Industry Week in Review – April 3, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

Big Movers

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

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

Transactions

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

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

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

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

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

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

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

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

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Industry Week in Review – March 27, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

Transactions

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

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

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

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

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

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Industry Week in Review – March 20, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

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

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

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Industry Week in Review – March 13, 2015

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Aerospace & Defense Update

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

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

Government Technology Solutions Update

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

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

Big Movers

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

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

Transactions

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

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

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

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

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Industry Week in Review – March 6, 2015

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Aerospace & Defense Update

Boeing Chief Financial Officer, Greg Smith offered a strong rebuttal to investor concern over aircraft demand this past week at the J.P. Morgan Aviation, Transportation, & Industrials Conference.  He refuted the concern that lower oil prices would reduce demand for new, more fuel-efficient aircraft and asserted that, “there is really no correlation between oil and demand for airplanes.”  To highlight this statement, Smith noted that in 2004 when the 787 program was launched, oil prices were $40 per barrel, $10 per barrel lower than they are today.  Investment in an aircraft is long-term and must consider overall operating expenses instead of simply near-term oil prices.

The world’s largest exposition of rotorcraft, the Heli-Expo 2015 conference, took place this week in Orlando, Florida.  With attendance at an all-time high, Heli-Expo attracted 700 exhibiting companies from across the world and thousands of attendees.  Among the highlights from the conference were Airbus’s unveiling of its long-awaited H160 medium twin aircraft, designed to take on AgustaWestland’s AW139 in a critical segment of the market.  Sikorsky also grabbed some headlines, with four major contracts, including a $1.3 billion long-term Blackhawk deal with Turkey.

Government Technology Solutions Update

The Office of Management and Budget (“OMB”) recently released its annual Federal Information Security Management Act (“FISMA”) report to Congress.  The report showed 70,000 cybersecurity incidents in GFY2014, a 15% increase over GFY2013.  However, the OMB noted increased visibility by agencies into their cyber networks may account for the increase in reported incidents and does not necessarily mean agencies are at more risk than in prior years.  Additionally, the largest threat in GFY2014 was not cyber related.  Instead, a fourth of security threats reported involved the loss of information from improper handling of printed materials.

The General Services Administration (“GSA”) published a draft Request for Proposal (“RFP”) for its $50 billion, 15-year communications Enterprise Infrastructure Solutions (“EIS”) contract in the last week.  The GSA aims for this contract to be utilized on at least 30% of the addressable Federal communications market while the existing GSA Networx communications contract serves about 25%, or $1.5 billion, of the market annually.  The new EIS contract is expected to capture additional Federal business from markets such as the Intelligence Community (“IC”) and Defense Information Services Agency (“DISA”) that do not currently use GSA Networx.  The final RFP is expected to be released in July 2015 with awards at the end of GFY2016.

Big Movers

Ultra Electronics Holdings plc (Down 6.2%) – Shares were down this week after the Company reported its annual profit before tax fell over 50% from 2013 due to the cancellation of an IT service contract for with Oman Airport, currency movements, and lower defense spending.

Esterline Technologies Corporation (Down 9.4%) – Shares were down this week after the Company announced first fiscal quarter 2015 revenue of $446.3 million, down from $485.9 million during the same quarter last year.

Transactions

Blue Wolf Capital Partners, LLC acquired North American Rescue, LLC a provider of mission-critical, tactical medical / rescue solutions.  Terms of the deal were not disclosed.

Sierra Nevada Corporation acquired 328 Support Services GmbH a provider of assembly line, parts production, and maintenance facilities for jet and turboprop aircrafts.  Terms of the deal were not disclosed.

Lookingglass Cyber Solutions acquired CloudShield Technologies Inc., a provider of deep packet processing to see and manipulate network traffic and fight cyber assaults.  Terms of the deal were not disclosed.

