Week in Review

Industry Week in Review – November 18, 2011

This week, Defense Secretary Leon Panetta provided a dire outlook for the Defense Department, as the Pentagon will undergo automatic cuts across the board if the 12-member Super Committee created by the Budget Control Act in August cannot compromise on a plan to eliminate $1.2 trillion in debt. Mr. Panetta warned that the cuts do not allow the department to decide the distribution, but instead applies a 23% reduction to each major investment and construction project, rendering most ship and construction projects deficient.

Uncertainty looms as the November 23rd deadline approaches, as both sides of the Super Committee have shown little signs of swaying from their stoic positions on spending and taxes. Should Sequestration be triggered, 42% of every dollar shy of $1.2 trillion will automatically be cut from the Defense budget.

Boeing announced two record orders this week, as the company signed an $18 billion deal with Emirates Airlines, a Dubai-based airline, for 50 777 – 300ER (“extended range”) airliners with the option to expand the deal by an additional 20 aircraft or $8 billion. Four days later, Boeing announced an even bigger deal with Lion Air, which agreed to purchase 29 737-900s and 201 737 MAXs for nearly $22 billion. Such large deals coupled with record 777 sales presents signs of robust company health.

Big Movers

Wesco Aircraft Holdings (Up 11%) – Shares are up this week after the company released results for its fiscal fourth quarter and full-year ended September 30, 2011. Fourth quarter and full-year revenue of $181.3 million and $710.9 million, respectively, both setting company records.

Northstar Aerospace Inc. (Down 37%) – Shares are down this week after the company reported revenue for the three months ended September 30, 2011 of $45.9 million compared to $49.4 million in the same period of 2010. The company simultaneously ended a 30-day strike with its employees, agreeing to new a deal which maintains workers’ cost-of-living allowance and creates new job security language.

Recent Acquisitions

Kratos Defense & Security Solutions acquired SecureInfo, a leading provider of National Security Solutions for $17.5 million with an earn-out option of $2 million. The acquisition expands Kratos’ cyber security capabilities and helps the company deliver advanced solutions in key growth areas such as Continuous Monitoring and Securing the Cloud.

CH2M HILL Companies, Ltd. completes acquisition of Halcrow Holdings Ltd, a provider of professional engineering services for just under $200 million. The acquisition will strengthen CH2M Hill’s global footprint and advance its leadership in water, environmental, transportation and other markets. Halcrow Holdings had 2010 revenue of around $730 million representing a 0.27x deal multiple.

Carlisle to acquire Tri-Star Electronics, a provider of electronic components to commercial aerospace, defense and industrial customers for $285 million. The acquisition expands Carlisle’s capabilities offering to its customers. Tri-Star posts sales of about $95 million and EBITDA of $26 million, representing a 3.00x and 11.0x deal respectively.

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Industry Week in Review – August 26, 2011

More than 40 months after the Boeing 787 Dreamliner was originally slated for delivery to Japan’s All Nippon Airways Co. (“ANA”), U.S and European regulators have awarded regulatory approval for the aircraft to enter commercial service. Originally due in May 2008, ANA will take delivery of the first of its 55 planes on September 26. Despite having to compensate customers for late delivery and running several billion dollars over budget, Boeing has stated that the program remains profitable. Most analysts agree that Boeing will profit from the program, but question when it will break even. Upon delivery of the first aircraft, Boeing will begin releasing its accounting treatment of the 787 program with its quarterly results.

Currently with 827 orders at a price of $185 million per plane, the Dreamliner, made largely from light-weight carbon composites that help lower fuel costs, could change the way aircrafts are manufactured in the future.

Notes on some big movers

HEICO Corp. (Up 23.7%) – Shares are up this week after posting better-than-expected quarterly profits helped by strong results at its flight support group. The company raised its full-year forecast and expects sales and net income in 2011 to grow by 20% and 29%, respectively. The company had previously forecast sales growth of 18% and net income growth of 20%

Oshkosh Corp. (Up 14.2%) – Shares are up this week after many market analysts gave the company “buy” signals. During the past month, shares of the firm were “washed out” and oversold on fears of how government spending cuts would impact the company, but have since rebounded as these fears lessened.

Notes on some relevant transactions

Verizon Communications acquired CloudSwitch, a provider of cloud software technology for an undisclosed amount. The acquisition deepens Verizon’s capabilities in enterprise cloud solutions and is expected to create synergies with Verizon’s IT services subsidiary, Terremark.

Lockheed Martin to acquire QTC Holdings, Inc., a provider of outsourced medical evaluation services to the U.S. government and the U.S. department of Veterans Affairs. The acquisition is expected to expand Lockheed’s Information Systems & Global Solutions business into adjacent health care services markets.  The terms of the deal were not disclosed.

HP to acquire Autonomy Corporation, a leading provider of enterprise information management solutions, for $11.2 billion. As HP continues to reshape its strategic focus away from the PC market, the acquisition is expected to position HP as a leader in software and information services and provide significant leadership in large and growing markets.

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