Industry Week in Review – February 03, 2012

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This week Republican senators introduced a bill aimed at delaying the spending cuts required under sequestration by one year. Senator John McCain, R-Arizona, introduced the legislation entitled, the “Down Payment to Protect National Security Act of 2012,” aimed towards reducing federal spending by $127 billion over the next ten years. Republicans hope to realize these savings through an extension of the federal pay freeze, including members of Congress, by an additional year and a reduction in the federal workforce through attrition. According to John McCain, roughly $110 billion is required to cover the first year of cuts under sequestration; however, President Obama has formerly stated that he would veto any plan that would undo the Budget Control Act of 2011’s sequestration provision because he believes it could still force Congress to come together on a much broader solution to reduce the country’s deficit.

As budget cuts are pushed throughout the military, reductions in the Air Force are expected to be met through a heavier reliance on multirole aircraft. According to Dan Goure, an analyst at the Lexington Institute, the service cannot afford to maintain fleets of specialized aircraft anymore, even though it might mean the Air Force ends up with planes capable of performing many missions, but none particularly well. Given the delays on the F-35, however, the Air Force is currently modifying roughly 350 F-16s to add capabilities and extend the aircrafts’ service life.

Big Movers

Northstar Aerospace Inc. (Down 62.3%) – Shares plunged this week after the company received a notice from a major customer claiming breach of obligations under certain contracts. The aircraft parts maker said that it expects to violate its financial covenants as of January 31.

Cubic Corporation (Up 10.6%) – Shares rose this week after the company released Q12012 sales and operating income of $318.7 million and $28.2 million, compared to $284.4 million and $27.2 million the same quarter last year, an increase of 12% and 4%, respectively. The company also announced a record backlog of $3.2 billion.

BE Aerospace Inc. (Up 10.4%) – Shares are up this week after the company announced fiscal 2012 estimated revenue and earnings per share (“EPS”) to be approximately $2.95 billion and $2.75 per diluted share, respectively. Analysts had expected revenue of $2.86 billion and EPS of $2.74 for fiscal 2012.

Recent Acquisitions

ICF International Inc. to acquire GHK Holdings Limited, a multidisciplinary consultancy serving government and commercial clients on government, health, and international development issues. The acquisition is expected to strengthen ICF’s European presence and create critical mass for ICF in high-growth Asian markets. Terms of the deal were not disclosed.

Wynnchurch Capital, Ltd. acquired the assets of Burtek, Inc., a manufacturer of ground-based mobile military equipment, such as radar systems, ground vehicles, and shelters, for nine million dollars. Wynnchurch originally offered $14 million two months ago, but reduced its offer after Burtek lost two contracts while the deal was still pending. The deal closed late Thursday after a U.S. District Court approved the sale.

Berger Group Holdings, Inc. Acquired Ranger International Services Group, Inc., a provider of aviation, logistics, and engineering services both domestically and internationally, for an undisclosed amount. The acquisition is expected to increase Berger’s capabilities in government operations contracting, operations and maintenance, airfield operations, and specialized technical services. Ranger International Services Group, Inc., will now do business under the Louis Berger Services, Inc. name.

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2011 Government Services M&A: Year in Review

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Looking back at 2011, the year resulted in a healthy level of government services activity.  During the year, 89 deals were announced.  Although the total deal activity fell 10% from the 99 deals announced in 2010, 2011 activity was well above 2009 levels of 77 deals.

Similar to 2010, hot areas in the M&A market continued to be cybersecurity, intelligence, ISR, and healthcare IT in 2011, but firms with mobility and cloud-oriented capabilities were also in high demand.  We saw buyers trying to align themselves with these strategic federal funding areas, amidst overall uncertainty in federal budgets.  Others buyers used acquisitions to gain access to certain high-priority customers, contract vehicles, and capabilities.

Strategic buyers announced the majority of the 2011 deals, representing 85% of the total.  The strategic buyers were mainly government services players, while defense and diversified strategic buyers dabbled in the market.  CACI, General Dynamics, KEYW, and Ultra Electronics were the most active buyers in 2011 with three transactions each, followed by nine other buyers with 2 transactions – CH2M Hill, ECS, Harris, IBM, ManTech, Raytheon, Salient Federal Solutions, Sotera Defense Solutions, and URS.

