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Industry Week in Review – February 15, 2019

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KippsDeSanto & Co. Industry Week in Review – February 15, 2019

Aerospace & Defense Update

On Friday, President Trump signed a spending bill to ensure the government remains open hours before funding for several agencies’ funding were scheduled to expire. Following the signing of the bill, President Trump declared the situation regarding the United States’ southern border a state of national emergency, which enables him to utilize military funding to construct border wall. White House officials intend to use $8 billion to fund the new wall to deter immigrants from illegally entering the country. Of the $8 billion, $1.375 billion was approved by Congress, 600 million would be drawn from the Treasury Department’s forfeiture funds account, $2.5 billion would be used from a Pentagon program for countering drug activities, and $3.6 billion would be transferred from military construction accounts.

This week, Airbus announced it has stopped production on its A380 Superjumbo aircraft, which was originally designed to compete with Boeing’s popular 787 Dreamliner aircraft. Despite the A380’s spacious design and quiet cabins, airlines have shifted towards more agile and fuel-efficient jets for both short-range and long-range travel. Emirates, the world’s largest airline in terms of international traffic, recently cut plans to buy several of the superjumbo Jets delivering the final blow to the program. Notwithstanding, withered demand for its A380 aircraft, Airbus’s shares rose 2.7% this week as the Company reported strong earnings rendered by soaring demand on its other jets and anticipates delivering 890 passenger jets this year, an 11% increase from the 800 delivered in 2018.

Government Technology Solutions

After announcing plans in mid-November to create a new corporate headquarters (“HQ2”) split between Long Island City, NY, and Crystal City, VA, Amazon (NASDAQ:AMZN) has abruptly abandoned its Long Island City headquarters plan after receiving opposition from activists and politicians. In a press release on Thursday, the Seattle-based tech firm stated that certain local politicians will “not work with us to build the type of relationships that are required to go forward with the project.” It is estimated that the decision will cost New York around 25,000 potential jobs and billions in incremental tax revenues. Amazon will now turn its focus to setting up the new Nashville, Tennessee “center of excellence” and Northern Virginia HQ2 location. There has been no definitive word yet on whether Amazon will increase and / or accelerate hiring goals at its new D.C. Metro headquarters in response to this week’s withdrawal from New York.

Big Movers

Bombardier (Up 21.4%) – Share prices were up this week following an announcement that the Company beat earnings expectations for 4Q18 propelled by strong demand for its business jets and aftermarket services.

Airbus (Up 10.5%) – Share prices were up this week following the Company’s announcement that year-over-year earnings and revenue increased 56% and 11% respectively, beating estimates. Despite halting production on its A380 aircraft, Airbus is experiencing strong demand for its other products and expects to deliver 890 aircraft’s in 2019, a 11% increase from 2018 levels.

Transactions

Applied Insight, LLC, a portfolio of the Acacia Group, announced its acquisition of Stratus Solutions, Inc. and Applied Technology Group. Stratus Solutions, a provider of security, infrastructure, and development operations solutions and services to government and commercial customers. Applied Technology Group is a provider of cross-platform software development tools and embedded components for building, connecting, and securing applications. Terms of the transactions were not disclosed.

FLIR Systems, Inc. has agreed to acquired Endeavor Robotics Holdings, Inc., a provider of battle-tested, tactical unmanned ground vehicles (UGVs) for the global military, public safety, and critical infrastructure markets. The deal is worth an estimated $385 million.

Perforce Software, Inc., a portfolio company of Clearlake Capital Group, L.P., has agreed to acquire Rogue Wave Software, Inc., a provider of cross-platform software development tools and embedded components for building, connecting, and securing applications. Terms of the transaction were not disclosed.

Safran S.A. has acquired the ElectroMechanical Systems Business from Collins Aerospace, a provider of pilot controls and electrical actuators for aircraft’s. Terms of the deal were not announced.

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Industry Week in Review – January 25, 2019

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Summary

As the U.S. Military continues to modernize and maintain its forces, the nuclear arsenal is a focus point as the government outlines a plan that will cost $494 billion over the next ten years.  In other news, German tank-maker Rheinmetall announced plans to purchase a majority stake in BAE systems’ Telford, England facility, that specializes in the military vehicles market.  Additionally, after 35 days, President Trump announced a halt to the partial shutdown, giving Congress until February 15th to reach an agreement on funding the remaining 25% of federal agencies.

Aerospace & Defense Update

A recent government estimate has outlined that the plans for modernizing and maintaining the U.S.’ nuclear arsenal will cost $494 billion over the next decade, an average of less than $50 billion per year.  Overall, the $494 billion figure represents roughly 6 percent of overall projected defense spending during that same time-period.  The number, which is part of a biannual estimate put out by the Congressional Budget Office, is 23 percent higher than the previous estimate of $400 billion released in 2017.  That same 2017 figure was then a 15 percent increase over the number in presented in 2015.  The spending breakdown includes $234 billion on strategic delivery systems and weapons, $106 billion for the Department of Energy’s nuclear weapons laboratories and production facilities, $77 billion on nuclear command, control, and communications, $15 billion for tactical nuclear delivery systems and weapons, and $62 billion in projected additional costs incurred over the next decade.

