Industry Week in Review – April 1, 2011
Shares rose slightly higher for the week as a stronger than expected jobs report released by the government pushed the Dow and S&P 500 up 0.5% and NASDAQ gained 0.3%. Over the past week, NATO has taken full control of the Libya mission from the U.S., with NATO Secretary General Anders Fogh Rasmussen stating the alliance will be able to declare “mission accomplished” when “the civilian population in Libya is not under threat any longer.” The U.S. had been eager to hand over control of the operations, given the decade of combat in Afghanistan and fragile situation in Iraq, as well as the fact that U.S. military strikes have already cost approximately $550 million with an additional $40 million anticipated to be spent per month moving forward. Up to this point, U.S. troops have fired at least 192 of the 199 Tomahawk cruise missiles launched against Libyan air defenses and command centers, launched 455 of the 602 laser-guided weapons used by the coalition, and resulted in the U.S. Air Force spending more than $4 million dollars per day on operations. Citing events in Libya as an example for the importance of defense spending, 29 Republican members of the U.S. House of Representatives’ Armed Services Committee sent a signed letter to the House Budget Committee to increase the $553 billion base defense budget for 2012 by $7 billion. Another, yet unrelated, concern resulting from the operations in Libya is that missiles of the SA-7 Strela type, shoulder-launched surface-to-air missiles, could find their way into the hands of terrorists as rebel fighters and Libyan government troops have begun to open arm depots in the country.
Notes on some big movers:
- Northrop Grumman Corporation (Down 8.0%): Shares fell for the week as the Company completed the spin-off of Huntington Ingalls Industries, which has been trading at approximately 6x EBITDA since hitting the market
- AeroVironment, Inc. (Down 10.8%): Shares fell for the week as the Company’s first Global Observer unmanned aircraft prototype crashed at Edwards Air Force Base, marking an enormous setback for the Company; The Global Observer is an innovative aircraft because it flies at very high altitudes for a week at a time using hydrogen fuel rather than more conventional power sources, but the crash potentially opens the door for competitors, such as Boeing, as they will have more time to perfect their products
- Bombardier, Inc. (Up 12.4%): Shares rose for the week as the Company announced on Thursday that it has received an order from the Government of South Australia, for the supply and maintenance of 22 Bombardier 25kV 3 car electric trains, worth approximately $278 million; The vehicles will be built at Bombardier’s Dandenong (Victoria) and Maryborough (Queensland) manufacturing facilities, with revenue generation beginning in 2013
- Vector Aerospace Corporation (Up 14.7%): Shares rose for the week as the Company announced on Tuesday that it has agreed to be acquired by Eurocopter Holding, a subsidiary of EADS (see additional details below)
- SRA International Inc. (Up 10.5%): Shares rose for the week as the Company announced on Friday that it has agreed to be acquired and taken private by Providence Equity Partners (see additional details below)
Notes on some relevant transactions:
Goodrich Corporation announced on Friday that it has signed an agreement with SSCP Aero Holdings S.C.A., a company backed by the European private equity firm Stirling Square Capital Partners, to acquire Microtecnica S.r.l., a leading provider of flight control actuation systems for helicopter, regional, and business aircraft, missile actuation, and aircraft thermal and environmental control systems. Marshall Larsen, Goodrich Chairman, President, and CEO said, “This acquisition supports our business model and fits with our strategy by increasing Goodrich’s exposure to three growth markets; commercial and military helicopters, commercial regional, business and general aviation aircraft and missile actuation. Microtecnica’s manufacturing capacity and engineering resources are an excellent complement to Goodrich’s flight control actuation business as well as providing support to the environmental and thermal controls market as a capable supplier of components and sub-systems.” The transaction is expected to close during 2Q11 with consideration for the acquisition totaling approximately $462 million Microtecnica expects revenue and adjusted EBITDA for the full-year 2011 to be approximately $220 million (2.10x) and $40.2 million (11.5x), respectively.
KeyW Corporation announced on Friday that it has acquired JKA Technologies, a provider of a broad range of mission critical cyber superiority solutions and support to the Intelligence Community including network engineering, information assurance, and systems and software engineering. JKA is KEYW’s tenth acquisition since beginning operations in August 2008, and according to Leonard Moodispaw, CEO and President of KEYW, “JKA has a strong reputation for performance and mission focus with one of our largest IC customers; they bring both breadth and depth of capabilities and customer relationships as they join KEYW.” Under the terms of the agreement, KEYW purchased all of the outstanding capital stock of JKA for $10.5 million in cash and $2.5 million in shares of KEYW common stock, with JKA generating unaudited 2010 revenue of $12.9 million (1.01x).