SAIC agreed to acquire Scitor Corporation, a provider of systems engineering, management consulting, and information services to Intelligence Community customers in the U.S.  The deal is valued at an estimated $790 million, implying multiples of 12.7x adjusted LTM EBITDA or 10.6x adjusted net LTM EBITDA (excludes $132 million in tax benefits).

Arrow Electronics agreed to acquire immixGroup Inc., a value-added distributor of IT solutions to the Federal market.  Terms of the deal were not disclosed.

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Industry Week in Review – February 27, 2015

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Aerospace & Defense Update

On Monday, AAR Corp. announced that it has reached an agreement with TransDigm Group Incorporated to sell its Telair Cargo Group, comprised of Telair International, Telair U.S., and Nordisk Aviation Products.  The deal, which features a purchase price of $725 million in cash subject to adjustments, is expected to close in the quarter ending May 31, 2015.  When the transaction closes, AAR will report Telair Cargo Group as discontinued operations and is expected to recognize a pre-tax gain of $200 million.  Moreover, the Company indicated that it intends to sell its Precision Systems Manufacturing business, resulting in an impairment charge of close to $40 million.  AAR will now report its results in two new business segments.  The Company’s Aviation Services segment will consist of Aviation Supply Chain and Maintenance, Repair, and Overhaul, while its Expeditionary Services segment will include Airlift and Mobility.  Ultimately, the aforementioned transactions are expected to enhance AAR’s overall return profile, reshape its balance sheet, and return capital to shareholders, while refocusing the Company’s overall strategy.

The 12th biennial Australian International Air Show kicked off this week at the Avalon Airfield in Geelong, Australia.  The 2015 Avalon Air Show features approximately 600 companies from 27 countries, and is expected to attract over 200,000 attendees.  Companies will showcase their aerospace and defense products over the course of six days, with the first three restricted to industry experts and the remainder open to the general public.  Notably, Russian companies, which have had a presence at the show in previous years, will be absent from this year’s event.

Government Technology Solutions Update

After the House of Representatives unexpectedly rejected a three-week Department of Homeland Security (“DHS”) spending bill, Congress and the President approved a one week funding extension late Friday night.  The week long budget resolution averted a partial agency shutdown and bought time for the discussion of immigration provisions in Congress.  Without passage of a funding bill by next Friday at midnight, 30,000 DHS employees will be furloughed, while 200,000 essential employees will continue to report to work without pay.

The Central Intelligence Agency (“CIA”) is preparing to launch a private app store with an offering of a few hundred apps designed to meet the Intelligence Community’s (“IC”) needs.  The marketplace will supplement the functionality of the CIA’s recently completed private cloud environment.  IC employees will be able to sample solutions before purchasing third-party subscription based offerings or directly download open source and intra-agency apps.  The availability of apps will give IC analysts quicker access to solutions and services to allow agencies to stay competitive in a dynamic threat environment.

Big Movers

Bombardier, Inc. (Up 8.4%) – Shares were up this week after the Company completed its first flight of the CS300 jet and raised $868.0 million from an equity offering.

Boeing Company (Down 4.7%) – Shares were down this week after costs on the 787 Dreamliner and a possible downturn in jet demand caused Goldman Sachs to cut the stock’s rating to “sell.”

Transactions

Transdigm acquired AAR’s Telair Cargo Group which is comprised of Telair International, a manufacturer and on-board baggage and cargo handling systems for wide and narrow body aircrafts and Nordisk Aviation Products, a manufacturer of air cargo pallets and containers.  The deal is worth an estimated $725 million.

Blue Wolf acquired North American Rescue, a manufacturer of lifesaving medical and rescue solutions for war fighters, tactical law enforcement professionals, and more.  Terms of the deal were not disclosed.

iNovex Information Systems Inc. acquired the Mercury Intelligence Systems Inc., a subsidiary of Mercury Systems Inc. and provider of predictive analytics, cloud infrastructure, and analytical, software, and intelligence programs.  Terms of the deal were not disclosed.

Computer Sciences Corporation acquired Autonomic Resources, LLC, a provider of cloud computing infrastructure.  Terms of the deal were not disclosed.