German tank-maker Rheinmetall plans to buy a majority stake in BAE Systems’ Telford, England facility, a move that might create a new industry leader in the military vehicles market.  The two companies signed an agreement to create the joint venture, and if regulators approve, Rheinmetall would hold 55 percent of the new business, with BAE Systems keeping 45 percent.  Rheinmetall’s announcement to gain a foothold in the U.K. armored vehicles market comes after the company announced in November that a takeover of German rival Krauss-Maffei Wegmann may be pending.  While further details remain unclear as to both transactions, this potential joint venture highlights the divergence of national export policies across Europe affecting the adapting industrial, competitive landscape.

Government Technology Solutions

Following the 36-day partial shutdown of the U.S. Government, President Trump announced that a bipartisan deal was reached with Congress on Friday to open the government through February 15th.  The 25% of the government workforce that has been unpaid since December 22nd will now resume operations and “the administration is taking steps to ensure they receive pay as soon as possible,” a senior Trump Administration official remarked.  In the interim, Congress will be required to put party lines aside and work together to find a mutual agreement, ensuring the government stays open and funded through February.

Big Movers

Triumph Group, Inc. (Up 20.7%) – Share prices were up this week following an announcement that Bombardier agreed to acquire Triumph’s wing manufacturing operations and assets associated with the Global 7500 business aircraft program.

Transactions

Dassault Aviation has acquired ExecuJet, a provider of MRO centers, Fixed Base Operations, and aircraft management activities.  The terms of this transaction were not disclosed.

DigEcor Pty Ltd. has acquired the Commercial In-Flight Entertainment Business of Collins Aerospace Systems, a provider of the PAVES family of seat back and overhead solutions, as well as PAVES™ On-demand, Total Entertainment System (“TES”), Enhanced Total Entertainment System (“ETES”), and content services.  The deal is worth an estimated $184 million.

Enlightenment Capital has acquired System High Corporation, a provider of global protection and security technical engineering solutions for critical National Security and Special Access Programs (“SAP”) across the Department of Defense (“DoD”) and Intelligence Community (“IC”).  KippsDesanto & Co. was the sell-side advisor on the deal.  The terms of the transaction were not disclosed.

Henry Schein, Inc. has acquired North American Rescue, LLC, a provider of the survivability and casualty-care medical products to the defense and public-safety markets.  The terms of the transaction were not disclosed.

NWI Holdings has acquired Triumph Group, Inc.’s Metallics Machining Operations, a provider of vertically integrated assemblies and high velocity machining of monolithic components hard metal components used to manufacture aerostructures.  The terms of the transaction were not disclosed.

Rheinmetall AG has acquired the Combat Vehicle Business of BAE Systems plc, a provider of the maintenance and upgrade of a range of military vehicles and bridging systems for the UK MoD.  The deal is worth an estimated $37 million.

VT Group, Inc., a portfolio company of The Jordan Company, L.P., has acquired National Technologies Associates, Inc., a provider of vertically integrated assemblies, high velocity machining of monolithic components, and machining of hard metal components used to manufacturer a wide variety of aerostructures.  The terms of the transaction were not disclosed.

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Industry Week in Review – January 18, 2019

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Summary

President Trump formally released its 2019 Missile Defense Review at the Pentagon.  Moreover, Apollo Global Management nears a deal to acquire Arconic, Inc., for an estimated $10 billion.  Furthermore, the mobile version of Microsoft’s personnel information management software, Outlook, announced it will allow permitted users to use the platform to access sensitive controlled unclassified information.

Aerospace & Defense Update

This week, President Trump formally released the 2019 Missile Defense Review at the Pentagon. In his announcement, Trump emphasized the importance of modernizing missile capabilities and expanding their reach.  To accomplish this, the Missile Defense Agency plans to integrate layers of sensors and interceptors within its products to track and defeat hypersonic weapons, unmanned aircrafts, and stealth fighters.  President Trump’s message was met with mixed reviews, as a Democratic House of Representatives that is looking to cut defense spending must approve the major funding increase to make Trump’s plan a reality.  The exact amount of funding that will be allocated towards new and existing missile technologies has not been released and will partially depend on the overall defense budget for 2020, which is expected to fall between $700 – $750 billion.

