Industry Week in Review – August 21, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

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

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

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

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Industry Week in Review – August 14, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

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

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

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

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Industry Week in Review – August 7, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

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

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

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

(1) The Center for Public Integrity

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Industry Week in Review – July 31, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

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

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

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

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Industry Week in Review – July 24, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

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

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

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Industry Week in Review – July 17, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

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

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Industry Week in Review – July 10, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

Big Movers

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

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

Transactions

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

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

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

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

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Industry Week in Review – July 3, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

Transactions

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

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

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

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

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Industry Week in Review – June 26, 2015

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Aerospace & Defense Update

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

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

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Industry Week in Review – June 19, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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