The activity shows that larger buyers with healthy balance sheets and plenty of cash, aren’t afraid to use it.  Two other trends worth noting were the influence of private equity who participated in ~35% of deals as the buyer or via an existing portfolio company, and increased willingness of larger players to acquire much smaller companies that are strategic in nature, but don’t immediately move the needle from a revenue basis.

Moving into 2012, there is significant momentum given the number of buyers that remain hungry for deals, but have very focused and disciplined M&A strategies as well.

Top 5 Largest 2011 Government Services Deals: (1)

Date (2)
 Buyer Target
4/1/2011 Providence Equity Partners LLC SRA International, Inc.
8/16/2011 General Dynamics Corp. Vangent, Inc.
11/7/2011 HMS Holdings Corp. HealthDataInsights, Inc.
10/19/2011 The Parsons Corporation Cobham Analytic Solutions (formerly SPARTA)
3/3/2011 Ares Management LLC Global Defense Technology & Systems, Inc. (now known as  Sotera Defense Solutions, Inc.)

(1) Based on enterprise value and publicly available information

(2) Announcement date

Written by Marc Marlin and Laura Hockensmith.

Industry Week in Review – January 27, 2012

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This week, Defense Secretary Leon Panetta held a news conference on defense budget cuts at the Pentagon. “The military will be smaller and leaner, but it will be agile, flexible, ready and technologically advanced; it will be cutting edge,” he told reporters. The U.S. Army will be reduced from 547,000 active-duty soldiers to 490,000, while the U.S. Marine Corps will be cut to 182,000. The Army also plans to remove at least eight brigade combat teams from its existing force structure. To reduce projected spending by $487 billion over the next 10 years, the Pentagon is eliminating what it describes as “poorly performing programs” and has identified an additional $60 billion in efficiencies. The first tranche of those spending cuts — $259 billion — will come over the next five years. These cuts do not take into consideration the possibility of sequestration which could initiate an additional $500 billion cut in January 2013 if Congress does not find an alternative way to reduce the country’s deficit. In 2013, the Pentagon is requesting $525 billion for its base budget, with an additional $88.4 billion for overseas contingency operations. Today’s five-year spending plan projects the Defense Department will need $567 billion for its base budget in 2017.

Big Movers

Textron Inc. (Up 17.3%) – Shares are up this week after the Company announced that it expects revenues of approximately $12.5 billion and earnings per share (“EPS”) from continuing operations to be in the range of $1.80 to $2.00. According to estimates, analysts were expecting the Company to report revenues of $11.9 million and EPS of $1.66 for fiscal 2012.

CIBER, Inc. (Up 13.6%) – Shares are up this week after the Company announced that it entered into a purchase agreement to sell its Federal Division and related assets to CRGT Inc.

Wesco Aircraft Holdings, Inc. (Up 9.3%) – Shares are up this week after the company announced results for its fiscal first quarter ended December 31, 2011. Revenue for the first fiscal quarter was $192.6 million, another quarterly record and an increase of 11.0% compared to $173.5 million in the prior year period. Wesco demonstrated strong international growth during the quarter with revenues in the Rest of World segment increasing by 29.7% compared to the prior year.

Relevant Transactions

CRGT, Inc. acquires Federal Division of CIBER, a provider of emerging technology solutions for the U.S. federal government for $40 million. CRGT is a portfolio company of Veritas Capital. The acquisition furthers CRTG’s strategic growth plan, positions the Company to better serve a broader spectrum of the Federal marketplace, and adds unique capabilities that are provided to a diverse customer base.

Sun Capital Partners to acquire Pacific Safety Products, Inc., a manufacturer of advanced armor and personal protection solutions. The acquisition allows Sun Capital Partners to enter into the person protection equipment market. Terms of the deal were not disclosed.