According to report by The Wall Street Journal, Apollo Global Management is nearing a deal to acquire Arconic, Inc. for more than $10 billion.  Arconic engineers, manufactures, and distributes lightweight metals to customers worldwide for aerospace, transportation, building and constriction, and industrial end markets.  Aerospace customers typically comprise the largest percentage of Arconic’s revenue, totaling over $4.3 billion dollars of Arconic’s 2018 sales (~41%) through September 30, 2018.  Apollo’s potential acquisition would pay anywhere from $21 – $22 per share, representing a 5% – 10% premium on a stock that was already buoyed by hopes of a deal. The transaction comes on the heels of The Carlyle Group’s $5 billion acquisition of StandardAero announced in 4Q18 and reinforces a trend of large and high-profile private equity transactions in the aerospace and defense industry.

Government Technology Solutions

Last week, the mobile version of Microsoft’s personnel information management software, Outlook, attained Guide Impact Levels 4 and 5 for the Department of Defense (“DoD”) Cloud Computing Security Requirements Guide, which allows permitted users to use the platform for access to the “most sensitive controlled unclassified information.”  In October 2018, the mobile versions of the Outlook platform gained FedRAMP compliance, a critical step in its ability to meet the compliance standards authorized last week.  Microsoft has emphasized mobile agility for its federal clients, helping customers “stay connected and on top of what’s important while on the go and with confidence that their sensitive information is more protected” per a statement from Microsoft.  The company plans to make the Azure cloud service and Dynamics 365, Microsoft’s Enterprise Resource Planning tool, compliant for Level 5 DoD security requirements in 2019 as well, demonstrating Microsoft’s emphasis on repurposing traditional commercial offerings to meet government requirements and subsequently expand its footprint within the federal government.  This is just yet another example of the federal government leveraging commercial technologies and software applications to improve operations and security concerns.

Big Movers

Embraer (Down 9.5%) – Share prices were down this week after the company announced it does not expect to generate meaningful profits until 2021.

Jacobs Engineering (Up 3.4%) – Share prices were up after the company raised its quarterly dividend 13.3% to $0.17 and approved a $1 billion incremental share repurchase. These announcements are results of a long-term transformation to a high-margin, less cyclical business.

Transactions

Culmen International, LLC has acquired Centrifuge Systems, a provider of next-generation big data business intelligence and visualization software.  Terms of the deal were not disclosed.

ETL Systems Ltd. has acquired Atlantic Microwave Ltd., a provider of RF and microwave equipment, components and interconnects to the satcom, telecommunications, aerospace, defense and scientific research industries.  Terms of the deal were not disclosed.

Grand Traverse Economic Development has acquired Bay Shore Steel Works LLC, a provider of process engineering, fabricating, machining, and finishing services company with significant contracts from the U.S. military for armor plating.  Terms of the deal were not disclosed.

Huntington Ingalls Industries has acquired Fulcrum IT Services, LLC, a provider of applications development, cyber security, network and communications engineering, online collaboration, help desk and call centers, information security, and disaster recovery. Terms of the deal were not disclosed.

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Industry Week in Review – January 11, 2019

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Summary

The Pentagon has officially received its top-line budget figure for fiscal 2020.  Boeing’s 777-family passed the 2,000-order milestone, setting a record for any widebody model.  Furthermore, the Department of Health and Human Services is starting to shift away from having its labor force performing repeatable, mundane tasks in order to enhance efficiency, cost-cutting, and safety.

 Aerospace & Defense Update

Acting Deputy Secretary of Defense, David Norquist, released a statement this past week that stated the Pentagon has officially received its top-line budget figure for fiscal 2020.  However, Norquist declined to go into details on what the dollar figure would be following numerous requests.  The Pentagon’s budget figure has significantly fluctuated over the past three months. The department had been tracking towards a $733 billion defense top-line figure, until recently at an October Cabinet meeting when President Trump announced the figure would be closer to $700 billion.  Following this, President Trump backtracked and verbally agreed to a request from former Defense Secretary James Mattis to propose a defense budget of $750 billion in December.  Despite this uncertainty, Norquist indicated that the budget top-line figure will be rolled out in February, although the ongoing government shutdown may impact this plan.

Boeing is getting ready to perform critical landing gear retraction tests on its first Boeing 777-9.  Progress towards completion of the first 777-9 comes on the heels of the 777-family passing the 2,000-order milestone, representing an industry record for any widebody model.  This threshold was passed in December of 2018 when the company slated 17 net orders for the 777 aircraft from lessor BOC Aviation and two other unidentified customers.  The first flight for the 777X is scheduled for 2019 with the first delivery lined up for 2020.  Boeing has so far announced 340 orders and commitments for the 777X from various airlines including Cathay Pacific, Emirates, Etihad Airways, Qatar Airways, Lufthansa, and Singapore Airlines.