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Industry Week in Review – February 20, 2015

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Aerospace & Defense Update

Earlier this week, the U.S. State Department announced that it will begin to allow the sale of armed unmanned aircraft systems (“UAS”) to foreign militaries.  The new policy comes as the Obama administration has embraced a strategy of training and equipping its international allies.  Although the new rules remain classified, it was announced that foreign governments’ requests for UAS will be considered on a case-by-case basis, with strict conditions that include safeguards against improper use through end-use monitoring.  Today, the U.S. has only exported armed UAS to the United Kingdom, but has provided unarmed systems to ally nations such as France and Italy. Ultimately, the move is expected to benefit U.S. defense firms as they continue to focus on capturing more of the global UAS market, estimated to be worth over $6 billion a year.

Meanwhile, the Department of Transportation’s Federal Aviation Administration (“FAA”) set forth an initial framework of proposed regulations pertaining to small UAS.  The FAA proposal lays out safety rules for the non-recreational use of UAS weighing less than 55 pounds.  Notably, the proposed regulation addresses time-of-day, visual-line-of-sight, height, and speed restrictions, as well as operator certification, aircraft registration and marking, and operational limits.  Specifically, the rules mandate that an operator must always maintain constant visual (unaided) contact with the aircraft, the aircraft may not exceed 500 feet in altitude or speeds of 100 mph, the aircraft may not fly over people, and the aircraft must stay out of airport flight paths and restricted airspace areas.  Moreover, the proposal requires an operator to be at least 17 years old, pass an aeronautical knowledge test, and obtain an FAA UAS operator certificate.  Historically, the FAA had struggled to develop a cohesive set of rules to govern UAS use.  However, the aforementioned proposal, which is considered relatively flexible amongst most industry advocates, represents a meaningful step towards promoting the safe integration and proliferation of UAS in the face of an industry characterized by policy that is attempting to play catch-up with technology.

Government Technology Solutions Update

The General Services Administration (“GSA”) and National Oceanic and Atmospheric Administration (“NOAA”) are preparing to release Request for Proposals (“RFP”) for large Federal IT contracts.  The GSA will be releasing both small business and full and open versions of Alliant 2, the second generation of a government-wide IT services contract.  The contract currently includes more than 100 vendors and facilitated more than $3.7 billion in IT spending in GFY2014.  Alliant 2 will look to standardize labor categories to institutionalize base line prices and will incorporate a more objective evaluation strategy than its predecessor.  Simultaneously, the NOAA is drafting an RFP for its $3.0 billion, five year Pro-TECH contract for professional and technical services in the realms of ocean, fisheries, weather, satellite technology, and enterprise / back office functions.  The domain driven contract seeks to create a more specialized and industrial base of contractors for the NOAA.  The Pro-TECH RFP is expected to be released in summer 2015.

The Office of Management and Budget (“OMB”) is encouraging agencies to only use the Invoice Processing Platform (“IPP”), for electronic transactions.  Developed by the Treasury Department, the IPP provides electronic purchase order, payment notification, electronic invoice, intra-governmental transaction, and automated workflow services.  This OMB initiative increases efficiency and provides better data to reduce improper payments.  It is part of a larger plan in GFY2015 to direct agencies towards the use of shared services.  A circulated draft memo within the OMB currently does not require the use of the IPP, but requires justification when agencies chose a different platform.

Big Movers

Boeing Co (Up 5.7%) – Shares were up this week after CEO Jim McNerney announced that the Company intends to keep returning roughly 80% of free cash flow to investors and will not cut production rates of wide-body 777 jetliners as it shifts to a new model later this decade.

Astronics Corp. (Up 16.8%) – Shares were up this week after the Company announced fourth quarter earnings per share of $0.81, compared to $0.29 in the prior year period and analysts’ estimates of $0.64.