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Industry Week in Review – January 20, 2012

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This week, U.S. Defense Secretary Leon Panetta removed the F-35B short take-off-and-vertical-landing (“STOVL) from probation. The F-35B had been placed on probation last year after it was troubled by schedule delays and cost overruns. Though there may not be significant production ramp-ups, the F-35B variant has caught up with the Air Force and Navy versions of the aircraft.

The Pentagon released a list of 30 priority capabilities it needs in order to conduct war anywhere on the globe in the future. The document, officially called the Joint Operational Access Concept (JOAC), outlines a more flexible integration of space and cyberspace operations into the traditional air-sea-land battle space. The 30 capabilities listed in the document are focused on command and control, intelligence, fires, movement and maneuver, protection, protection, sustainment, information and engagement. The document calls for more integration between the services at lower levels

Big Movers

Finmeccanica SpA (Up 16.8%) – Shares rose this week as subsidiaries of the company received positive news. Avions de Transport Regional (turbo props) announced its highest order intake in its 30-year history of 157 planes last year; AgustaWestland (helicopters) signed a EUR90 million (roughly $117 million) deal to supply 5 helicopters and 14 upgrades to the polish defense Ministry; and DRS Technologies announced award of a one year $48.4 million option.

OSI Systems Inc. (Up 11.1%) – Shares rose this week after the company announced that its security division, Rapiscan Systems, was awarded a six year authorization to provide inspection services throughout Mexico. The company is the sole provider for this agreement valued at approximately $400 million.

NCI, Inc. (Down 30.7%) – Shares fell this week after the company reported poor FY2012 guidance. NCI’s current expected revenue range for FY2012 is $340 million – $360 million, compared to the company’s previous guidance for FY2011 of $556 million – $564 million.

Relevant Transactions

Symantec Corp. to acquire LiveOffice LLC, a provider of cloud-based email archiving, compliance, discovery, and continuity solutions for Fortune 500 companies in the U.S. for $115 million. The acquisition will allow Symantec to help organizations store, manage, and discover unstructured information including on-premise and cloud-based information sources such as email, instant message, social media and file sharing.

Lockheed Martin acquires Procerus Technologies, a company specializing in autopilot and other avionics for micro unmanned aerial systems. The acquisition expands Lockheed Martin’s capabilities into the small unmanned aerial vehicle market and helps the Company meet its customers’ strategic priorities. Terms of the deal were not disclosed.

Vishay Intertechnology to acquire HiRel Systems LLC, a provider of high reliability transformers, inductors, coils, and power conversion products for approximately $85 million. The acquisition further enhances Vishay’s inductor portfolio, particularly in the field of custom magnetics for medical, military, aerospace and aviation.

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Industry Week in Review – January 13, 2012

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This week, Defense Secretary Leon Panetta announced that the U.S. will withdraw two combat brigades from Europe. In a press release from the Department of Defense, Panetta declared two permanently stationed Army combat brigades will be replaced with rotational units in order to retain a strong presence in the region. Currently, 40 thousand troops and over 100 thousand dependents are stationed in Europe. The adaptation to rotational units is a cost saving plan with the overall goal of meeting the new 10-year defense strategy announced last week.

President Obama unveiled a plan to consolidate six government agencies into one, effectively eliminating the Commerce Department and saving up to $3 billion in the next decade. The six departments and agencies – Commerce’s core business and trade functions, the Small Business Administration, the Office of the U.S. Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation, and the U.S. Trade and Development Agency – would cut up to 2,000 jobs through attrition and consolidate into one department with the mission of job creation and economy expansion.

Big Movers

Textron (Up 10.8%) – Shares are up this week after Reuters reported the aircraft maker was considering options including spinning off pieces of its business.

KBR, Inc. (Up 10.7%) – Shares are up this week after the company settled a lawsuit brought by an injured convoy driver who claimed the company sent civilians into a battle zone in Iraq in 2004 knowing they would be attacked and possibly killed, according to a court filing. Reginald Cecil Lane, the driver, reached a “confidential settlement” with KBR and its former parent, Halliburton Co. Lane and the defendants asked the court to dismiss the lawsuit, according to the filing.

