Industry Week in Review – January 23, 2015

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Aerospace & Defense Update

Space Exploration Technologies Corporation (“SpaceX”) raised $1 billion in a financing round with two investors, Google and Fidelity Investments.  Google took down $900 million of the financing in exchange for a 7.5% stake in SpaceX.  The financing was done at an implied valuation of $12 billion.  The cash is intended to be used for research and development of spacecraft and satellites.  The new investors join the Founders Fund which includes Draper Fisher Jurvetson, Valor Equity Partners, and Capricorn.

This week, Textron Aviation agreed to purchase assets of UTC’s Aerospace Systems unit in Wichita.  The unit designs and manufactures interior furnishing for Citation business jets and King Air turboprop airplanes.  The transaction follows the sudden departure of the UTC CEO, Louis Chenevert, and the CEO of the UTC Aerospace Systems division, Alain Bellemare.  These shifts in corporate leadership led to the appointment of Gregory Hayes, previously CFO, to replace Chenevert and the hiring of a new head of strategic planning.  The combination of these corporate structure changes may signal further portfolio restructuring through a range of strategic actions including mergers and acquisitions executive departures.

Government Technology Solutions Update

The Small Business Administration (“SBA”) has proposed a new rule which, if passed, would allow small companies to go after larger government contracts.  Currently, most set-aside small business contracts require the winning company to perform at least 51% of the work.  However, under the new rule, small business contractors would be permitted to team up to meet this goal.  This would open up new and larger value opportunities for small businesses to capture.  The SBA is also proposing a standardization of how the percentage of performed work is calculated and has created a pilot small business teaming environment to identify best practices, hurdles, and tools to facilitate partnerships.

Earlier this month, the Defense Information Systems Agency (“DISA”) loosened security restrictions on cloud based environments to allow the use of public cloud services in some cases.  DISA is now willing to accept some increased risk for the cloud migration of less mission critical data in order to capture increased agility and technological benefits.  Department of Defense (“DoD”) data will now be classified into three levels in order to determine security requirements.  In conjunction with the recent policy which gave individual DoD agencies cloud procurement power, this change in policy will speed up DoD cloud migration.

Big Movers

Bombardier, Inc. (Down 6.4%) – Shares were down this week after the Company announced it will temporarily lay off workers from its railcar plant in Quebec.

Transactions

L-3 Communications Holdings Inc. acquired MITEQ Inc., a manufacturer of specialized RF microwave products and solid-state SATCOM components.  The deal is worth an estimated $41 million.

Safariland, LLC acquired Atlantic Tactical, Inc., a distributor of life-saving equipment and uniforms for law enforcement and public safety officers.  Terms of the deal were not disclosed.

Sarcos LC acquired the Raytheon Sarcos unit of Raytheon Company, a developer of robotics, micro-electro-mechanical, and sensor technologies for use in health care, life sciences, telecommunications, robotics, and defense industries.  Terms of the deal were not disclosed.

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Industry Week in Review – January 16, 2015

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Aerospace & Defense Update

On Thursday, Bombardier Inc. announced that it intends to temporarily halt work on one of its flagship models, the Learjet 85 aircraft.  Delivery of Bombardier’s Learjet 85 was originally scheduled for the end of 2013, but subsequently delayed beyond 2014 given a number of manufacturing problems.  The decision to pause development of the aircraft, attributed to persistently weak demand in the private-jet market following the economic downturn, results in a pretax charge of roughly $1.4 billion and eliminates close to 1,000 jobs.  Moreover, the Company proceeded to cut its financial forecast for 2014, reducing expected cash flow from operations in the aerospace division to approximately $800 million, down from a previously estimated range of $1.2 billion to $1.6 billion.  Following the announcement, shares in Bombardier’s stock plummeted 26% to $2.57.  Ultimately, the Learjet decision represents a major blow to Bombardier’s aerospace division.  However, Chief Executive Pierre Beaudoin has indicated that the Company will recommence development should market conditions change.

In the wake of former Chief Executive Louis Chenevert’s departure from United Technologies Corp. (“UTC”), Alain Bellemare, President and CEO of the Company’s Propulsion and Aerospace Systems Division, has decided to step down at the end of the month.  Following his exit, UTC intends to eliminate the position, with the leaders of UTC Aerospace Systems and Pratt & Whitney instead reporting directly to CEO Greg Hayes.  The UTC Aerospace Systems division, which includes Hamilton Sundstrand and Goodrich Corp., will be led by two of Mr. Bellemare’s understudies, while Paul Adams will continue in his role as president of Pratt & Whitney.  Together, these businesses generated approximately 44% of the Company’s $63 billion in revenue during 2013.  According to UTC, Mr. Bellemare will still offer his services to the Company as a consultant.