Government Technology Solutions

On Thursday, the Department of Health and Human Services’ (“HHS”) Program Support Center (“PSC”) issued a request for proposals (“RFP”) for artificial intelligence and automation solutions, products, and services.  The five-year, $49 million indefinite delivery, indefinite quantity (“IDIQ”) contract will be used to procure Intelligent Automation / Artificial Intelligence (“IAAI”) solutions, which should allow employees to focus more on high-value work rather than repetitive, labor-intensive tasks.  This shift away from the labor force performing repeatable, mundane tasks is expected to enhance efficiency, cost-cutting, and safety, ultimately transforming the roles of existing employees and even creating new ones altogether.  Per the solicitation, these solutions are expected to “[do] everything from reducing backlog and cutting costs to performing functions; such as predicting fraudulent transactions and identifying critical suspects via facial recognition…”  The HHS plans to allow other federal agencies and programs to issue task orders through this vehicle for a small fee, providing agencies outside of the HHS with access to these IAAI solutions that could “fundamentally transform how the public sector gets work done.”  While this is a relatively small contract, it is one of the first of its kind and demonstrates the federal government’s commitment to adopting NextGen IT technologies to drive innovation and operating efficiencies.

Big Movers

Boeing (Up 7.9%) – Share prices were up this week after the government of Brazil approved its commercial aircraft joint venture with Embraer.

Maxar Technologies (Down 50.4%) – Share prices were down after reports that its WorldView-4 digital imaging satellite, “experienced a failure in its control moment gyros preventing the satellite from collecting imagery due to the loss of an axis of stability.”

 

Transactions

 

Essex Industries, Inc. has acquired Momeni Engineering, LLC, a provider of precision machined OEM parts and assemblies to aerospace and medical companies.  The terms of the transaction were not disclosed.

 

Gallant Capital Partners, LLC has acquired Aero Turbine, Inc., a provider of turbine engine and accessory overhaul, repair, and testing services to military and commercial clients.  The terms of the transaction were not disclosed.

 

Greenbriar Equity Group, LLC has acquired STS Aviation Group, a provider of component sales and distribution, workforce management, engineering services, line maintenance, and aircraft repair and modifications to the global aviation industry.  The terms of the transaction were not disclosed.

 

Guardian Capital Partners has acquired Tactical Medical Solutions, Inc., a provider, developer, and manufacturer of hemorrhage control and related safety products for emergency trauma care across the military, law enforcement, fire & emergency services, and civilian end markets.  The terms of the transaction were not disclosed.

 

Hutchinson S.A. has acquired Mide Technology Corp., a provider of products such as seals and wearable sensors for the aerospace, automotive and manufacturing sectors.  The terms of the transaction were not disclosed.

 

Ibis Tek, Inc. has acquired Standard Bent Glass Corp., a provider of custom fabricated glass products, including transparent armor for the security and defense industry.  The terms of the transaction were not disclosed.

 

Kellstrom Defense Aerospace has acquired Williams Aerospace and Manufacturing, Inc., a provider of tooling for the manufacture of complex defense aircraft parts as well as strong capabilities in molding and machining for aerospace and defense aftermarket components.  The terms of the transaction were not disclosed.

 

Parsons Corporation has acquired OGSystems, LLC, a provider of geospatial and security solutions for the Department of Defense and Intelligence Community. The terms of the transaction were not disclosed

 

Technical Services Corp. has acquired Accelerated Development & Support Corp., a provider of technically oriented services from program management to systems integration and engineering. The terms of the transaction were not disclosed.

 

Trive Capital Holdings, LLC has acquired California Brazing, a provider of complex, high tolerance components for space, aircraft connectivity, specialty electronic, and various application.  The terms of the transaction were not disclosed.

 

VSE Aviation Inc. has acquired 1st Choice Aerospace, a provider of component maintenance, repair and overhaul services and products for new generation and legacy commercial aircraft families. The deal is worth an estimated $112 million.

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Industry Week in Review – January 4, 2019

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Industry Week in Review – January 4, 2018

Summary

KKR & Co. will invest $1 billion in a joint venture with Altavair L.P. to create a leased commercial aircraft portfolio. A significant number of seats on the Senate Armed Services Committee are expected to turnover, including those of Lindsey Graham and Ted Cruz. Government automation efforts will ramp up in 2019, increasing efficiency and offering reskilling opportunities.

Aerospace & Defense Update

Global investment firm, KKR & Co. announced this week that it plans to invest $1 billion in a joint venture with Altavair L.P. to create a leased commercial aircraft portfolio.  Managed by several aircraft-finance professionals, Altavair is a leading investment firm specializing in aviation finance with a focus on acquiring, leasing, re-purposing, and selling commercial jet aircrafts and engines.  With this investment, KKR will take a 50% stake in the aircraft financier.  KKR currently has over 60 single-aisle planes in its portfolio and will soon have access to the 200 aircrafts Altavair has under management, allowing the partnership to grab significant market share in the competitive aircraft leasing space.