Relevant Transactions

ManTech International Corp. acquired Evolvent Technologies, Inc., a provider of healthcare information technology services to the federal government. The acquisition will enable ManTech to deliver information technology solutions through Evolvent’s existing relationships with DoD Health organizations, the Veterans Administration and the Department of Health and Human Services. Terms of the deal were not disclosed.

BE Aerospace Inc. to acquire UFC Aerospace Corp., a provider of aerospace logistics and supply chain management services for $400 million. The acquisition expands BE’s capability to offer supply chain solutions, value-added inventory logistics services and customized kitting solutions, as well as further expanding its consumables product offering.

Gridiron Capital, LLC acquired Nex-Tech Aerospace, a manufacturer of components, structures, and assemblies for fixed wing and rotary aircraft for the aerospace industry globally. The acquisition will allow both companies to better serve a diversified customer base through additional resources, increased high-speed machining capacity and an enhanced product and service offering. Terms of the deal were not disclosed.

ASI Government acquired Frontline Solutions Corporation, a provider of Systems Engineering and Technical Assistance (SETA) and mission support services to the Intelligence Community and Department of Defense. The acquisition will allow ASI to fortify its acquisition, program management, and strategy and organizational performance capabilities, while adding additional expertise to address the unique needs of the Intelligence Community. Terms of the deal were not disclosed.

RTI International Metals to acquire Remmele Engineering, a global supplier of advanced titanium mill products and fabricated components for $182.5 million. The acquisition is expected to provide entrance to new contract manufacturing end markets, such as the fast-growing medical device market.

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Industry Week in Review – January 6, 2012

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This week, President Obama unveiled a new plan for defense spending and strategy officially titled: Sustaining Global Leadership: Priorities for 21st Century Defense.  The plan outlines more than $487 billion in cuts and ultimately calls for a “leaner” and more “agile” military that uses smaller conventional ground forces amid cuts in federal spending.  With the shifting threat environment, the U.S. will no longer focus on the ability to fight two land wars at the same time, but rather strengthen new capabilities in special operations forces, C4ISR, unmanned systems, space and cybersecurity.  Furthermore, the military will shift its focus away from the Middle East and more towards the Asia Pacific region as growing threats and regional influence from China ensue.

The strategy also intends to reduce the U.S. nuclear stockpile, trim ground forces, and invest in weapons that can penetrate denied regions.  Though specific program cuts were not addressed, they are expected to be unveiled with the 2013 defense budget proposal, which the White House is scheduled to send to congress next month.

Big Movers

CPI Aerostructures Inc. (Up 9.7%) – Share rose this week after the company announced a purchase order from Boeing Defense, Space & Security valued at $12.7 million, as well as announcing that new business awards from all customers for 2011 was approximately $83.6 million compared to $61.7 million for all of 2010.

SPX Corporation (Up 8.5%) – Shares are up this week after the company announced a strategic joint venture with Shanghai Electric Group to supply products to the power sector in China. Shanghai Electric in one of China’s leading diversified heavy equipment manufacturers, with 2010 revenue of $9.5 billion. SPX aims to grow its presence in China through leveraging Shanghai Electric’s strong relationships among utilities, power plant builders, and engineering procurement companies.

Relevant Transactions

IBM Corporation to acquire Green Hat Software Limited, a provider of software quality and testing solutions for the cloud and other environments. The acquisition allows IBM to offer a complete software development and testing solution to its customers and capitalize on growing software testing markets. Terms of the deal were not disclosed.

Grey Mountain Partners acquires Global Security Glazing, a provider of security and architectural glazing solutions for correctional facilities, courthouses, and government security buildings. The acquisition demonstrates the heightened focus on safety and security for government buildings as well as the increasing demand for energy efficient glazing solutions. Terms of the deal were not disclosed.

Clearview Capital acquires Gregory C. Rigamer & Associates, Inc., a provider of consulting services and technology solutions for aviation, elections, energy, and public safety sectors. The acquisition will allow Clearview to provide consulting services for various growing industries. Terms of the deal were not disclosed.