Government Technology Solutions Update

On Tuesday, President Obama unveiled new cybersecurity measures to combat the growing number of cyber threats in the U.S.  The proposed legislation, if passed, will allow private sector companies to share limited personal information with government agencies, require private sector companies to inform customers of data hacks within 30 days, contain extra powers for law enforcement agencies to target hackers, and include separate protections for consumers and children.  The proposed bill was released in the wake of the Sony Pictures hack, and just one day after the Pentagon’s own Twitter account was compromised.

The U.S. House of Representatives approved a spending bill for the Department of Homeland Security (“DHS”) on Wednesday.  The $39.7 billion DHS appropriations bill provides the agency with funds for operations, while also addressing controversial immigration issues.  However, members of the Senate have expressed doubts that the bill will pass the upper chamber given the inclusion of amendments that defund a number of immigration programs.  The language of such amendments states that none of the funding may be allocated to support President Obama’s recently issued executive actions regarding deferred deportation of millions of illegal aliens.  Should both chambers of Congress fail to pass the legislation prior to February 27th, DHS funding will run out, effectively shutting down the agency.

Big Movers

Bombardier, Inc. (Down 26.9%) – Shares were down this week after the Company announced that it would halt work on the Learjet 85.

Precision Castparts Corporation (Down 13.0%) – Shares were down this week as sales to oil and gas customers has declined due to falling oil prices.

Transactions

Textron Inc. acquired Douglas Equipment Ltd., a subsidiary of Curtiss-Wright Corp. that manufactures aviation ground-support vehicles and runway friction-measuring devices.  Terms of the deal were not disclosed.

Onex Corporation to acquire Survitec Group Ltd., a provider of survival and safety equipment for marine, offshore, defense, and aviation industries.  The deal is worth an estimated $680 million.

Axle Holdings PTE Ltd. acquired Carat Security Group, a manufacturer of commercial armored vehicles for heads of state, cash-in-transit, off-road, and defense applications.  Terms of the deal were not disclosed.

PAE acquires USIS Global Security and Solutions Business, a provider of litigation support, biometric capture and enrollment, training, and other security related services.  Terms of the deal were not disclosed.

RLJ Equity Partners acquired Phase One Consulting Group, a provider of information technology-based consulting services and solutions to various U.S. federal civilian agencies.  Terms of the deal were not disclosed.

Symantec Corporation acquired Narus, Inc., a divestiture from Boeing that provides cybersecurity data analytics solutions, such as internet-filtering software for intelligence agencies.  Terms of the deal were not disclosed.

Westat acquired Fenestra, a provider of advanced technologies and information technology solutions, specifically electronic questionnaires, data collection, metadata systems, and web-based surveys, for complex research problems.  Terms of the deal were not disclosed.

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Industry Week in Review – January 9, 2015

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Aerospace & Defense Update

On Tuesday, Boeing reported the highest annual orders and deliveries of its commercial jetliners in the Company’s history.  With net new orders of 1,432 in 2014, Boeing topped its previous record of 1,355 orders made in 2007.  Boeing has enjoyed continuous growth in net orders since 2009 when the recession knocked net new orders down to 142 and cancellations peaked above 38%.  The current trend of large growth has resulted in a record order book of 5,789 jets; however, it has also narrowed focus to deliveries rather than gross new orders, as investor concern over cancellations rises.  Despite this concern, Boeing delivered a record 723 jets in 2014 and analysts forecast a rise to more than 760 deliveries in 2015 and as high as 900 deliveries by the end of the decade.  Furthermore, cancellations dropped to 118 in 2014, down from 176 in 2013.

The U.S. Air Force awarded its Space and Missile Systems Center’s Launch and Test Range Systems (“LTRS”) Integrated Support (“LISC”) opportunity, a potentially multi-billion-dollar contract, to the joint venture Range Generation Next (“RGNext”).  The joint venture consists of Raytheon and General Dynamics who will conduct the operation, maintenance, and sustainment of the launch ranges at Florida’s Space Coast and Vandenberg Air Force Base in California.  Work will further consist of organizational and depot-level maintenance and sustainment for safe and effective launch, testing, and tracking of Department of Defense, civil, commercial, and international space vehicles.  Currently, the contract is a single-award worth $1.5 billion with a one-year base period and nine one-year options under primarily fixed-price-incentive firm work.