Transactions

Michael Baker International acquired Pacific Municipal Consultants (“PMC”), a provider of planning, environmental, and municipal services.  Terms of the deal were not disclosed. 

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Industry Week in Review – February 13, 2015

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Aerospace & Defense Update

Bombardier Inc. underwent an executive reshuffle this week as Chief Executive and President, Pierre Beaudoin, grandson of company founder, Joseph-Armand Bombardier, stepped down from his position to make way for former CEO of United Technology Corporation’s aerospace division, Alain Bellemare to take over.  Mr. Beaudoin’s father, Laurent Beaudoin, will also retire from his position as Chairman after 50 years with the firm.  The Bombardier family’s exchange of control follows the halt in production of the Learjet project and increased concern over the Company’s ability to meet its debt covenants.  Bombardier is required to have more than $1 billion in liquidity at the end of each quarter and with the $1.4 billion charge associated with the suspension of the Learjet project and few new orders, the Company faces increasing uncertainty.  To address its cash flow, Bombardier has plans to issue an additional $600 million in equity and up to $1.5 billion in debt as well as suspend its dividend payments on both class A and class B shares, saving about $250 million.

On February 12th, the Senate approved Ash Carter as defense secretary with an overwhelming final tally of 93-5.  John McCain praised Dr. Carter and spoke to his experience improving the financial management of the defense department as well as his work eradicating sequestration.  Carter’s first day on the job will be February 17th and is expected to tap current Air Force Undersecretary Eric Fanning as chief of staff and U.S. Army Major General Ron Lewis as senior military adviser.

Government Technology Solutions Update

The General Services Administration (“GSA”) released a Request for Information (“RFI”) on February 11th to explore strategies to aid Federal agencies in the acquisition of cloud computing services.  GSA is researching the types of contract vehicles used to acquire cloud services as well as the barriers that impede the agencies from staying current on technology changes.  GSA is looking to improve its two cloud BPAs for Infrastructure-as-a-Service (“IaaS”) and Email-as-a-Service (“EaaS”) by including a need for professional services to help with planning and migration efforts.

The chief counterterrorism advisor to the President, Lisa Monaco, announced the launch of the Cyber Threat Intelligence Center (“CTIC”) on February 10th.  The CTIC, modeled after the National Counterterrorism Center, will lead coordinated cyber threat assessments of intelligence collected by authorities and ensure that threat information is shared rapidly with cyber centers throughout the government.   Monaco said that the CTIC will complement the Cyber Response Group (“CRG”), the interagency group that coordinates the Federal response to cyber threats, and enable it to work more effectively.

Big Movers

VSE Corporation (Up 7.0%) – Shares were up this week after the Company’s acquisition of four aerospace companies passed the Department of Justice’s Hart-Scott-Rodino requirements.

Transactions

Accenture Federal Services agreed to acquire Agilex Technologies, Inc., a provider of digital solutions for the U.S. Federal Government.  Terms of the deal were not disclosed.

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Industry Week in Review – February 5, 2015

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Aerospace & Defense Update

On Friday, Harris Corp. announced it has reached an agreement to acquire Exelis Inc. in a cash and stock transaction with a purchase price of $4.4 billion.  The deal, which is expected to close in June, features a $23.75 per share price tag, representing a 34% premium over the stock’s closing price on Thursday.  Under the terms of the deal, shareholders of Exelis will receive $16.63 in cash per share and approximately 10% of a share of Harris stock per share of Exelis stock.  Ultimately, Harris anticipates it will achieve cost synergies in the range of $100 – $120 million as a result of the acquisition.  Harris shareholders will own roughly 85% of the combined entity, which will generate over $8 billion in annual sales and 23,000 employees.  The announcement follows Exelis’ September spinoff of its government-services business, Vectrus Inc.