Blue Wolf Capital Partners acquires Channel Technologies Group, a provider of piezo-electric ceramics, transducers and complex systems and services. The acquisition allows Blue Wolf Capital to take advantage of the increased requirements of the U.S. Government and other Channel Technologies customers. Terms of the deal were not disclosed.

Kratos Defense & Security Solutions acquires selected assets of an unnamed security and public safety system integration business, which designs, engineers, deploys, manages and maintains specialty security systems for the U.S. Government for $20 million. The acquisition is significant as Kratos essentially acquired one of its most formidable competitors. Furthermore, it will significantly expand its capabilities, qualifications, customer relationships, contract portfolio and geographic depth and breadth.

Electronic Consulting Services, Inc. (ECS) acquires Paradigm Technologies, Inc., a provider of product oriented management and technical services for federal government customers. The acquisition provides ECS with access to new customers, including the Missile Defense Agency, Navy PEO IWS 3.0, United States Marine Corps, and the US Marshal Service. Terms of the deal were not disclosed.

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Industry Week in Review – December 30, 2011

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This week, the U.S. State Department announced a $29.4 billion sale of Boeing-made F-15 fighter jets to Saudi Arabia under the Foreign Military Sales program. The agreement includes 84 new aircraft, the modernization of 70 existing aircraft, as well as missiles, spare parts, training, maintenance and logistics. White House spokesman Joshua Earnest said the sale reinforces “the strong and enduring relationship between the United States and Saudi Arabia, and demonstrates the U.S. commitment to a strong Saudi defense capability as a key component to regional security.” According to a recent report from the Congressional Research Service, Saudi Arabia has remained one of the top three purchasers of U.S. defense articles and services since 2003.

After more than two years of delays, Russia delivers its nuclear-powered attack submarine, Nerpa, to the Indian military under a 10-year lease program. The lease has angered India’s arch-rival Pakistan and resulted in retaliation threats. Nerpa will be the first nuclear-powered submarine to be operated by India in nearly two decades since its last Russian-borrowed vessel was decommissioned in 1991. Russia supplies 70 percent of India’s military hardware.

Big Movers

Magellan Aerospace Corp. (Up 10.8%) – Shares are up this week after the company announced an agreement to deliver aluminum and titanium components to GKN Aerospace. The contract extension is projected to generate revenues in excess of £200 million (~$310 million) through December 2017.

Computer Sciences Corporation (Down 10.5%) – Shares are down this week after the company warned it may write down a $1.5 billion contract with Britain’s National Health Service. Implied volatility has increased as the company narrows its search for an outsider to be its CEO.

Relevant Transactions

Raytheon acquired Henggeler Computer Consultants, a cybersecurity and software engineer firm. The acquisition expands Raytheon’s capabilities to serve the cybersecurity, enterprise architecture and systems engineering needs of customers in the intelligence community as well as in the Department of Defense. Terms of the deal were not disclosed.

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Industry Week in Review – December 23, 2011

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This week, House and Senate Appropriation Committees passed a $1 trillion-plus 2012 omnibus spending measure, including $531 billion for the Pentagon’s base budget. In total, the appropriations bill provides the Defense Department with $518 billion for its base budget, plus $13 billion for military construction, for a total of $531 billion. In addition, the bill includes $115 billion for Overseas Contingency Operations (OCO), $2.8 billion below the president’s request and $43 billion below last year. The end of U.S. military operations in Iraq contributed to the OCO drop.

Several notable programs were considered in the budget discussions. Lawmakers trimmed $346 million from the Pentagon’s $9.4 billion F-35 Joint Strike Fighter procurement and research-and-development budget request. Furthermore, funding was restored for the Joint Light Tactical Vehicle (JLTV) program. The bill allocates $244 million for a competitively-selected vehicle with a less complex design and a significantly accelerated time line. The bill makes few changes to Navy ship construction programs, as these programs tend to have enormous sunk costs.