Government Technology Solutions Update

The Department of Defense (“DoD”) is planning on setting up a 5-year, indefinite delivery, indefinite quantity (“IDIQ”) information technology (“IT”) shared services contract.  The contract would provide affordable support to the Defense Health Agency (“DHA”), the Military Health System, and the Department of Veterans Affairs (“VA”).  Task orders issued by the DHA seek to improve customer interaction and will cover service desk support, customer services, and system / application management for medical IT initiatives.  Additionally, the IDIQ may seek capabilities relating to priority medical IT initiatives, such as web-based environments, electronic health records, and inter-agency medical collaborations.

The U.S. Air Force is further securing its network with role-cased authentication as the Joint Information Environment (“JIE”) construct comes into fruition.  In addition to enhancing cybersecurity, this transition will allow the user to be more mobile, with globally recognized security access at any location.  The Air Force is in the process of operationalizing JIE by migrating portions of its common computing environment to the DoD MilCloud and carrying out several pilot programs, such as mobility and shared services for email and Microsoft SharePoint.

Big Movers

Sturm, Ruger & Company, Inc. (Up 8.8%) – Shares were up this week after the Company announced that it repurchased a total of 680,800 shares of common stock during the fourth quarter of 2014, at an average price per share of $35.22.

Transactions

Meggitt PLC acquired Precision Engine Controls Corporation, a supplier of actuation systems and fuel metering valves to manufacturers and small-frame gas turbines.  The deal is worth an estimated $44.2 million.

PCX Aerostructures, LLC acquired Cam-Tech Manufacturing, LP, a manufacturer of large structural assemblies for aerospace platforms serving the commercial and military markets.  Terms of the deal were not disclosed.

Arlington Capital Partners acquired United Flexible Group, a manufacturer and provider of support of performance critical flexible engineered solutions for the transfer of fluids and gases in extreme environments for the aerospace and defense, satellite, and other markets.  Terms of the deal were not disclosed.

Centene acquired LiveHealthier, a provider of technology and services designed to help large organizations foster positive health behaviors among their members.

Day & Zimmermann acquired the interests of co-owner SOC-SMG, Inc. to become the sole owner of SOC LLC, a provider of security, logistics, and life support services to the U.S. Government domestically and abroad.

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Industry Week in Review – January 2, 2015

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Aerospace & Defense Update

Earlier this week, Bombardier Inc. announced a deal with an unnamed customer for a firm order of 16 of its CSeries regional jets, along with options to purchase an additional eight jets.  The order, for the CRJ900 NextGen model, is worth approximately $1.12 billion at list price should the customer exercise its options.  Deliveries of the company’s new, bigger CSeries aircraft are expected to begin in the second-half of 2015. The NextGen model of the CRJ900 aircraft is upwards of 5.5% more fuel efficient than its predecessor, making it one of the most cost efficient jets in its class.  Including this agreement, the Company has secured firm orders for 1,183 CRJ Series jets, with 359 orders for the CRJ900 and CRJ900 NextGen aircraft.

Raytheon Technical Services was awarded a $270.5 million IDIQ with the U.S. Navy.  Under the contract, Raytheon will provide avionics support for the Navy’s V-22 tilt-rotor aircraft fleet.  Specifically, Raytheon’s technical services unit will cover V-22 avionics software acquisition, engineering, integration, and testing services.  Additionally, the Company will provide support to the classified and unclassified V-22 laboratories, configuration, and data management.  Raytheon Technical Services has provided technical and support services related to the V-22 since the inception of the joint-service, multi-mission aircraft.  Work under the contract is scheduled to be completed in December 2019.

Government Technology Solutions Update

The National Geospatial Intelligence Agency (“NGA”) is the first within the Intelligence Community to put a GitHub-developed app in Apple’s iTunes store and is expected to expand its apps into Google Play in the coming weeks.  The app, Anti-shipping Activity Messages (“ASAM”), is the first open-sourced app that was created directly through GitHub and takes advantage of innovation driven by the open-source provider’s six million users.  The NGA is developing additional apps across 16 different topics such as anti-piracy and geospatial information generation and provides successful open-source examples to the IC.

The Federal Bureau of Investigation (“FBI”) has announced plans to add cybersecurity special agents to investigations teams.  Cyber now permeates every aspect of the FBI’s Criminal, Cyber, Response, and Services Branch including counterterrorism, criminal investigations, and traditional cyber-attacks.  As such, the FBI is seeking cybersecurity capabilities to combat these advanced criminal threats and needs additional talent to do so.  In particular, it is looking for seasoned investigators that are knowledgeable in hacking, network intrusion, data breaches, and botnets.

