of Lymington Precision Engineers Co Ltd.

Transactions

TransDigm Group, Inc. acquired Franke Aquarotter GmbH’s Aerospace business, a manufacturer of proprietary faucets and related products for use on commercial transports and regional jets.  The deal is worth approximately $75 million.

Senior plc acquired Lymington Precision Engineers Co Ltd, a pf precision machined components, fabrications, assemblies, and kit sets.  The deal is worth approximately $150 million.

COM DEV International Ltd. to acquire Pacific Wave Systems, a provider of waveguides for the global satellite industry.  The deal is worth approximately $20 million.

ITT Corp. acquired Hartzell Aerospace, a provider of highly engineered and customized solutions for aerospace environmental control systems on a wide range of high-growth, next-generation aircraft platforms.  Terms of the deal were not disclosed.

NATEL Engineering Company to acquire OnCore Manufacturing, LLC, a provider of product commercialization services for low-medium volume, high-complexity products to blue-chip aerospace and defense, industrial, and medical companies.  Terms of the deal were not disclosed.

Centerra Group, LLC acquired Gregg Protection Services, Inc., a provider of protection services for nuclear, biological, and national security assets.  Terms of the deal were not disclosed.

SRA International acquired Qbase’s Government Services Business, a provider of software products and services supporting customers in the intelligence, national security, Government, healthcare, and energy arenas.  Terms of the deal were not disclosed.

CACI International acquired LTC Engineering Associates, Inc., a provider of technical engineering solutions and services to the intelligence community and Department of Defense in the areas of software engineering, cybersecurity, signals intelligence, communications intelligence, and digital signals processing.  LTC Engineering generated $16 million in revenue in FY2014.

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Industry Week in Review – March 27, 2015

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Aerospace & Defense Update

RBC Bearings Incorporated demonstrated its commitment to growth this week with its acquisition of Dover’s Sargent Aerospace & Defense business, a precision-engineered manufacturer for commercial aerospace and military programs.  The transaction, valued at $500 million, was viewed positively by the market as its stock price jumped significantly since announcement on March 26th.  The stock could increase further as the transaction is reported to be $.25 to $.35 accretive to EPS and have $1.5 million in estimated net synergies for the first year of combined operations.  The transaction represents a 13.3x Last Twelve Months (“LTM”) EBITDA multiple, but 9.4x LTM EBITDA multiple when tax benefits and synergies are included.  Furthermore, this could be illustrative of RBC’s future plans to grow through acquisitions.  The public company’s unlevered balance sheet and the continuation of financing availability poise RBC to deploy cash through further M&A.

This week, the U.S. House of Representatives and Senate approved their individual budget resolutions.  Both entities approved a $499 billion base budget which maintains the caps mandated by the 2011 Budget Control Act and approved significant increases to Overseas Contingency Operations (“OCO”) spending.  The House approved $96 billion for the OCO account which reflects a combination of the $58 billion in OCO funding and $38 billion excess base budget approved by the Obama Administration.  The Senate approved a slightly lower sum for OCO funding of $89 billion.  The budget drafts released thus far suggest that Congress will sidestep the sequestration spending level with these swollen OCO accounts in order to fully fund defense initiatives.  This positive momentum provides additional confidence that 2016 will be a stand-out year for government spending on defense related items as current capital stores are approved for use.

Government Technology Solutions Update

The Intelligence Community IT Enterprise (“ICITE”) initiative is now in the adoption phase by all 17 Intelligence Community (“IC”) agencies.  Initiated in 2013, ICITE seeks to standardize and implement shared commodity IT services.  At this stage in the program, the technological foundation for using standardized desktops and networks, and common cloud computing solutions have been laid.  However, ICITE now faces the challenge of buy-in from IC users with regards to both the new IT architectural and the business model change.  The IC’s Mission Users Group (“MUG”) has been tasked to drive adoption of ICITE solutions and development of new capabilities utilizing the shared infrastructure.

The National Aeronautics and Space Administration (“NASA”) has rereleased awardees under the Enterprise Wide Procurement (“SEWP”) V vehicle.  The original awards were pulled back in October 2014 to work through the large number of bid protests.  Under the rerelease, contract awards announced include 84 companies; 36 in “Group A” for computer-based systems and 48 in “Group D” for networking, security, video, and conferencing.  With a combined $20 billion ceiling value, the award includes four more contracts than the initial set.  All contracts have a 10-year period of performance and a five-year add-on option.

Big Movers

Leidos (Down 9.2%) – Shares were down this week after the Company announced that its 4Q15 revenue decreased 9% year-over-year to $1.2 billion.