The Senate Armed Services Committee is about to undergo a significant change as eight seats on the military panel, nearly one-third of the committee membership, could turnover before its next meeting.  Hawkish senators Lindsey Graham and Ted Cruz are among the five Republicans scheduled to leave the committee.  Moderate committee turnover is usually expected every two years as elections alter the congressional landscape; however, eight new committee members is an unusual level of change.  This new group is entering the committee at a critical juncture considering the substantial amount of uncertainty surrounding a divided Congress, the U.S.’s position in the Middle East, and the 2019 defense budget.  The committee will add five new Republican and three new Democrat members.

Government Technology Solutions

Amid ongoing automation efforts by the government, federal agencies believe that new technologies like artificial intelligence (“AI”) and machine learning (“ML”) may reduce the federal employee base as technology and potentially government contractors replace certain federal responsibilities.  To hopefully offset this likelihood, agencies intend to shift to increase training for existing employees around these emerging technologies.  The Director of Strategic Technology Management at the Department of Homeland Security (“DHS”), Bill Pratt, claims that agencies are understaffed and technologically behind; therefore, agencies should be eager to automate their systems rather than worried that doing so will replace jobs.  The administration has continued to encourage agencies to adopt automation as a means to draw employees away from repetitive, labor-intensive tasks and towards more high-value work.  Robotic process automation (“RPA”), for example, is already being used at the General Services Administration (“GSA”) and the Department of Health and Human Services (“HHS”) and is expected to expand to other agencies in the near future.  As automation becomes a greater emphasis in 2019, integrating automation into federal agencies will increase efficiency in the government and hopefully offer existing personnel opportunities to adopt new skills and technology.

Big Movers

Bombardier (Up 12.2%) – Share prices were up this week after Airbus announced it will build additional Bombardier developed aircrafts on the U.S. Gulf Coast.

Perspecta Inc. (Up 11.1%) – Share prices were up this week as the outlook for government IT in 2019 continues to look strong.

Transactions

Cloudera, Inc. has completed an all-stock merger with Hortonworks, Inc., a provider of enterprise-grade, global data management platforms, services and solutions that deliver actionable intelligence. Cloudera, Inc. is a developer of machine learning and analytics, optimized for the cloud. Terms of the transaction were not disclosed.

Cubic Corporation has acquired GRIDSMART Technologies, a provider of camera sensors for intersections and says it has counted and classified over 43B vehicles through 54M hours of real-world video processing in 7,000 intersections across 1,200 cities. The deal is worth an estimated $87.0M.

Vector Capital Corp. has entered into an agreement to acquire Aspect Software, Inc., a developer of interaction management, workforce optimization and self-service solutions. The deal is worth an estimated $100.0M.

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Industry Week in Review – December 28, 2018

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Industry Week in Review – December 28, 2018

Summary

This week, Sikorsky and Boeing unveiled a prototype for faster, more maneuverable helicopters for the U.S. Army. Also, the U.S. Navy continues to improve its capabilities, placing an emphasis on skills training and the use of large combatant ships for surface strikes. In the Government Technology Solutions sector, the Department of Homeland Security (“DHS”) announced its intentions to use various GSA vehicles instead of the Enterprise Acquisition Gateway for Leading-Edge Solutions (“EAGLE”) II contract to further build out IT functionality. Additionally, President Trump signed into law the Small Business Runway Extension Act, lengthening the period of measurement for small business status.

Aerospace & Defense Update

Sikorsky and Boeing have recently rolled out their prototype SB-1 Defiant high-speed helicopter, built for the U.S. Army’s Joint Multi Role technology demonstration. Initially slated to fly in 2017, the helicopter’s first flight is expected to be in early 2019 due to transmission issues. The Defiant is an advanced compound helicopter, which offers increased speed and greater maneuverability over traditional helicopters. It also provides improved stability while hovering and is quieter than existing types. The Army’s Joint Multi Role project is critical because it will outline the requirements for the “medium” segment of the Future Vertical Lift program, which is looking to replace the aging UH-60 Black Hawk transport helicopters and AH-64 Apache gunships. This unveiling is a key step for the Army in its search for the next-generation of rotary-wing aircraft.

For 2019, the U.S. Navy’s surface fleet plans to focus on maritime skills training, its DDG-1000 guided missile destroyer, and large surface combatant ships. Experts believe this recent focus on training will start to bear fruit in 2019. In addition, the first of the DDG-1000 class, the Zumwalt, is wrapping up its combat systems installation in San Diego and will start undergoing the integration process. The DDG-1000, the Navy’s newest surface combatant, is a result of the Navy’s pivot away from land attacks towards surface strikes. Finally, the Navy is rapidly trending towards the use of large surface combatant ships. Consequently, the Navy is aiming to purchase its cruiser and destroyer replacements in 2023 or 2024, which means the acquisition process and capabilities development documents for these ships should formally kick-off in 2019.