Big Movers

VSE Corporation (Up 13.1%) – Shares were up this week after the Company announced that it will acquire the Prime Turbines, CT Aerospace, Kansas Aviation, and Air Parts & Supply Co. business units of Killick Aerospace Group.

Transactions

NCI to acquire Computech, a provider of agile and lean application software development and IT operations and maintenance.  The deal is worth $55.8 million and Computech generated $40.0 million in revenue in 2014.

VSE Corporation to acquire Killick Aerospace Group’s Prime Turbines, CT Aerospace, Kansas Aviation, and Air Parts & Supply Co. business units, providers of maintenance, repair, and overhaul services and parts supply for corporate and regional jet aircraft engines and engine accessories.  The deal is worth $184.0 million, exclusive of $45.0 million in earn-outs.

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Industry Week in Review – December 26, 2014

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Aerospace & Defense Update

The Pentagon approved another $3 billion in foreign arms sales to Iraq for General Dynamic’s M1A1 Abrams tanks and for AM General’s Humvee armored cars.  Pending congressional approval, the deal would bring the total U.S. weapons sales to Iraq to almost $15 billion.  Military arms deals with Iraq have grown significantly, with sales tripling in the past year.  In order for Congress to approve these deals, some lawmakers require reassurances that weapons will not fall into enemy hands and that Iraq will remain able to pay despite falling oil prices.  If approved, the increase in demand will help to keep AM General operating as it slows production rates and considers job cuts.

On December 24, Astronics Corporation announced that it will acquire Armstrong Aerospace for approximately $51 million.  Armstrong Aerospace is headquartered in Itasca, Illinois and provides engineering, design, and certification solutions for commercial aircraft, specializing in connectivity, in-flight entertainment, and electrical power systems.  The target’s 2014 sales are expected to be $27 million suggesting a 1.9x enterprise value to LTM revenue multiple.  The acquisition builds on Astronics’ range of capabilities, specifically in the connectivity and power niche for commercial airlines.  Armstrong’s experience in providing certifications for OEMs, integrators, and airlines made it a fit for Astronics, which adjusted its 2015 revenue to be between $680 million and $725 million.

Government Technology Solutions Update

A potential flaw within a Department of Veterans Affairs (“VA”) patient database may have exposed veterans’ information including name, address, date of birth, phone number, and VA patient identification number.  The database in question is managed by a contractor vendor who has assured the VA the information was only leaked to vendor and VA staff and the flaw has been corrected.  This breach is in line with current cybersecurity concerns of insider threats and the challenge of evaluating if a contractor systems is secure.  To mitigate issues such as these, the VA is spending an additional $60 million on cybersecurity efforts in GFY2015.

The General Services Administration (“GSA”) is planning on soliciting feedback from government customers and industry on an overhaul of its largest buying program, the Multiple Award Schedules (“MAS”).  The GSA is looking to reduce acquisition burdensome regulations and processes while decreasing price variability.  Already in process is “horizontal pricing,” which compares proposals to current contracts in addition to commercial market prices.  Additionally, the GSA is already planning on automating and expanding modifications, the review process, and eBuy opportunities.

Big Movers

Astronics Corporation (Up 10.8%) – Shares were up this week after the Company announced that it will acquire Armstrong Aerospace.

Transactions

Astronics Corporation to acquire Armstrong Aerospace, Inc., a provider of aviation engineering, designing, and manufacturing services.  The deal is worth an estimated $51 million.

Krauss-Maffei Wegmann GmbH to acquire Diehl Defence Land Systems GmbH, a manufacturer of different track types for tanks and armored vehicles.  Terms of the deal were not disclosed.

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Industry Week in Review – December 19, 2014

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Aerospace & Defense Update

The Aerospace Industries Association (“AIA”), a premier trade association representing major aerospace and defense companies, released it 2014 Year-End Review and Forecast earlier this week.  The report found that military aviation sales remained relatively flat at $87.3 billion in 2014.  Despite flat military aviation sales, defense exports experienced strong growth of roughly 9.2% while Department of Defense (“DoD”) space spending increased by 5.5% to $48.8 billion.  Aerospace industry profitability also saw an uptick in 2014, reaching an estimated $25.5 billion, up from $22.2 billion in 2013.  Furthermore, the AIA anticipates steady growth for the aerospace industry over the next year, with aerospace sales increasing 5.3% from $228 billion in 2014 to $240 billion in 2015.  This growth is largely attributable to commercial aircraft sales, which are forecasted to exceed $79.8 billion next year.  Despite numerous domestic and foreign challenges, the AIA also projects small gains in the defense aviation market to accompany the strong growth likely in civil aviation.

