Industry Week in Review – October 30, 2015

/in /by

Aerospace & Defense Update

Northrop Grumman was awarded the Air Force’s Long Range Strike Bomber (“LRS-B”) contract, the largest military aircraft contract since the Joint Strike Fighter (“JSF”) award to Lockheed Martin in 2001. Northrop beat out the team of Boeing and Lockheed Martin to build a new fleet of aircraft to replace the Air Force’s B-52’s and B-1s.  The contract, which is expected to exceed $55 billion over the life of the program, is divided into a cost-plus contract and a fixed-price agreement, which will cover the first five low-rate initial production lots.  The first five lots will cover the production of 21 aircraft.  According to the House Armed services Committee Chairman Rep. William “Mac” Thornberry, Boeing and Lockheed will likely submit a bid protest, which could possibly delay the start of the program.

The Senate approved a bipartisan budget agreement that approves spending for domestic and defense programs, while raising the debt ceiling to fund the government into 2017. The budget deal would lift sequester spending caps and increase discretionary spending by ~$80 billion, which is split evenly among defense and civilian programs over the next two years.  This implies that there would be no fiscal standoffs and threats of government shutdown for more than a year.  The agreement was negotiated by former Speaker John Boehner, alongside the White House and three other congressional leaders.  The measure now moves to the White House, where President Obama has said he will sign it.

Government Technology Solutions Update

Department of Defense (“DoD”) Chief Information Officer (“CIO”), Terry Halvorsen, announced this week that the Department is planning to ramp-up DoD and private sector cyber exchanges in the coming months. As part of the initiative, private sector employees from up to 10 firms will be placed within Halvorsen’s CIO staff or military services’ CIO offices.   The exchange program is rooted in the notion that bringing commercial cyber security expertise into the Pentagon is essential to keeping pace with cyber threats and defense.  The goal of the program is threefold: (i) to improve the DoD’s understanding of economic drivers within the cyber security industry; (ii) to better cooperation between the DoD and private businesses; and (iii) to access and improve state-of-the-art cyber security technology.  Modular data center technology for data center consolidation, and software-defined networking have been identified as particular areas of interest.

In response to calls from the Obama administration to improve IT procurement, the Office of Federal Procurement Policy (“OFPP”) has launched the Digital Service Contracting Professional Training and Development Program. The program has brought together acquisition professionals from across the Federal government to better the procurement of agile technologies and programs.  As a result of traditional acquisition vehicles and procedures, Federal agencies have found it increasingly difficult to keep pace with technological innovation.  The program seeks to educate professionals on how to work within Federal acquisition procedures to procure the necessary IT technologies and programs in a quick and efficient manner.  OFPP expects this program to have a wide ranging impact, as the professionals within the program return to their home agencies as experts in IT and agile procurement, allowing for more agile procurement within these agencies going forward.

Big Movers

B / E Aerospace (Up 8.1%) – Shares were up this week in response to a $260 million award from a major international airline to outfit its new aircraft with first class suites

Northrop Grumman (Up 4.4%) – Shares were up this week in response to the LRS-B contract award

Transactions

The Blackstone Group to acquire MB Aerospace Holdings, an engine component manufacturer and repair business in the aerospace and defense markets in North America and Europe. The terms of the deal were not disclosed.

Nautic Partners acquired Aerostar Aerospace Manufacturing, Inc., a provider of machined components and assemblies to aerospace, defense, medical, and commercial customers. The terms of the deal were not disclosed.

CTS Corp. acquired Filter Sensing Technologies, a provider of radio frequency measurement and control sensors for passenger car, commercial vehicle, off-road, and other transportation applications. The terms of the deal were not disclosed.

Tempus Applied Solutions acquired Proflight Aviation Services, an operator of a Federal Aviation Administration approved flight school. The terms of the deal were not disclosed.

 Click here to review comparable company analysis.

Industry Week in Review – October 23, 2015

/in /by

Aerospace & Defense Update

President Barack Obama vetoed the National Defense Authorization Act, which authorized $612 billion in military spending over the next year. The Obama administration has criticized the bill for failing to resolve spending caps known as sequestration, and impeding on the President’s ability to close the U.S. detention facility in Guantanamo Bay, Cuba.  Additionally, the administration is not satisfied that the bill provides increased funding to the Overseas Contingency Operations, which is not subject to budget caps. The House is scheduled to vote on November 5th to potentially override the veto.   