Transactions

StandardAero acquired General Electric Co.’s DutchAero Services, a producer of complex advanced machining, sheet metal, and thermal spraying components for the world’s leading aerospace manufacturers.  Terms of the deal were not disclosed.

RBC Bearings Inc. acquired Sargent Aerospace and Defense business from Dover Corp., a provider of precision-engineered products, solutions, and repairs for aircraft airframes and engines, rotorcraft, submarines, and land vehicles.  The deal is worth approximately $500 million.

Ferchau Engineering GmbH to acquire Rostock System-Technik GmbH a subsidiary of Airbus Defense and Space, a provider of system engineering as well as product manufacturing for aerospace customers worldwide.  Terms of the deal have not yet been disclosed.

Rockwell Collins, Inc. acquired Pacific Avionics Pty. Limited, a provider of technologies used for wireless information distribution, including inflight entertainment and connectivity.  Terms of the deal were not disclosed.

Data Device Corp., a portfolio company of Behrman Capital, to acquire EMRISE Electronics Ltd. from EMRISE Corp.  The acquisition includes Pascall Electronics, Ltd. and XCEL Power Systems, Ltd. which design and manufacture an extensive range of custom, semi-custom, and standard power supply products.  The deal is worth approximately $22 million.

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Industry Week in Review – March 20, 2015

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Aerospace & Defense Update

Finmeccanica CEO Mauro Moretti announced that the Company will delay its decision regarding the potential sale of its U.S. subsidiary, DRS Technologies.  Initial discussions around a sale of DRS began last summer.  More recently, Moretti said the Company was seeking a partner to help run the unit, while divesting DRS’s Aviation and Logistics unit and its Training Communications and Network solutions unit.  On Thursday, however, Moretti appeared more bullish about DRS in a meeting with analysts to discuss Finmeccanica’s 2014 results.  He asserted that DRS is “registering good results, a change of the curve, a change of the trend at DRS of the last few years”.  Ultimately, the Company has delayed any decisions around the future of the unit until September when second quarter results have been analyzed.

German defense company Rheinmetall AG said on Thursday that it expects its defense division to return to profitability this year.  In 2014, the Company’s group net profit fell nearly 38% and it cut its dividend by 25%.  Notably, the defense unit reported a loss of roughly $89 million last year, including a $49 million fine related to bribery charges in Greece.  Rheinmetall forecasts a 2015 profit margin based on earnings before interest and taxes (“EBIT”) of 3% for its defense business, as it intends to grow operations outside of its domestic market, despite stricter German regulations on arms exports.

Government Technology Solutions Update

The U.S. Army has committed $500 million a year in spending through General Services Administration’s (“GSA”) One Acquisition Solution for Integrated Services (“OASIS”) contract.  The agreement is similar to a $500 million spending commitment by the U.S. Air Force in December 2013 and is part of a tiered fee structure pilot program initiated by the GSA.  While other agencies pay 0.75% to use OASIS, the Army will instead pay a 0.10% fee.  The use of OASIS seeks to minimize duplicative contracting efforts, reduce administrative costs, and help the service meet small business goals.  The Army and GSA are also discussing the use of select Defense Federal Acquisition Regulation Supplement (“DFARS”) requirements in OASIS to speed up DoD procurement through the vehicle; if implemented, OASIS will be the first civilian contract with DFARS requirements.

National Aeronautics and Space Administration’s (“NASA”) successful migration of services to a public cloud environment has become a flagship example for the Federal government.  Since starting in spring 2013, NASA has migrated ~160 applications to the cloud and hosts ~85% of applications and websites through public or hybrid cloud environments.  After this transition, the Administration saw a 40% drop in operations and maintenance costs which has already covered the expense of the migration.  NASA has layered its internal security solutions with their cloud provider’s (Amazon) and cloud integrator’s (InfoZen) security capabilities to address the largest concern around cloud implementation – cyber security.

Big Movers

Raytheon Co. (Up 5.5%) – Shares were up this week after the Company announced that it will increase its annual dividend by 10.7%.

Vectrus Inc (Down 22.0%) – Shares were down this week after the Company reported fourth quarter and fiscal year 2014 earnings, including $285.8 million in revenue for the quarter and $1.2 billion in revenue for the full year.

Transactions

Sparton acquired Stealth.com Inc., a configurator of high performance industrial grade computer systems and peripherals.  Terms of the deal were not disclosed.

Motorola Solutions Venture Capital made a strategic investment in CyPhy Works, Inc., a provider of advanced unmanned aerial vehicles (“UAVs”).  Terms of the deal were not disclosed.

Panasonic Avionics Corp. acquired ITC Global, a provider of satellite communication services for the energy, mining, and maritime markets.  Terms of the deal were not disclosed.

