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Industry Week in Review – January 6, 2012

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This week, President Obama unveiled a new plan for defense spending and strategy officially titled: Sustaining Global Leadership: Priorities for 21st Century Defense.  The plan outlines more than $487 billion in cuts and ultimately calls for a “leaner” and more “agile” military that uses smaller conventional ground forces amid cuts in federal spending.  With the shifting threat environment, the U.S. will no longer focus on the ability to fight two land wars at the same time, but rather strengthen new capabilities in special operations forces, C4ISR, unmanned systems, space and cybersecurity.  Furthermore, the military will shift its focus away from the Middle East and more towards the Asia Pacific region as growing threats and regional influence from China ensue.

The strategy also intends to reduce the U.S. nuclear stockpile, trim ground forces, and invest in weapons that can penetrate denied regions.  Though specific program cuts were not addressed, they are expected to be unveiled with the 2013 defense budget proposal, which the White House is scheduled to send to congress next month.

Big Movers

CPI Aerostructures Inc. (Up 9.7%) – Share rose this week after the company announced a purchase order from Boeing Defense, Space & Security valued at $12.7 million, as well as announcing that new business awards from all customers for 2011 was approximately $83.6 million compared to $61.7 million for all of 2010.

SPX Corporation (Up 8.5%) – Shares are up this week after the company announced a strategic joint venture with Shanghai Electric Group to supply products to the power sector in China. Shanghai Electric in one of China’s leading diversified heavy equipment manufacturers, with 2010 revenue of $9.5 billion. SPX aims to grow its presence in China through leveraging Shanghai Electric’s strong relationships among utilities, power plant builders, and engineering procurement companies.

Relevant Transactions

IBM Corporation to acquire Green Hat Software Limited, a provider of software quality and testing solutions for the cloud and other environments. The acquisition allows IBM to offer a complete software development and testing solution to its customers and capitalize on growing software testing markets. Terms of the deal were not disclosed.

Grey Mountain Partners acquires Global Security Glazing, a provider of security and architectural glazing solutions for correctional facilities, courthouses, and government security buildings. The acquisition demonstrates the heightened focus on safety and security for government buildings as well as the increasing demand for energy efficient glazing solutions. Terms of the deal were not disclosed.

Clearview Capital acquires Gregory C. Rigamer & Associates, Inc., a provider of consulting services and technology solutions for aviation, elections, energy, and public safety sectors. The acquisition will allow Clearview to provide consulting services for various growing industries. Terms of the deal were not disclosed.

Blue Wolf Capital Partners acquires Channel Technologies Group, a provider of piezo-electric ceramics, transducers and complex systems and services. The acquisition allows Blue Wolf Capital to take advantage of the increased requirements of the U.S. Government and other Channel Technologies customers. Terms of the deal were not disclosed.

Kratos Defense & Security Solutions acquires selected assets of an unnamed security and public safety system integration business, which designs, engineers, deploys, manages and maintains specialty security systems for the U.S. Government for $20 million. The acquisition is significant as Kratos essentially acquired one of its most formidable competitors. Furthermore, it will significantly expand its capabilities, qualifications, customer relationships, contract portfolio and geographic depth and breadth.

Electronic Consulting Services, Inc. (ECS) acquires Paradigm Technologies, Inc., a provider of product oriented management and technical services for federal government customers. The acquisition provides ECS with access to new customers, including the Missile Defense Agency, Navy PEO IWS 3.0, United States Marine Corps, and the US Marshal Service. Terms of the deal were not disclosed.

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Industry Week in Review – September 2, 2011

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As he bade farewell to the military Wednesday and prepares to take over as the CIA Chief, former United Stated Army, four–star general David Patraeus expressed concern that further defense budget cuts could undermine the military force he helped to shape and jeopardize the U.S. military’s ability to fight insurgencies. But, as treasury yields continue to head south and the U.S. economy fails to add jobs for the first time in almost a year this month, fears of another recession grow, precipitating a drop in all 10 sectors of the S&P 500 and all 30 of the Dow components. Such fiscal pressures and simultaneous ground wars have prompted calls to resume more conventional training and move away from Patraeus’ counterinsurgency approach, however, the general emphasized that amid “difficult” budget decisions it is imperative to build a force “that maintains the versatility and flexibility that [has] been developed [over] the past decade in particular.” As investors wait for congressional outcomes to calm market volatility, it appears the military will have to wait and do the same.

Notes on some big movers

SAIC, Inc. (Down 10.4%) – Shares are down this week after CEO Walt Havenstein, announced “disappointing” 2Q2011 results. Quarterly revenue was down 6.0% this quarter to $2.6B, operating income fell to 8.1% of revenue from 9.9% last quarter, and diluted EPS dropped $0.10 to $0.32.

Esterline Technologies Corp. (Down 9.2%) – Shares are down this week after the aerospace and defense supplier reported adjusted earnings in 2011 of less than $4.55 per share well below analysts’ estimates of $5.07 per share.

Notes on some relevant transactions

CSC acquired Maricom Systems, a provider of business intelligence and data management solutions to support mission-critical health IT systems. The acquisition expands CSC’s support of the U.S. Department of Health and Human Services’ efforts to implement IT improvements in the Patient Protection and Affordable Care Act. The deal also enhances CSC’s capabilities in the areas of healthcare informatics and data management. KippsDeSanto acted as the sole financial advisor to Maricom, terms of the deal were not disclosed.

IBM to acquire Algorithmics, a provider of risk solutions, analytics and advisory services to financial organizations and insurance businesses for $387M. The acquisition expands IBM’s analytic practices in the financial services industry and enhances IBM’s Business Analytics and Optimization capabilities.

IBM to acquire i2 Limited, a provider of intelligence analytics for crime and fraud prevention efforts based in Cambridge, UK. The acquisition accelerates its business analytics initiatives and helps clients in the public and private sectors address crime, fraud, and security threats. Terms of the deal were not disclosed.

Accelera Solutions, Inc. acquired ITS Group, Inc., an IT solutions provider specializing in virtualization solutions focused on cloud computing, desktop, application, and server virtualization. The strategic acquisition is expected to help Accelera become a leading partner in the deployment of Microsoft’s Systems Management and Messaging technologies and significantly expand its Microsoft offerings.

The Gores Group, LLC enters into asset purchase agreement with Point Black Solutions, Inc., a leader in the field of protective body armor used by military, law enforcement, and security and corrections personnel around the world. The agreement is intended to rectify the company after it filed for Chapter 11 in April 2010.

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