On Wednesday, the DoD’s Joint Program Office announced that the F-35 Joint Strike Fighter program has selected Japan and Australia to provide airframe and engine maintenance work in the northern and southern Pacific regions, respectively.  Australia will be the initial center of heavy engine maintenance work starting in 2018 with Japan assuming a role as an engine maintainer three to five years afterwards.  Notably, Australia is the only full F-35 partner in the Pacific, with plans to buy 100 of the aircraft.  Meanwhile, Japan is categorized as an F-35 foreign military sales customer scheduled to purchase 42 of the fighters.  The deals, which could be worth billions of dollars over the 40-year life of the program, follow last week’s announcement that maintenance in Europe will be handled by Italy and Turkey.

Government Technology Solutions Update

House chairmen of Veterans Affairs and Small Business committees have opened a Federal Acquisition Regulations case with the Office of Federal Procurement Policy (“OFPP”) to address agencies’ use of reverse auctions.  The case is a follow up to a December 2013 report from the Government Accountability Office (“GAO”) and recent bid protests decisions, which have shown concern over reverse auctions.  Although reverse auctions promote efficiency, when used improperly, they can cause decreased competition and result in agencies paying higher than necessary prices.  As a result, the GOA and House lawmakers are pushing for the OFPP to issue reverse auction guidance and best practices for agencies to follow.

The General Services Administration (“GSA”) is looking to standardized factors for agencies to consider when determining if a contractor can conform to security standards.  Specific concerns federal agencies are looking to mitigate include, but are not limited to, information security, financial and managerial controls, malicious software, and insider threats.  While the National Institute on Science and Technology and the Federal Risk and Authorization Management Program have issued guidance on the subject, private companies have no obligation to comply with these frameworks.  A Request for Information has been issued by the GSA to seek information on indicators for vendor IT security assessments and to close the disconnect between guidance and company action.

Big Movers

B/E Aerospace (Down 20.1%) – Shares were down this week after the Company completed its spinoff of aerospace logistics business KLX, Inc., distributing all outstanding shares of KLX stock at a ratio of one share for every two shares of B/E Aerospace stock.

Heico Corp. (Up 10.6%) – Shares were up this week after the Company announced fiscal year 2014 fourth quarter results.  Heico reported $0.48 earnings per share for the quarter, beating analysts’ estimates of $0.46 earnings per share.

Transactions

Wärtsilä Corporation to acquire L-3 Marine Systems International Business, a supplier of complete electrical systems, as well as integrated navigation, automation, communications, and power and propulsion systems for naval vessels.  The deal is worth an estimated $355.9 million.

Hexcel Corporation acquired Formax UK Limited, a manufacturer of carbon fiber and specialty composite reinforcement materials.  Terms of the deal were not disclosed.

Alcoa, Inc. to acquire TITAL GmbH, a manufacturer of titanium and aluminum investment casting products.  Terms of the deal were not disclosed.

COM DEV International Ltd. to acquire MESL Microwave Limited, a provider of components and subsystems for the radar, communication, defense, aerospace, space, security, medical, and transportation industries.  The deal is worth an estimated $20.1 million.

Cubic Corporation acquired DTECH LABS, a leading provider of modular networking and baseband communications equipment.  The deal is worth up to $114.5 million inclusive of a $15 million earnout.

Atos to acquire Xerox’s Information Technology Outsourcing (“ITO”) business, a provider of IT solutions within a global business services, technology, and document management company.  The deal is worth an estimated $1.1 billion.

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Industry Week in Review – December 12, 2014

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Aerospace & Defense Update

This week, both Boeing and Airbus announced cuts to monthly production rates of their respective wide-body jets.  The Companies have cited a decrease in demand for their long-range, wide-body jets as airlines have opted for smaller, twin-engine jetliners and the cargo market has proven less robust than expected.  In response, Airbus will decrease production of the A330 to 9 per month in 2015 with further cuts planned for 2016.  The A330 is currently an important contributor to profitability and decreases will negatively affect overall sales and profit.  Boeing concurrently reduced production rates of its 747-8 jetliner to 1.3 per month from 1.5 per month, the second iteration of cuts to the program.  Production rates for the smaller, 737 and A320 remain high and will help offset losses from the wide-body jet.