Airbus recently announced plans to acquire control of MBDA, a European missile manufacturer, after Finmeccanica put its stake in the company up for sale.  Currently, Airbus owns a 37.5% stake in MBDA and intends to take over Finmeccanica’s 25% stake.  The remaining 37.5% is held by BAE Systems, which would be forced to decide whether to accept becoming a minority shareholder, sell outright, or increase its ownership stake alongside Airbus.  In September, Airbus placed MBDA at the center of a non-aircraft portfolio focused on aeronautics and space.  As MBDA’s remaining shareholders, Airbus and BAE Systems have first right of refusal on the sale of Finmeccanica’s stake, which is worth an estimated $793 million.  Meanwhile, Finmeccanica’s CEO, Mauro Moretti, has indicated that the company also intends to divest roughly $224 million of assets in DRS Technologies by the end of 2015.  Finmeccanica plans to sell select divisions of DRS, a defense electronics company, while it seeks an industrial or financial partner for the U.S. unit.

Government Technology Solutions Update

On January 2nd, President Obama proposed a record $4 trillion GFY2016 budget, representing a 6.4% increase over estimated GFY2015 spending and an end to the possibility of sequestration.  The Department of Defense (“DoD”) would receive $37.3 billion, while civilian agencies would receive $49.1 billion, which respectively are $1.1 billion and $1.2 billion increases.  Additionally, $86.4 billion is to be allocated to the Federal IT budget.  The White House reported that agencies have saved $2.7 billion in unnecessary IT spending since 2012.  Efficiencies have been largely due to the consolidation of data centers, provisioned services such as cloud computing, and improved agency oversight.  The additional $2.3 billion budget increase proposed is to encourage focus on IT innovation particularly through digital services teams, additional oversight and accountability, improved procurement processes, and cyber readiness.

The Department of Commerce’s (“DOC”) Chief Information Officer (“CIO”) has reported that IT modernization efforts will be led by a four-pronged shared services approach.  The department will be examining the use of shared services in technology, finance, human resources, and acquisition.  Once opportunities are identified in each area, the DOC will likely look to create an internal organization to select and manage providers, facilitate service level agreements, and ensure the quality of shared services.  The initiative is still in its early stages, but the department is planning on issuing a request for information (“RFI”) toward the end of this year.

Big Movers

Exelis Inc. (Up 41.0%) – Shares were up this week after it was announced that the Company will be acquired by Harris Corp.

Harris Corp. (Up 13.5%) – Shares were up this week after the Company announced it has reached an agreement to acquire Exelis Inc.

FLIR Systems, Inc. (Up 12.5%) – Shares were up this week after the Company reported fourth quarter revenue of $434.4 million, an 8.5% increase year over year.

Transactions

ANSYS, Inc. acquired Newmerical Technologies International, a developer of in-flight icing simulation software and associated design, testing, and certification services.  Terms of the deal were not disclosed.

Babcock International Group plc acquired S MacNeillie & Sons, a provider of specialist converted armored vehicles.  Terms of the deal were not disclosed.

Harris Corp. to acquire Exelis Inc., a provider of C4ISR related products and solutions.  The deal is worth an estimated $4.4 billion.

HDT Global, Inc. acquired DHS Technologies LLC, a provider of rapidly deployable expeditionary equipment.  Terms of the deal were not disclosed.

HEICO’s Flight Support Group, Inc. acquired an 80.1% equity stake of Harter Industries, Inc., a provider of component and accessories maintenance, repair, overhaul, and engineering services for commercial and military aircraft. Terms of the deal were not disclosed.

Millstein & Co. acquired DLT Solutions, a provider of Government IT software and services such as cybersecurity and project management.  Terms of the deal were not disclosed.

SAE International Industry Technologies Consortia (“ITC”) acquired ADS Aerospace Technical Standards, an organization that supports aerospace and defense manufacturing with product design standards.  Terms of the deal were not disclosed.

Teledyne Technologies, Inc. acquired Bowtech Products Limited, a manufacturer and supplier of underwater harsh environment vision systems.  Terms of the deal were not disclosed.