SAIC announced on Friday that it has reached an agreement to sell to Wipro Ltd. and certain SAIC operations focused on providing specialized IT services to oil and gas companies. Walt Havenstein, SAIC CEO, stated “To grow our oil and gas IT services business would have required investments in areas outside our strategic focus, including increasing our off-shore capabilities… The sale of these operations will enable SAIC to better focus on our strategic growth areas, including market segments in the energy sector, such as smart grid, renewable energy implementation, and energy efficiency, where we have successfully built our business through organic growth and acquisitions.” Financial terms of the transaction were not disclosed and completion of the sale is subject to customary closing conditions and regulatory approvals.
SRA International announced on Friday that it has entered into a definitive merger agreement to be acquired by an affiliate of Providence Equity Partners in an all-cash transaction for $31.25 per share in cash, for a total value of approximately $1.88 billion. Julie Richardson, a Managing Director at Providence, said “The government information services market is a highly attractive area of investment for Providence, and SRA is a leading innovator within the national security, civil government, global health, and intelligence sectors.” Following the completion of the transaction, SRA will become a privately held company, remain headquartered in Fairfax, Va., and continue to be led by its existing senior management team. SRA achieved LTM revenue and EBITDA as of December 31, 2010 of $1.70 billion (1.11x) and $151 million (12.5x), respectively, and at the request of Providence Equity, Dr. Volgenau, Founder and Chairman of SRA, will roll over a portion of his existing SRA equity interest and continue to be a significant shareholder in the privately held company. The transaction will be financed through a combination of equity and debt, with the debt financing provided by Bank of America Merrill Lynch and Citigroup Global Markets Inc. Houlihan Lokey acted as financial advisor and Kirkland & Ellis acted as legal advisor to the Special Committee of SRA’s Board of Directors in connection with the transaction. Citigroup Global Markets Inc. and Bank of America Merrill Lynch acted as financial advisers and Debevoise & Plimpton served as legal counsel to Providence in connection with the transaction.
Deltek announced on Friday that it has acquired FedSources, and its parent company Washington Management Group, a market intelligence firm focused on the federal IT market, particularly professional services. Deltek will pay $26 million in an all-cash transaction for the Company, which achieved revenues of $15 million (1.73x) for its FY11 ending March 31. Deltek had previously acquired competing market intelligence firm Input in September 2010, and the combination of the businesses allows Deltek to deliver an unrivaled repository of thousands of government opportunities worth over $500 billion in annual market value.
Teledyne announced on Friday that its subsidiary, Teledyne DALSA, Inc., has acquired a minority interest in the parent company of Optech Incorporated, an international leader in advanced laser-based survey and digital imaging instrumentation with 285 employees worldwide. Optech’s imaging and mapping systems are used by a broad range of global customers engaged in the energy, natural resources, and infrastructure industries, as well as government customers. Robert Mehrabian, Chairman, President and CEO of Teledyne, stated that interest in Optech was driven by its presence in the environmental, energy and marine domains as well as the complementary nature of its three dimensional lidar-based imaging systems with Teledyne’s growing line of X-ray, UV, visible and infrared sensors, cameras, and software. Optech represents Teledyne’s third strategic investment in the digital imaging domain in 2011 (previously invested in DALSA Corporation and Nova Research, Inc.), and as part of the investment, Teledyne received an option to purchase 100% of the shares of the company after three years. Financial terms of the transaction were not disclosed.
EADS announced on Tuesday that its subsidiary, Eurocopter Holding, has agreed to acquire the issued and outstanding shares of Vector Aerospace for approximately $13.28 per share, or an enterprise value of approximately $637.8 million. Vector Aerospace, a leading provider of multi-platform helicopter maintenance, repair, and overhaul (“MRO”) services and of rotary and fixed-wing aircraft engine repair & overhaul, achieved LTM revenue and EBITDA of $560.7 million (1.14x) and $71.5 million (8.9x), respectively, and will become Eurocopter’s independent multi-platform MRO services provider. According to Lutz Bertling, CEO of Eurocopter, “This opportunity will provide the Eurocopter group with a high-level of expertise, especially in public-private partnerships for the maintenance on governmental aircraft.” Vector Aerospace has also agreed to pay a termination fee of $12.8 million to Eurocopter in certain circumstances, and Eurocopter has the right to match any competing superior proposal for Vector Aerospace in the event any such proposal is made. Scotia Capital acted as financial advisor to Vector Aerospace for the transaction.