Government Technology Solutions

The DHS announced last week that the department will fulfill its IT needs via an array of contracts, rather than a re-competition of the EAGLE II, which will continue to be utilized by the department until its expiration in 2020. Originally, the successor of EAGLE II was Flexible Agile Support for the Homeland (“FLASH”); however, the contract was cancelled in June. The new IT strategy is called EAGLE Next Generation. Going forward, DHS will utilize various General Services Administration (“GSA”) vehicles (namely Alliant 2, Alliant 2 Small Business, 8(a) STARS II, and VETS 2), as well as National Institutes of Health (“NIT”) vehicles (CIO-SP3 and CIO-SP3 Small Business) to procure IT services up to and beyond the expiration of EAGLE II. The new approach will give the DHS greater options for IT and will give contractors with prior work on the aforementioned GSA and NIT vehicles an increased chance to work with DHS.

The Small Business Runway Extension Act of 2018 was signed into law by President Trump, expanding the period of measurement for the North American Industry Classification System (“NAICS”) Small Business status. According to the bill, businesses will qualify for Small Business based on average revenue over the last five years, rather than the current, shorter three-year period. The purpose of the amendment is to prevent advanced small or mid-sized businesses from falling into “no man’s land”: too large to qualify for Small Business status but not large enough to effectively compete on Full and Open (“F&O”) contracts. By extending the qualifying average revenue period, the Act is structured to promote economic growth, spur job creation, and primarily give mature small businesses more options in the federal marketplace.

Big Movers

Bombardier (Up 4.7%) – Share prices were up this week after Bombardier announced the sale of four Global 6000 business jets to an undisclosed customer. The transaction was valued at approximately $310 million.

Transactions

N/A

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Industry Week in Review – December 21, 2018

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Summary

President Trump reverses course abruptly pulls troops out of Syria. Following the decision, Secretary of Defense James Mattis announced his retirement.  Moreover, the Carlyle Group announced it will purchase StandardAero from Veritas Capital. Additionally, NASA announced a significant security breach that potentially compromised their employees’ private information.

Aerospace & Defense Update

The Carlyle Group has agreed to acquired StandardAero Aviation Holdings, Inc. a portfolio company of Veritas Capital. StandardAero has a global brand and is a leading provider of maintenance, repair, and overhaul services for Boeing and Airbus’ aircrafts, engines, business jets, and helicopters. The terms of the deal were not announced. This acquisition marks the second time Carlyle has owned StandardAero as it acquired the Company in 2004 and sold it to Dubai Aerospace for $1.9 billion in 2007.  Carlyle seeks to leverage StandardAero’s strong reputation, skilled employee base, and attractive market position to accelerate growth. This transaction underscores trends of large scale M&A activity and considerable private equity interest that have shaped the aerospace and defense M&A landscape throughout 2018. The deal is anticipated to close in the first quarter of 2019.

This week, President Trump ordered an abrupt withdrawal of U.S military forces from Syria, potentially ending a 4-year military campaign against the Islamic state of ISIS. Over the next several weeks the U.S expects to extract over 2,000 military personnel from the region, but further details regarding the rest of the timeline and logistics of implementing the President’s order have not been announced. Additionally, President Trump doubled down on his decision as he announced the U.S will withdrawal nearly 7,000 troops from Afghanistan. Trump’s decisions has drawn both condemnation and praise as critics believe the U.S.’s departure will destabilize the region and proponents claim the war against ISIS has been won and it is time to bring American troops home. With these announcements, President Trump assured the U.S. will continue to utilize other tools at their disposal such as economic sanctions and diplomatic pressure to support the region.

Government Technology Solutions

NASA announced this week that employees’ social security and other sensitive information may have been compromised in an October breach. There is an ongoing investigation to determine which current or former employees were affected. The server that was accessed contains information going back to 2006, but it does not appear to contain information that could impact NASA’s missions. NASA announced that it will provide assistance to any victims of the breach who had their information compromised. Following the revelation of Marriott’s cyberattack earlier this month, the NASA breach comes at a time in which the government is on high alert regarding cyber-espionage from other potentially government-sponsored adversaries. For this reason, the investigation into the NASA cyberattack will aim to uncover the entity behind the breach and their motives. This year alone, the U.S. has announced over 20 high profile indictments of cybercriminals from North Korea, Russia, China, and Iran. Regardless of the investigation’s results, these events are likely to cause all government agencies to consider additional investments in cybersecurity in order to shift operations to newer and more secure IT systems and away from older, legacy systems that tend to have more cyber vulnerabilities. This is likely to result in an increased demand for support from government contractors that specialize in IT security.

Big Movers

Lockheed Martin (Down 10.8%) – Share prices were down this week as concerns rise over the Pentagon identified Lockheed Martin’s F-35 program as a potential area for cost savings.

Northrop Grumman (Down 10.5%) – Share prices were down this week as officials suggests costs are not sufficiently transparent regarding Northrop’s new stealth bomber.