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Industry Week in Review – January 30, 2015

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Aerospace & Defense Update

Earlier this week, General Dynamics reported strong 4Q14 results, largely attributable to the performance of its Gulfstream business planes.  The Company exceeded analysts’ consensus estimates of $2.13 earnings per share (“EPS”) with EPS of $2.19.  Cash flow, however, was lower than expected.  Gulfstream’s 4Q14 results, which mark the division’s best quarter from a revenue standpoint in three years, come on the tailwinds of a surge in demand for business-jet flights.  Specifically, the number of business-jet flights in the U.S. increased 4.5% in the twelve months ended November 2015.  Moreover, global orders and deliveries for business-jets have risen in each of the past four years following the sharp decline in demand that accompanied the financial crisis. As a result, General Dynamics has indicated that it plans to boost production output of its midsize Gulfstream jets in 2015.  The Company also introduced guidance for FY15, including revenue growth of approximately 1.5% year-over-year (“YoY”) and EPS of $8.05 – $8.10 compared to consensus estimates of $8.38.

Domingo Ureña-Raso, head of Military Aircraft at Airbus Defense and Space, has resigned from his position and will be replaced by Fernando Alonso, the current head of Airbus’ Flight and Integration Tests.  The shake-up in management comes in the wake of new delays on the troubled A400M military transport aircraft, a program that has been under Ureña-Raso’s oversight since 2009.  The A400M, which provides various military capabilities including aerial delivery, cargo handling systems, self-defense systems, and air-to-air refueling, has encountered a series of delays and cost overruns that nearly led to the cancellation of the program in 2010.  A total of 174 A400Ms have been ordered by Belgium, Britain, France, Germany, Luxembourg, Spain, and Turkey, with revised expectations that the first batch of the aircraft will be in service by the end of 2015.

Government Technology Solutions Update

On January 26th, the Department of Veterans Affairs (“VA”) announced the reorganization of the VA’s operating regions based off of a singular map with five standard regions.  This VA reorganization is anticipated to be the first of many spurred by VA Secretary Bob McDonald’s initiative to transform and rebuild trust in the agency.  When complete, the VA will have undergone its biggest transformation in history.  Administrations within the VA, such as the Veterans Health Administration and the Veterans Benefits Administration, currently work from nine separate maps with inconsistent regions.  This results in a fragmented VA with regards to both veteran perception and internal processes.  The reorganization into consistent departmental regions instead of disparate administration regions aims to create better internal coordination and support the ability to leverage shared services.  With this alignment in place, the next step for the VA will be focused around creating shared service back office functions.

As mobility comes into focus, the National Institute of Science and Technology (“NIST”) has developed a standardized testing process for mobile apps.  While mobility allows for an unprecedented level of connectivity, the quick development processes of apps can result in security weaknesses.  The new set of standards, known as the “app vetting process” is a step in mitigating these cybersecurity threats.  It evaluates system vulnerabilities and focuses on how data is secured and deployed.

Big Movers

Triumph Group, Inc. (Down 10.4%) – Shares were down this week after the Company reported a fiscal third quarter loss of $39.8 million.

Boeing Co. (Up 8.0%) – Shares were up this week after the Company announced fiscal fourth quarter profits of $1.47 billion, up from $1.23 billion in the same period last year.

Transactions

Huntington Ingalls Industries, Inc. acquired The Columbia Group, Inc.’s Engineering Solutions Division, a manufacturer of specialized manned and unmanned undersea vehicles for military customers.  Terms of the deal were not disclosed.

Parter Capital Group acquired Cassidian Belgium, an electronics production facility that manufactures primary and secondary radar components, power amplifiers, and transponders.  Terms of the deal were not disclosed.

CAE Inc. to acquire Bombardier Inc.’s Military Aviation Training Division, a provider of aviation training services to military pilots.  The deal is worth an estimated $15.9 million.

GCR Inc., a portfolio company of Clearview Capital, acquired Quest Information Systems Inc., a provider of software to help state and local governments manage voter information and registration, elections and campaign finance information. Terms of the deal were not disclosed.

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