Lockheed Martin released information about its top-secret “Skunk Works” business.  The program develops advanced weapons systems for the Pentagon and has remained strictly confidential except for a few instances.  In an effort to protect its brand and win new orders, the Company dissented from this policy and published a brochure describing the 10 main focus items for “Skunk Works” going forward.  The business unit will focus on keeping costs low, working closely with the government, and building prototypes.  The move, provoked by fierce competition and pressure from smaller competitors like SpaceX, demonstrates the effects of the shrinking government budget and the importance of remaining nimble in the changing environment.  Last quarter, aeronautics margins fell by about 10% and last year, aeronautics sales fell 6%.  Despite lack-luster financials, Marillyn Hewson has plans to boost R&D by 5%, to the highest percentage of sales ever.  The combination of these trends increases pressure on the “Skunk Works” program and may lead to further public exchanges.

Government Technology Solutions Update

Late Thursday night, the House of Representatives and Senate both passed a two day Continuing Resolution (“CR”) to prevent a government shutdown.  While the House narrowly approved an appropriations bill 219-206, the two day extension provides additional time for the Senate to debate the bill.  The “cromnibus” (continuing resolution and omnibus) bill funds most of the government through October 2015, allows a 1.0% pay raise for military, blue-collar, and General Schedule employees, and maintains the $1.1 trillion level of spending from last year’s bipartisan deal.  Of the total, $492 billion is allocated for civilian agency operations, while $521 billion is for defense spending.  A full year of funding enables longer term budget planning within agencies.

However, as the exception to the bill, the Department of Homeland Security (“DHS”) will only be funded through February 27, 2015 under a CR.  This portion of the bill, drafted by Republican leaders, aims to push out funding so that immigration concerns are addressed next year when Republicans control both the House and the Senate.  The funding for DHS, along with riders that amend parts of the Doff-Frank Act and Federal Election Campaign Act, are currently the main points of debate between parties.

Big Movers

Airbus Group N.V. (Down 7.4%) – Shares were down this week after the Company announced production rate decreases for the A330 and that despite confirmed earnings targets, cash flow would be negative.

Comtech Telecommunications (Down 22.7%) – Shares were down this week after the Company announced first quarter of fiscal year 2015 results.  Comtech reported $76.4 million in revenue for the quarter, compared to $83.4 million for the same period last year.

Transactions

BAE Systems to acquire Esterline Corporation’s Eclipse Electronic Systems, Inc., a provider of intelligence, surveillance, and reconnaissance products and services.  The deal is worth an estimated $28 million.

Burtek Group acquired Process Fab, Inc., a provider of flight hardware, ground support equipment, and tooling to the spaceflight, aerospace, and defense markets.  Terms of the deal were not disclosed.

Periscope Holdings, a portfolio company of Parthenon Capital Partners, acquired BidSync, a provider of cloud-based procurement and bid notification solutions for the public sector.  Terms of the deal were not disclosed.

Preferred Systems Solutions (“PSS”) acquired Government Contract Solutions (“GCS”), a provider of program management, acquisition lifecycle management, and systems engineering and integration to federal customers such as the Intelligence Community and the Department of Homeland Security.  Terms of the deal were not disclosed.

Vistronix acquired Agency Consulting Group (“ACG”), a provider of information technology support services to intelligence clients. Terms of the deal were not disclosed.

Vistronix acquired Objective Solutions Inc. (“OSI”), a provider of big data, cyber, collection, and advanced analytics to the Intelligence Community. Terms of the deal were not disclosed.

Vistronix acquired ExaTech Solutions Inc., a provider of software, systems and network engineering support to the Intelligence Community. Terms of the deal were not disclosed.

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Industry Week in Review – December 5, 2014

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Aerospace & Defense Update

In the wake of Chuck Hagel’s resignation, President Obama formally nominated Ashton Carter as his candidate for Secretary of Defense early next year, pending Senate confirmation.  Carter served as the Undersecretary of Defense for acquisition, technology, and logistics from 2009 to 2011 before being appointed Deputy Defense Secretary, where he served as the Pentagon’s number 2 civilian officer until December 2013.  In 2010, Carter helped lead the Pentagon’s Better Buying Power program, one of the largest acquisition reform packages in recent years, and is expected to continue advocating for innovative acquisition practices.  Additionally, Carter will presumably push for an increased top line budget above the spending caps imposed by sequestration, a broadened scope of technological priorities, and a pragmatic approach to major defense acquisition initiatives, including resetting the F35 Joint Strike Fighter program.