Big Movers

The Shaw Group (Up 19.1%) – Shares are up this week after earnings per share of $0.69 for the quarter, beating consensus estimates of $0.44. Shares were also up after Pacific Contingency Services LLC, a joint venture between The Shaw Group and AECOM Technology Corporation, was awarded an Indefinite Delivery, Indefinite Quantity contract with 5 other primes worth $900 million. The contract will provide short-term facility support services with incidental construction in response to natural disasters, humanitarian efforts, full-range military actions and incumbent breaks in services at various locations throughout the world.

Recent Acquisitions

J.F. Lehman & Company acquired Doss Aviation, Inc., a provider of aviation support services primarily to the U.S. military and other government customers. The acquisition by the private equity firm will help Doss Aviation’s management achieve its long-term financial and strategic goals while leveraging Doss Aviation’s long-standing relationships with its customers, workforce, and reputation. Terms of the deal were not disclosed.

Linsalata Capital Partners-backed Whitecraft Group acquired Dell Manufacturing, a provider of value-added manufacturing of machined and fabricated parts for commercial and military aircraft engines. The acquisition increases Whitecraft’s manufacturing capabilities for existing and next generation jet engine platforms. Terms of the deal were not disclosed.

National Security Partners LLC acquired Summit Solutions, a provider of strategic planning, cybersecurity analysis and intelligence systems engineering services for the federal government. The acquisition complements the company’s May 2011 acquisition of cybersecurity policy, cyber analytics and mission support provider Point One LLC. Terms of the deal were not disclosed.

URS Corp. acquired CATI Training Systems, a designer and developer of virtual visual environments for flight simulators and a variety of other training systems for the Department of Defense and commercial customers. The acquisition enables the company to meet the evolving training requirements of federal customer by leveraging CATI’s technology and intellectual property. Terms of the deal were not disclosed.

Mercury Computer Systems to acquire KOR Electronics, Inc. and its wholly owned subsidiary Paragon Dynamics, Inc., providers of radio frequency simulation and jamming technology for modern Electronic Warfare (EW) applications and exploitation solutions for the Intelligence Community. The acquisition enhances Mercury’s sensor processing capabilities in the Electronic Warfare and Signals Intelligence (SIGINT) markets. Terms of the deal were not disclosed

Akamai Technologies, Inc. acquired Cotendo, a provider of an integrated suite of web and mobile acceleration s­­­­ervices for $268 million. The acquisition expands Akamai’s capabilities in cloud and mobile technologies.

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Industry Week in Review – December 16, 2011

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This week, U.S. Representative Buck McKeon, a California Republican and chairman of the House Armed Services Committee, proposed a new legislation that reduces the federal workforce in order to offset one year of sequestration. The bill calls for a ten percent reduction in the federal workforce, including civilian employees and bases across the country, over the next ten years through the process of attrition.

The reduction would generate $127 billion, of which $55 billion would pay for the first year of defense cut under sequestration, another $55 billion could cover the nondefense cuts required and the remaining $17 billion would be available for the deficit reduction. The plan gives the Pentagon more time to plan for sequestration cuts, which are scheduled to begin in January 2013.

After nearly nine years of war, U.S. forces formally finalized their mission in Iraq. Just over 4,000 U.S. soldiers are currently stationed in Iraq and scheduled to depart in the upcoming days. After tens of thousands of Iraqi deaths, over 4,500 U.S. deaths, and many more wounded, the U.S. made what Defense Secretary Leon Panetta called “one of the most complex logistical undertakings in U.S. military history” by pulling out of Iraq. As an end result, Iraq now has a parliament and regular elections, and is ruled by a Shiite-led government that replaced Saddam’s Sunni-dominated regime.

Relevant Transactions

ICF International to acquire Ironworks Consulting, LLC, a provider of technology and interactive solutions for $100 million. The acquisition expands ICF’s range of implementation service offerings and adds complementary capabilities. Ironworks is expected to have revenues of $57 million in FY2011, representing a deal multiple of 1.35x revenue.