United Technologies Corp, the maker of Pratt & Whitney jet engines, Otis elevators, and Carrier air-conditioning equipment, announced a $12 billion increase of its stock buyback plan.  The Company aims to buy back $16 billion worth of stock through 2017 in order to take advantage of “a big disconnect” between the Company’s value and its share price.  The accelerated buyback follows troubles in China, a static Europe, and the increasing cost of new engine production.  The Company also faced issues with a new logistics center in New Hampshire, leading to a 55 unit decline in engine deliveries in the third quarter to 109, compared to the previous year.  Chief Executive Greg Hayes says they have corrected the problems in the New Hampshire facility, and will have made up for the lost time on engine deliveries by the end of the year.  Mr. Hayes said the Company will remain open to acquisitions up to “a couple billion dollars.’”

Government Technology Solutions Update

The General Services Administration (“GSA”) issued the long-awaited Request for Proposal (“RFP”) for its Network Services 2020 (“NS2020”) Enterprise Infrastructure Solutions contract earlier this week.  The 15 year contract is part of GSA’s initiative to replace the Networx contract, and has a ceiling of $50 billion.  Efforts to craft the RFP have been underway for over two years, with the GSA attempting to balance needs of the Federal government and telecommunication industry.  NS2020 was originally scheduled to be released in July, but was pushed back due to an overwhelming response to the draft RFP.  The contract will provide agencies with a list of preapproved venders for telecommunication services, such as cloud services, web hosting services, and call centers.  Interested vendors will have until January 15, 2016 to submit proposals, with an award date expected towards the end of 2016.

The Office of Management and Budget (“OMB”) released its proposed overhaul of A-130, the rulebook for computer and information security within the Federal government, with a 30-day period for the public to comment.  The revision, ordered by Congress, was prompted by the outdated state of the rulebook, which was last updated in November 2000.  The proposed changes seek to centralize the policy updates of various agencies into a single cybersecurity and information governance manual.  The new policy would include changes made under the Federal IT Acquisition Reform Act, as agencies would need to create IT Portfolios that include estimates for necessary spending on technology.  In addition, the new A-130 would incorporate an increased emphasis on timely IT acquisitions, with awards needing to be granted within 180 days of solicitation and IT products delivered within 18 months.  As part of this timely approach, agencies would be required to constantly revaluate ongoing IT projects and their current IT systems to make sure their systems are up-to-date.  Further, as part of an increased focus on data, the new rulebook would mandate that public facing government data be in a usable, discoverable, and accessible format.

Big Movers

United Technologies (Up 8.2%) – Shares were up this week in response to an announcement of an increase in the Company’s stock buyback plan of $12 billion

Taser (Down 9.2%) – Shares were down this week after Motorola Solutions, Inc. announced its entry into the body camera segment with the Si500 and Si300 Video Speaker Microphones

Transactions

Whitcraft Group to acquire Berkshire Manufactured Products, Inc., a provider of precision engineered, critical jet engine components to the aerospace industry.  The terms of the deal were not disclosed.

Triumph Group, Inc. acquired Fairchild Controls Corporation, a provider of proprietary thermal management systems, auxiliary power generation systems, and related aftermarket spares and repairs.  The terms of the deal were not disclosed.

Imaginetics LLC to acquire Azmark Aero Systems LLC, a provider of precision machined parts, component sub-assemblies, line replaceable units, electro-mechanical sub-systems, and power systems.  The terms of the deal were not disclosed

E-Sicherheits-Holdings GmbH acquired ESG Elektroniksystem-und Logistik-GmbH, a provider of electronic and IT systems for the military, public authorities, and companies in Germany.  The terms of the deal were not disclosed.

Benchmark Electronics to acquire Secure Communication Systems, a provider of customized high-performance electronics, subsystems, and component solutions for military applications.  The deal is worth an estimated $230 million.

Summit Partners acquired Aeryon Labs, a provider of advanced micro unmanned aerial vehicle systems.  The deal is worth an estimated $46 million

Thales to acquire Vormetric, a developer of data protection technology for physical, virtual, and cloud infrastructures.  The deal is worth an estimated $440 million.

Dell to acquire EMC Corp, a provider of data-storage hardware and data-center software.  EMC shareholders will receive $24.05 a share in cash, with a tracking stock linked to a portion of EMC’s interest in VMware.  The deal is worth an estimated $67 billion.

Click here to review comparable company analysis.

 

Industry Week in Review – October 16, 2015

/in /by

Aerospace & Defense Update

Over 26,000 individuals attended this year’s annual Association of the United States Army (“AUSA”) conference in Washington D.C.  Every year a variety of attendees, from active-duty and retired military leaders to industry professionals worldwide, gather to listen to discussions on important military and national security subjects and view exhibits from defense companies showcasing their best capabilities.  In addition, speakers such as John McHugh, Secretary of the Army, and General Mark Milley, the new Army Chief of Staff, spoke on a range of topics, including the increased challenge of growing global threats coupled with declining budgets and future training and mission operations.  Moreover, discussion around the need for a viable land force, not just strong air and sea support, was also emphasized, preluding President Obama’s Thursday announcement to maintain the current U.S. troop count in Afghanistan through the end of his term.