House and Senate negotiators reached agreement on a compromise 2015 National Defense Authorization Act (“NDAA”) earlier this week.  The legislation provides $519 billion to the defense spending base budget and an additional $63.7 billion to the Overseas Contingency Operations (“OCO”) account.  Notably, the compromise language prevents the U.S. Air Force from retiring its A-10 Warthog aircraft fleet, instead allocating $350 million to fund operations and maintenance efforts for the aircraft.  Similarly, the measure forbids any funds from being used to “transfer, divest, or prepare to divest any KC-10 aircraft” in fiscal 2015, another aircraft that the Air Force has previously expressed intentions to retire.  Furthermore, the OCO section of the agreement includes funding requested by the White House for operations against the Islamic State of Iraq and the Levant (“ISIL”).  Specifically, it provides $3.4 billion to U.S. operations against ISIL and an additional $1.6 billion to train and equip Iraqi forces.  Moreover, the compromise fully funded the Obama administration’s request for special operations forces, in addition to authorizing a new $1.3 billion Counter Terrorism Partnership Fund.  Congress is expected to begin its deliberations on the measure this week.

Government Technology Solutions Update

Congress is working towards passing a funding bill or continuing resolution by December 12th to avoid the possibility of a government shutdown.  Currently under consideration is an appropriations bill that would fund all government agencies, except the Department of Homeland Security (“DHS”), through the end of GFY2015.  DHS would likely only be funded through March or April 2015.  If the bill were to pass, DHS would continue to operate under the uncertainty of a continuing resolution, while all other government agencies would have more secure funding.

The Office of Federal Procurement Policy (“OFPP”) administrator, Anne Rung, released a memo this week detailing a three-pronged acquisition improvement plan.  The plan road maps an increasingly data-driven procurement system based on category management, acquisition workforce talent development, and stronger vendor relationships.  Additionally, the OFPP plans to clean up outdated or burdensome regulations, and is committed to receiving input from all stakeholders in order to do so.

Big Movers

Leidos Holdings, Inc. (Up 7.4%) – Shares were up this week after the Company announced third quarter 2014 results.  Leidos reported operating income of $72 million, compared to an operating loss of $5 million for the same period last year.

Rolls Royce (Up 6.5%) – Shares were up this week after the Company received Nuclear Regulatory Commission certification to use its Spinline modular digital instrumentation and control platform in U.S. nuclear power plants.

Transactions

AIP Aerospace acquired AREVA TA’s Aerospace Integration Business, a provider of turnkey solutions for the design, planning, and implementation of assembly lines for major pieces of aerospace equipment.  Terms of the deal were not disclosed.

Littlejohn Capital & Co. acquired ArmorWorks, Inc., a provider of armor, survivability, and security products to military and enforcement agencies.  Terms of the deal were not disclosed.

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Industry Week in Review – November 28, 2014

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Aerospace & Defense Update

This week saw two transformational leadership announcements.  Defense Secretary, Chuck Hagel, resigned from office Monday afternoon in a move prompted by weeks of disagreement with the current Administration.  The recipient of two purple hearts reportedly found fault with what he saw as indecisiveness by the White House Security Council.  The transition comes as the military advance of the Islamic extremists in Iraq and Syria has prompted fundamental reassessment of U.S. defense policy.  Hagel will remain in office until his successor takes office which will likely not occur until early 2015.  Initial replacement candidates included Michele Flournoy, a former undersecretary of defense, and Senator Jack Reed of Rhode Island; however, both have declined in order to fulfill other duties.  This has left Ashton Carter, a former deputy defense secretary as the leading candidate for succession.

Secondly, United Technologies Corporation CEO, Louis Chenevert, suddenly stepped down in an act which stunned investors.  Although the move was not attributed to financial performance, it cannot be fully ruled out as shares have dropped 3.1% this year.  During his six year tenure, Chenevert led the company through its acquisition of Goodrich Corporation and reshaped its building-services business lines by combining Otis elevators, Carrier climate-control, and its fire and security divisions.  The 25-year veteran of UTC will walk away with about $172 million in vesting options, performance-based restricted-stock awards, and a pension.  The Board of Directors chose current CFO, Gregory Hayes to succeed Chenevert.  The bold move suggests that the Company will undergo strategic assessment and change in the future with a growing likelihood that focus will shift towards the building services side.

Government Technology Solutions Update

The General Services Administration (“GSA”) is preparing to launch the second generation of the Veterans Technology Services (“VETS”) contract.  VETS is used by Federal agencies to purchase a wide range of IT products and services from service-disabled, veteran-owned small businesses and makes it easier for agencies to meet socio-economic category goals.  The GSA is currently involving VETS stakeholders in the development of the follow-on vehicle to align VETS II with agency IT needs.

