Industry Week in Review – May 2, 2014
According to a new Deloitte report analyzing the financial performance of the top 20 major U.S. aerospace and defense sector companies, U.S. defense contractors posted a 2.6% revenue decrease in 2013. The decline is mostly due to the Pentagon’s reduction in funding and outlays during the fiscal year, primarily from budgetary uncertainty and sequestration effects that clouded the spending environment. Additionally, budget reductions were also the result from the drawdown of forces in the Middle East, as well as spending reductions mandated by the Budget Control Act of 2011. Specifically, 17 of the top 20 U.S. defense contractors had decreases in revenues, representing the widespread impact of budget reductions on the industry. While revenues were down, however, profitability increased 17.9%, reflecting companies’ efforts to create operational efficiencies through personnel cuts and cost reductions. Looking forward, while recent clarity with the FY2014 budget and the FY2015 budget request may sustain declining revenues, defense contractors will continue to look to expanding foreign military sales, refining core capabilities, and improving operational efficiencies for future growth.
In an effort to improve patient care, the DoD is looking to bid its Healthcare Management Systems Modernization (“DHMSM”) contract by the end of 2014. The single-award contract will aim to advance the integration of a commercial electronic health records system to cover the DoD’s nearly 10 million beneficiaries worldwide. At an estimated total value of approximately $11 billion, DHMSM would be one of the largest IT contracts in the government procurement market, and could present strategic opportunities for government technology contractors seeking access to the Military Health System.
Big Movers
Spirit AeroSystems Holdings, Inc. (Up 11.2%) – Shares were up this week after the Company announced strong fiscal quarter results, with revenue up 20% from the same period last year.
Relevant Transactions
Alliant Techsystems Inc.’s Aerospace and Defense Unit to merge with Orbital Sciences Corporation, a provider of small and medium class rockets and space systems for commercial, military, and civil government customers worldwide. The deal is worth an estimated $3.9 billion.
Dubin Clark and Company’s Merex Incorporated acquired Kellstrom Defense Aerospace, Inc., a provider of aircraft engine parts and MRO services to commercial and military aircraft. Terms of the deal were not disclosed.
Ultra Electronics Holdings plc to acquire Forensic Technology WAI, Inc., a provider of automated firearm ballistics identification and forensic analysis systems to law enforcement agencies. Ultra Electronics paid approximately $85.7 million for the acquisition.
Digital Management, Inc. acquired Pappas Group, LLC, a full-service digital and creative agency focused on mobile product and brand development solutions. Terms of the deal were not disclosed.
ManTech International Corporation signed a definitive agreement to acquire 7Delta, Inc., a provider of application development, program management, and systems integration solutions to both civilian and defense agencies, with extensive experience serving the Department of Veterans Affairs. The transaction is expected to close in May 2014. Terms of the deal were not disclosed.(1)
General Catalyst Partners announced an investment in OGSystems, LLC, a provider of data processing, exploitation, and dissemination solutions to defense and intelligence agencies. Terms of the investment were not disclosed.
(1) KippsDeSanto & Co. acted as the exclusive financial advisor to 7Delta, Inc.