Curtiss-Wright Corporation acquired Bolt’s Metallizing, Inc., a provider of thermal spray coatings for critical aerospace applications, including high velocity oxygen fuel (“HVOC”) and plasma spray coating capabilities.  Terms of the deal were not disclosed.

KeyW acquired Ponte Technologies, LLC, a provider of operational IT security solutions, IT security strategies, and advanced defensive capabilities.  Terms of the deal were not disclosed.

KeyW acquired Milestone Intelligence Group, Inc., a provider of cyberspace security, software engineering, system engineering, and test and evaluation services.  Terms of the deal were not disclosed.

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Industry Week in Review – March 13, 2015

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Aerospace & Defense Update

This week, United Technology Corporation’s CEO, Greg Hayes announced that the Company has begun to consider strategic alternatives including an outright spin-off, for its Sikorsky subsidiary.  The helicopter manufacturer has experienced years of inconsistent revenues and has dim prospects for future revenue growth.  Hayes highlighted that although the CH-53 program positions the unit well for the future, its revenue growth will likely remain flat for the near-term.  However, the Company cited Sikorsky’s role as a platform provider as opposed to a service provider as the main reason for its potential spin-off.  A divestiture of the $7 billion unit would likely provide the parent company with the financial wherewithal to offer about $2 billion that could be used in share repurchases.  The announcement confirms that UTC is actively reassessing its portfolio in order to drive shareholder value.

The International Society of Transport Aircraft Trading (“ISTAT”) hosted its ISTAT Americas 2015 conference in Phoenix, AZ this past week.  The conference brings together aircraft Original Equipment Manufacturers (“OEM”), suppliers, lessors, consultants, and other related parties and serves as a forum for the diverse industry participants.  A highlight of the conference was the keynote address which stressed that slower GDP growth and consolidation of capacity will inevitably stress the seemingly resilient backlog of the OEMs, Boeing and Airbus.  The two OEMs countered by asserting that their current backlogs are large enough to withstand market pressure while maintaining increased production rates.  Furthermore, lessors confirmed that the aircraft leasing industry continues to be robust driven by airline profitability, strength in the debt markets, and deep order books, reinforcing the overall strength of the industry.

Government Technology Solutions Update

The Central Intelligence Agency (“CIA”) has announced an internal reorganization to adapt to changing threat priorities and combat cyber-crime and terrorism.  Several offices will be reorganized and a new Directorate of Digital Innovation office will be created to lead CIA cyber initiatives.  The new office will act as the central authority on training and best standards.  The CIA will also provide the executive director with more power to make strategic decisions.  Overall, the reorganization seeks to invest in leadership, leverage digital solutions, modernize agency structure, and integrate capabilities across mission areas.

The Government Accountability Office (“GAO”) received more than 60 comments from ten different agencies and industry representatives on the Federal Risk and Authorization Management (“FedRAMP”) draft high baseline.  The FedRAMP high baseline draft set standards to allow the use of third-party cloud service providers in storing sensitive data.  Comments received on the document generally asked for more definition of parameter selection, additional guidance on controlling virtual boundaries and services, and the establishment of a responsible party for implementing controls under different service models.  The baseline does not cover highly sensitive (level five and six) data.  However, after FedRAMP high baseline standards are implemented, agencies will be looking to create FedRAMP high-plus standards in order to do so.

Big Movers

Comtech Telecommunications Corp. (Down 19.1%) – Shares were down this week after the Company reported its second quarter of fiscal year 2015 results.  All three of the Company’s operating segments experienced a decrease in net sales over the same period in 2014

Embraer SA (Down 7.1%) – Shares were down for a second week in a row after the Company announced it had declined in profitability and delivered fewer aircraft compared to the year prior.

Transactions

Field Aviation Company Inc. acquired Rockwell Collins’ subsidiary, ARINC Aerospace Systems Engineering and Support, a provider of communications, engineering, and systems integration services to aviation, rail, and critical infrastructure sectors.  Terms of the deal were not disclosed.

Selmet, Inc. acquired Blue Point Capital Partners’ portfolio company, Western Metrology, Inc., a manufacturer of precision components for the aerospace industry.  Terms of the deal were not disclosed.

Alcoa, Inc. to acquire RTI International Metals, a producer and supplier of fabricated titanium mill products and specialty metal components.  The deal is worth an estimated $1.5 billion.

MAXIMUS agreed to acquire Acentia, a provider of cloud based technology and management solutions to Federal Government and commercial markets.  Acentia is a portfolio company of Snow Phipps Group.  The deal is valued at an estimated $300 million and Acentia generated approximately $210 million in pro forma revenue in 2014.

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