The Department of Veteran Affairs (“VA”) released a request for information (“RFI”) for a commercial off-the-shelf (“COTS”) patient scheduling system.  The COTS solution would replace the current system which has been partially blamed for long physician wait times.  Additionally, it will integrate with the existing Veterans Health Information Systems and Technology Architecture (“VistA”) to better coordinate Veteran care.

Big Movers

Cubic Corporation (Up 11.4%) – Shares were up this week after the Company announced fourth quarter and full year 2014 earnings.  Cubic reported $1.22 earnings per share, beating estimates of $.94, and record fourth quarter sales of $396.4 million.

AeroVironment (Down 6.4%) – Shares were down this week after the Company reported a double-digit decline in income for the year and inferior gross margins.

Transactions

ATLAS North America LLC acquired assets of Marine Sonic Technology Ltd., a developer and manufacturer of ultra-high resolution side scan sonar systems.  Terms of the deal were not disclosed.

U.S. private equity firm to acquire G4S Government Solutions, Inc., to be rebranded as Centerra Group, LLC, a provider of protective services to the Federal Government.  The deal is worth an estimated $135 million.

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Industry Week in Review – November 21, 2014

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Aerospace & Defense Update

The Department of Defense (“DoD”) announced Monday that Sikorsky Aircraft Corp. was awarded contract modifications with the U.S. Army and Navy worth upwards of $1.3 billion in fiscal year 2015.  The Army’s contract modification, scheduled to be complete in June, is for $779.1 million and includes 41 UH-60M Black Hawk helicopters, 24 HH-60M medical evaluation helicopters, and associated support tasks.  Meanwhile, the Navy’s $535.2 million award is for eight MH-60S and 29 MH-60R Seahawk helicopters, as well as sustainment engineering, program management, systems engineering, and other integrated logistics support functions.  Earlier this year, a Navy budget proposal suggested that the multi-year Sikorsky deal be cancelled.  However, the recent contract modification awards indicate that Sikorsky deliveries under the initial $8.5 billion, 653 aircraft deal will continue to run through 2017.

Army Chief of Staff General Ray Odierno addressed the Pentagon’s current defense strategy at the Defense One Summit this past Wednesday.  Specifically, he expressed his concern regarding declining active duty troop numbers in addition to the challenges posed should Congress keep the 2011 Budget Control Act in place.  In 2012, Army officials adopted a plan to reduce the number of active duty troops from 490,000 to 450,000, with sequestration budget cuts possibly dropping that number as low as 420,000.  However, Odierno suggests that the assumptions made in 2012 when determining future troop levels are no longer applicable.  Notably, the Army assumed U.S. troops would no longer be in Iraq and U.S. military involvement in Europe would take a step back.  Alternatively, the U.S. currently has 1,500 soldiers in Iraq, with an additional 1,600 expected within the next 45 days.  Furthermore, the fight against the Islamic State of Iraq and the Levant (“ISIL”), Russia’s aggression towards Europe and the Ukraine, and the Ebola outbreak in Africa all continue to stretch U.S. military resources thin.  Odierno acknowledged that he intends to address these concerns with Congress in an effort to enhance military readiness and reduce risks associated with emerging global threats.

Government Technology Solutions Update

The Department of Veterans Affairs (“VA”) has allocated an additional $60 million to its cybersecurity efforts, putting its total cybersecurity budget at $220 million per year.  The redirection of funds is in response to the Government Accountability Office (“GOA”) report released this week which revealed that the VA failed its cybersecurity audit for the 16th consecutive year.  The infusion of money will be used to address the consistent problems of access control, configuration management, security management, and other vulnerabilities identified by the GOA’s report.

The National Geospatial Intelligence Agency (“NGA”) is the first in the Intelligence Community (“IC”) to directly seek open source through GitHub, a commercial code management platform for both open source and private projects.  The NGA is using open source solutions to drive innovation and capitalize on talent in both public and private sectors.  This approach poses higher security and cyber security concerns; however, the NGA has set up risk management processes and believes that the innovation it receives is worth the risk.

Big Movers

Wesco Aircraft Holdings, Inc. (Down 18.4%) – Shares were down this week after the Company announced fourth quarter earnings.  Wesco reported a 9.1% decline in quarterly earnings over the same period last year and earnings per share of $0.30, missing analysts’ estimates of $0.37 by 18.9%.

Avon Rubber plc (Up 10.2%) – Shares were up this week after the Company reported a rise in profits for the year, with adjusted pre-tax profits up from $21.5 million to $26.0 million.

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