Stock prices for both Boeing Co. and Airbus Group fell this week after Richard Anderson, Delta Air Lines Chief Executive Officer, stated during Delta’s 3Q15 earnings call his belief of a “huge bubble” for wide-body airplanes, increasing pressure on pricing and orders for new aircraft.  If accurate, Boeing’s 777 is vulnerable to an oversupply of wide-body jets in the marketplace, making it difficult for the current generation 777’s to create sales amid competition.  On the contrary, the latest Boeing 787 and Airbus A350 aircraft will be less affected due to their strong order backlog and operational savings.  Boeing Commercial Airplanes Vice President of Marketing, Randy Tinseth, acknowledged potential pricing pressures, but downplayed its significance.  However, he went on to state that the aircraft market for Delta will be favorable over the next one to three years as prices become lower.

Government Technology Solutions Update

The U.S. Army is creating a new governance process designed to prioritize cyber spending, as a growing number of cyber programs compete for finite dollars.  The newly formed Cyber Acquisition Requirements and Resourcing Group will be tasked with analyzing spending requests before the start of each Government Fiscal Year (“GFY”).  The main evaluation tool used will be a spin on the IT Box, a framework first launched by the Department or Defense (“DoD”) in 2008 to make sure programs meet cost, schedule, and performance goals.  Rather than funding identified purchases years in advance, the new strategy uses the IT Box framework to outline general objectives as part of the traditional budget process, but then directs funding to specific purchases closer to the actual point of execution.  Set to debut in GFY 2017, the Army plans to use the new governance process to develop military-specific hardware and software, repair newly-discovered network problems, and buy commercial-off-the-shelf technologies.

Northrop Grumman announced a restructuring of its business segments on Thursday.  Effective January 1, the Company plans to consolidate four segments into three distinct businesses.  Northrop expects to combine their Electronic Systems sector with portions of the Information Systems sector focused on new capabilities for military and intelligence customers.  The remaining IT services business will be combined with the Technology Services sector.  While Northrop’s operating margins have been 13.2% and 16.5% in their Aerospace Systems and Electronic Systems segments, respectively, the Information Systems and Technical Services segments had lower operating margins of 9.8% and 9.3%, respectively.  Northrop has not released revenue projections for the new business segments; however, the Information Systems business had $6.2 billion of revenue in 2014, which will now be split between Technical Services and Electronic Systems, divisions that posted $2.8 billion and $7.0 billion of revenue in 2014, respectively.  Management has emphasized that the rationale behind the restructuring is to more effectively meet customer needs and enhance innovation.

Big Movers

Airbus Group SE (Down 3.7%) – Shares were down this week in response to Delta Air Lines Chief Executive Officer, Richard Anderson, stating his belief of a “huge bubble” for wide-body airplanes during Delta’s 3Q15 earnings call.

Honeywell International (Down 4.1%) – Shares were down this week after management revised full year revenue outlook downwards after posting lower than expected revenue for 3Q15.

Transactions

L-3 Communications Holdings Inc. acquired ForceX, Inc., a provider of ISR mission manage software and geospatial application technology programs.  The terms of the deal were not disclosed. KippsDeSanto & Co. acted as the exclusive financial advisor to ForceX, Inc.

Ultra Electronics Holdings acquired Furnace Parts, LLC, a designer and manufacturer of specialty industrial thermocouples for temperature measurement applications.  The deal is worth an estimated $12.0 million. 

The Boeing Company acquired Peters Software GmbH, a provider of training content for early stage pilot training.  The terms of the deal were not disclosed.

Avon Rubber plc acquired the thermal imaging camera business of E2v Ltd., a designer and manufacturer of thermal imaging cameras for first responders and fire markets.  The deal is worth an estimated $5.4 million.

Click here to review comparable company analysis.

Industry Week in Review – October 9, 2015

/in /by

Aerospace & Defense Update

The U.S. Senate approved the 2016 defense policy bill on Wednesday, just six days after it was passed by the House of Representatives. The bill will now be presented to President Obama, who is expected to veto it due to its loophole that provides additional funding to defense via the Overseas Contingency Operations (“OCO”) account. The bill increases the OCO account by nearly $38 billion, creating authorization to spend money on a variety of programs; however, it bypasses the spending caps implemented by the Budget Control Act, a key concern to those who oppose the bill. President Obama has ten days to veto the bill, after which it will go back to Congress for a potential override. Despite already passing the Senate with over a two-thirds majority, Minority Leader Harry Reid said that Democrats will sustain President Obama’s veto. Both sides have until December 11th to reach a long term budget deal or pass another short term extension to avoid a government shutdown.

