Industry Week in Review – June 1, 2012
The DoD’s growing inventory management problem emerged in headlines this week after a former DLA director, Keith Lippert, warned of an impending “inventory crisis” as agencies are faced with the cost of eliminating excess goods currently in store and dealing with the flood of items that are returning from conflict zones overseas. According to DoD estimates, the current excess could be valued at $9 billion within an overall inventory valued at ~$100 billion. The excess in inventory spans all artifact categories, including vehicles, gear, and weapons, all compiled after nearly a decade of war abroad.
While the DLA has several options in dealing with this excess (e.g., discounted sales, foreign military sales, destruction), the manpower and cost needed to administer this issue provides for a significant cost center in the context of broader fiscal pressures and numerous higher priorities. As reported by the GAO, the current inventory problem has been driven by decades of poor management practices and procedures, weaknesses in accurately forecasting demand, and challenges in establishing the proper metrics and analysis techniques to gain visibility into the supply chain. While recent efforts have focused on increased data analysis to uncover efficiencies and strengthen fiscal policy with respect to inventory management, the issue of reducing existing stockpiles and cleaning up past missteps may soon become a much more serious matter across the DoD community.
Booz Allen Hamilton (Up 9.7%) – Shares traded upward this week after an announcement that its Board of Directors authorized and declared a special dividend of $1.50 / share, which analysts regarded as a positive surprise payout for shareholders.
Aeroflex Holding Corp. (Down 6.7%) – Shares traded downward this week after an investigation over potential violations of securities laws was announced; the potential violation concerns whether or not Aeroflex made materially false or misleading statements about the business to its stakeholders.
Teledyne Technologies to acquire LeCroy Corporation, a leading supplier of oscilloscopes, protocol analyzers, and signal integrity test solutions with approximately 500 employees worldwide. The acquisition will serve to broaden Teledyne’s portfolio of analytical instrumentation businesses and provide a commercial outlet for Teledyne’s Indium Phosphide process technology and ultra-high frequency mixed signal design capabilities. Teledyne’s offer is $14.30 / share, implying an enterprise value for LeCroy north of $290 million. As of March 31, 2012, LeCroy’s trailing twelve months revenue was $196 million.
TZP Group to acquire Total Military Management LLC, a provider of non-asset based logistics services to transportation service provider partners serving the military market worldwide. Total Military Management (“TMM”) was previously backed by Philadelphia-based financial sponsor Eureka Growth Partners. Edgeview Partners served as the exclusive financial advisor of Eureka and TMM. Terms of the deal were undisclosed.
CGI Group to acquire Logica PLC, a provider of business consulting, system integration, cloud computing, and outsourcing services to various industries across Europe. CGI pursued the acquisition to “create a global technology champion with significant presence throughout the Americas, Europe, and Asia” with 72,000 employees in 43 countries and annual revenues greater than $10 billion (more than double CGI’s current size). CGI’s offer represents a ~60% premium over Logica’s previous day closing price, and implies an enterprise value above $3.2 billion. Logica was advised by Rothschild, Bank of America Merrill Lynch, and Deutsche Bank, while CGI was advised by Goldman Sachs.