L-3 Communications to acquire Kollmorgen Electro-Optical (KEO), a manufacturer of specialized equipment, including submarine photonics systems and periscopes, ship fire control systems, visual landing aids, ground electro-optical and sensor-cueing systems for $210 million. The acquisition expands and broadens L-3’s base in the EO/IR market, a key strategic growth area for the company. KEO is expected to have FY2012 sales of $160-170 million and EBITDA of $26-30 million, representing a deal multiple of up to 1.24x revenue and 7.0x EBITDA.

Hobson PLC acquired Intelliworks, Inc., a provider of relationship management and marketing software for higher education for $13 million. The acquisition will help Hobson deliver more value to the clients by blending the expertise and product knowledge of two proven industry leaders. Intelliworks is expected to have FY2011 revenues of $5 million, representing a deal multiple of 2.60x revenue.

Big Movers

GeoEye, Inc. (Up 23.6%) – Shares are up this week after the filing of a Form 4 with the SEC late Thursday which disclosed a notable insider buyer. Cerberus Capital Management founder Stephen Feinberg, GeoEye’s third-largest shareholder, bought 432,500 shares of GeoEye common stock.

Finmeccanica SpA (Down 15.3%) – Shares are down this week after the company’s chief executive of the Selex Sistemi Integrati unit, Marina Grossi, resigned in the wake of a long-running corruption probe.

Innovative Solutions Support, Inc. (Down 12.0%) – Shares are down this week after the company reported fourth-quarter earnings of $12,000 as compared to earnings of $1.3 million in the same period last year. Revenues were $6.5 million as compared to $7.5 million in the comparable quarter a year ago.

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Industry Week in Review – December 9, 2011

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This week, Iranian state television aired footage of an intact U.S. RQ-170 Sentinel UAV that allegedly crashed in Iranian territory. The UAV was part of a stealth reconnaissance mission to map suspected nuclear sites, according to foreign officials. Iranian officials claim to have brought down the aircraft by using cyberwarfare to hack the drone’s electronic system. The effects of the loss could be devastating as there is the potential for reverse engineering of the highly-classified technology. Teal Group analyst Richard Aboulafia claimed that the Iranians will undoubtedly share the technology with other nations, possibly the Russians or Chinese. However, he also noted that the manufacturing know-how to reproduce the aircraft cannot be duplicated from a captured machine.

Boeing and the National Labor Relations Board (NLRB) approved a four-year contract extension under which the union agreed to withdraw allegations that the company built a non-union plant in South Carolina to retaliate against past union strikes in Washington State. The NLRB dropped its high-profile lawsuit against Boeing after the company promised to build the new version of its 737 in Washington.

Big Movers

Smith & Wesson Holding Corporation (Up 28.5%) – Shares are up this week after the company raised its anticipated net sales from continuing operations for fiscal 2012 to between $385.0 million and $395.0 million, which would represent year-over-year growth from continuing operations of between 13% and 15%, up from the prior outlook of 11% to 13% growth. The company now anticipates total gross profit margin for fiscal 2012 to approach 30% and operating expenses to be between 21% and 22% of net sales.

Recent Acquisitions

SAP America to acquire SuccessFactors, Inc., a provider of cloud-based human capital management solutions, for $40 per share, or $3.4 billion. The acquisition will establish an advanced end-to-end offering of cloud and on-premise solutions for managing all relevant business processes. The transaction is expected to close 1Q2012.

Ultra Electronics Holdings, plc acquired Zu Industries, Inc. and Special Operations Technology, Inc. (“SOTECH”), for $77 million and $38 million, respectively. Zu Industries provides equipment for cyber surveillance systems and is expected to create significant synergies between Zu and Ultra’s Information & Power Systems division. SOTECH offers turnkey communications surveillance systems, integrating proprietary and commercial off-the-shelf data analytic tools. The acquisition supports Ultra’s strategy of growth in the transatlantic intelligence and security markets and broadens the Group’s access to the US Government sector

International Business Machines (“IBM”) to acquire DemandTec Inc., a provider of software that analyzes consumer buying patterns for retailers, for $13.20 per share, or an estimated $440 million. The acquisition will enhance IBM’s Smarter Commerce Initiatives. IBM paid roughly 5x 2011 LTM Revenue.

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