Transactions

Heston Services Ltd. has acquired Aircraft Maintenance Services, a provider of line maintenance services in major Australian airports to a wide variety of domestic and internal airlines. The deal is valued at an estimated $3.2 million.

Optomec, Inc. has acquired Heffman Corporation, a provider of 3D metal printing systems for additive repair of gas turbine components. Terms of the deal were not disclosed.

Spartan Motors, Inc. has acquired Strobes-R-US, Inc., a provider of upfit services for government and non-government vehicles. Terms of the transaction were not disclosed.

Teledyne Technologies, Inc. has acquired the Imaging Business of Roper Technologies, a provider of imaging solutions, primarily for life sciences, academic research and customized OEM industrial imaging solutions. The deal is valued at an estimated $225 million.

The Carlyle Group StandardAero Aviation Holdings., a provider of MRO services, auxiliary power units and components; airframe services including major alterations; FAA authorized avionics capabilities, engineering services, and aircraft design. Terms of the transaction were not disclosed.

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Industry Week in Review – December 14, 2018

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Summary

President Trump reverses course and tells Defense Secretary Jim Mattis to submit a $750 billion budget proposal.  The decision over whether the Space Force will be a sixth branch of the military has been decided.  In addition, federal agencies are increasingly shifting away from physical data centers towards cloud computing.  Trade tensions between the U.S. and China continue to mount after the massive Marriott hack.

Aerospace & Defense Update

President Donald Trump has told Defense Secretary Jim Mattis to submit a $750 billion budget proposal for fiscal year 2020.  This is a reversal from his statement to trim defense spending to roughly $700 billion in October, which represents an approximate 5 percent cut, in line with the decreases planned for other agencies.  Trump’s proposal dwarfs the $733 billion budget proposal Mattis and other top military leaders have been fighting to preserve.  Many suggest that this new $750 billion number might be a “negotiating tactic” to ensure that the Democratic opposition does not push the eventual defense budget below the $733 billion that Mattis had initially been pursuing.  However, the new $750 billion figure is not yet official, and the Pentagon is still working with the Office of Management and Budget to determine the department’s final top line budget number.

Defense Secretary Patrick Shanahan has told reporters that the question of whether the Space Force will be an entirely new military department or reside under the Department of the Air Force has been settled.  However, Shanahan is not ready to disclose which direction the Pentagon leaders will go.  While many initially presumed the Department of Defense would pursue the Space Force as an independent military branch, Defense One reported that some in the Pentagon believed a Department of the Air Force-owned Space Force was more likely to garner congressional approval.  Either way, it seems that President Trump is on board with the Pentagon’s way forward on Space Force implementation.  Interestingly, the cost of the Space Force is also still awaiting finalization, but the focus on the cost allocation will be centered around providing new capabilities as opposed to adding more bureaucracy.

Government Technology Solutions

In an effort to modernize legacy software and systems, federal agencies are increasingly shifting away from physical data centers and towards cloud computing.  Given the extensive operational and financial benefits of moving workloads to the cloud, modernizing federal systems is a critical priority for agencies that are currently operating on legacy systems.  Suzette Kent, the federal CIO, has pushed the government to accelerate the effort to leverage cloud computing services, stating that “[a]gencies should review their information technology portfolios to determine modernization plans for existing tools…and [that] those that have not begun this process are encouraged to start immediately.”  For agencies who may be struggling to acquire cloud services in a fragmented market, the Office of Management and Budget’s (“OMB”) Cloud Smart initiative offers a path to safely and smoothly migrate legacy systems to cloud networks.  The goal of the OMB’s cloud strategy is to help agencies fully integrate cloud messaging platforms, consolidate a fragmented cloud acquisition market, and discover innovative cloud applications in the federal space.  To keep up with modern technology, it is imperative that agencies across the federal government embrace cloud computing infrastructure and solutions.

Trade tensions between the U.S. and China continue to escalate as the massive Marriott hack – which exposed the private information of approximately 500 million customers – has been traced to China’s Ministry of State Security.  The revelation comes amid U.S. fraud allegations towards Huawei CFO Meng Wanzhou, who was arrested in Canada and released on a $7.5 million bail.  In an interview, President Trump said he’s willing to intervene in the Huawei case if it helps improve trade relations with China: “If I think it’s good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security – I would certainly intervene if I thought it was necessary.”  Both events have put strain on U.S.-China relations and may impact the trade truce talks between President Trump and President Xi that have been ongoing since the 2018 G20 summit.

Big Movers

Boeing (Down 6.8%) – Share prices were down this week as concerns rise over the current trade dispute with China.  In addition, China has warned Boeing that it could possibly levy tariffs on older 737 models.

Transactions

Cerberus Capital Management, L.P. has agreed to acquire Sparton Corporation, a provider of complex and sophisticated electromechanical devices with capabilities that include concept development, industrial design, design and manufacturing engineering, production, distribution, field service, and refurbishment.  The deal is worth an estimated $182 million.