Global Jet Capital has agreed to purchase General Electric’s corporate jet unit for $2.5 billion, as it expects more companies and wealthy individuals to rent instead of buy plush planes. Having launched last year, Global Jet Capital provides leasing and lending solutions for large-cabin and long-range private jets.   Since its launch, it has closed several international transactions; however, this deal increases its exposure to the U.S. market, as it will have access to General Electric’s portfolio of 300 aircraft. The pending deal, one of the largest ever involving corporate aircraft, demonstrates Global Jet Capital’s confidence in the long-term growth prospects of the large-cabin and long-range private jet market.

Government Technology Solutions Update 

The General Services Administration’s (“GSA”) agile-focused contract vehicle, 18F, launched its first vertical, “Digital Economy Practice,” this week. The new vertical seeks to combine technical agile expertise with functional business knowledge to both afford the greater flexibility associated with agile methods while better addressing agency challenges. The new approach will allow 18F to not only focus on individual, pre-identified Information Technology (“IT”) projects, but also on helping agencies shape near-term digital strategies across their infrastructure. The vertical comes as agencies are searching for increased flexibility in IT acquisitions in order to better meet constituent needs while spending less in the midst of uncertain budget environments. As currently structured, the new vertical focuses on financial projects, with 18F citing the myRA retirement tool at the Treasury Department and the Tick Size Pilot initiative at the Securities and Exchange Commission (“SEC”) as possible projects suited for the vertical’s proficiencies.

Efforts to give U.S. Cyber Command (“CYBERCOM”) more purchasing power are gaining momentum as the Department of Defense (“DoD”) seeks to develop, enhance, and protect its technological infrastructure. In line with the DoD’s emphasis on strategic flexibility, the new initiative looks to give CYBERCOM special procurement authority outside of the DoD’s conventional weapons procurement process to facilitate faster IT acquisitions. Officials cited the unique nature of cyber procurements, which are cheaper and shorter in duration than typical weapons systems in order to keep pace with quickly evolving needs and challenges, as justification for the special authority. The initiative comes in the midst of a large CYBERCOM expansion, evidenced by the Command’s five-year $460 million contract announced in September, and its current effort to recruit over 6,000 cyber specialists in order to support operations worldwide.

Big Movers

Magellan Aerospace (Up 9.4%) – Shares were up this week in response to being awarded a follow on contract to provide nose and main landing gear components and kitted assemblies to Messier-Bugatti-Dowty for major commercial aircraft customers.

Com Dev International Ltd. (Up 20.2%) – Shares were up this week after it announced that it is in talks with potential acquirers.

Transactions

Achilles Technology Solutions to acquire Materials and Electrochemical Research Corporation, a provider of fuel cells, batteries, coatings, composites, fullerenes / nanotubes, metal alloys, and gas storage systems. The terms of the deal were not disclosed.

Kaman Aerospace Group to acquire Timken Alcor Aerospace Technologies, Inc., a producer and supplier of direct replacement parts for gas turbine engines and components in the aviation industry. The terms of the deal were not disclosed.

Global Jet Capital to acquire Corporate Aircraft Financing Portfolio of GE Capital Corporation, a provider of loans and leases as well as more than 300 fixed-wing aircraft. The deal is worth an estimated $2.5 billion.

Raytheon Company acquired Foreground Security, an operator of the Virtual Security Operations Center (“V-SOC”) and Automated Threat Intelligence Platform (“ATIP”), and a provider of advanced cyber monitoring, threat hunting, and professional services capabilities. Terms of the deal were not disclosed.

 Click here to review comparable company analysis.

Industry Week in Review – October 2, 2015

/in /by

Aerospace & Defense Update

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

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

Government Technology Solutions Update 

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

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

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

Big Movers

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

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

Transactions

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

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

 Click here to review comparable company analysis.

Industry Week in Review – September 24, 2015

/in /by

Industry Week in Review – September 24, 2015

Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

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

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

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

Click here to review comparable company analysis.

Industry Week in Review – September 18, 2015

/in /by

Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

Click here to review comparable company analysis.

Industry Week in Review – September 11, 2015

/in /by

Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

Click here to review comparable company analysis.

Industry Week in Review – September 4, 2015

/in /by

Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

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

Click here to review comparable company analysis.

Industry Week in Review – August 28, 2015

/in /by

Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

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

Click here to review comparable company analysis.