Kongsberg Defence & Aerospace and Patria Oyj have agreed to acquire Aerospace Industrial Maintenance Norway AS, a provider of MRO services within the aviation industry for both military and civil organizations.  The deal is worth an estimated $18 million.

Lincoln Electric Holdings, Inc. has acquired Coldwater Machine Company, LLC, a provider of flexible automation integration, precision machining, and assembly manufacturing.  The deal is worth an estimated $55 million.

MCM Capital Partners has acquired Andover Corporation, a provider of the design and manufacture of unique filters and coatings.  Terms of the transaction were not disclosed.

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Industry Week in Review – December 07, 2018

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KippsDeSanto & Co. Industry Week in Review – December 07, 2018

Summary

Elon Musk’s SpaceX successfully launched its 19th rocket for 2018, striving to make space exploration more cost effective. CIA CIO John Edwards emphasized the importance of an efficient, data-centric workforce. The DoD and GSA announced that a request for quotes for the $8 billion cloud contract, DEOS, will be made early next year.

Aerospace & Defense Update

This week Elon Musk’s space startup, Space Exploration Technologies Corp. (“SpaceX”), successfully launched its Falcon 9 rocket, marking the company’s 19th successful launch this year, surpassing its previous record of 18 launches set in 2017.  Moreover, this launch represented a second major milestone as the vehicle carried more than 60 small satellites into space, the most ever a top U.S. booster.  Multi-satellite missions, along with recycling essential rocket hardware such as engines and other essential components, have enabled Elon Musk to make space exploration more cost effective and allows SpaceX to compete with larger industry players.  In line with SpaceX’s rapid launch tempo, the company is scheduled to send a cargo resupply capsule for NASA to the International Space Station early next week.

Government Technology Solutions 

In response to the growing number of domestic and foreign cyber threats, the Central Intelligence Agency’s (“CIA”) Chief Information Officer (“CIO”), John Edwards, emphasized the importance of developing a more data-centric workforce, while speaking at the FedScoop Public Sector Innovation Summit on Monday. Given the complex and voluminous nature of information that the CIA processes daily, the ability to “sense, collect, ingest, condition, analyze, and characterize data,” as Edwards stated, is imperative in matters of national security. In order to achieve actionable results, the CIA must balance the necessity of data-scientists, who can sift through vast quantities of data, and analysts, whose responsibility is to turn the parsed down data into insights. With these two employee bases working in tandem, Edwards remarks that, “data is the new tip of the spear” to more effectively combat adversaries and protect the U.S. Nevertheless, while the U.S. government has placed a great deal of emphasis on rapid IT modernization, Edwards’ initiative confirms the importance of a workforce with technical acumen to drive efficiency and achieve mission goals.  This is just yet another example of the federal government demonstrating a desire for increased capabilities across data analytics and data management.

The Department of Defense’s (“DoD”) $8 billion cloud-based email and messaging contract, Defense Enterpriser Office Solutions (“DEOS”), is drawing attention due to its expedited timeline. On Monday, the DoD – along with the General Services Administration (“GSA”) – announced that a request for quotes will be made in early 2019 with an award date expected in April. Continuing the DoD’s emphasis on upgrading legacy systems, DEOS will seek to enhance internal communications and, as a byproduct, further develop the commercial IT market’s relationship with federal customers. Given the prolonged and controversial procurement of the Joint Enterprise Defense Infrastructure (“JEDI”) cloud contract, however, officials are concerned a similar scenario could unfold with DEOS’ award process. To date, the final acquisition strategy has not been announced – leaving contractors guessing if DEOS will be multiple awards or a single, winner-take-all award like JEDI. Irrespective of the contracts’ acquisition strategies, these two cloud computing contracts represent the largest shift towards IT modernization in the department’s history and represent positive trends and opportunities for government contractors looking to expand NextGen IT support to federal customers.

Big Movers

General Dynamics (down 9.5%) – Share prices were down this week as uncertainty over trade set in following the G20 Summit.

VSE Corporation (up 7.0%) – Share prices were up this week after various brokerage firms upgraded the stock to a Buy.

Transactions

Cerberus Capital Management has acquired Navistar Defense, LLC., a provider of tactical wheeled vehicle original equipment serving military, law enforcement, and government agencies worldwide. Terms of the deal were not disclosed.

Huntington Ingalls Industries, Inc. has acquired G2, Inc., a provider of cybersecurity solutions and services headquartered in Annapolis Junction, Maryland. Terms of the deal were not disclosed.

Liberty Hall Capital Partners has acquired Aircraft Performance Group, Inc., a provider of proprietary flight operations software solutions into the aftermarket of the aerospace industry. Terms of the deal were not disclosed. 

Sun Capital Partners, Inc. has acquired Tier One Relocation, LLC., a provider of door-to-door household moving services for the military. Terms of the deal were not disclosed.

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Industry Week in Review – November 30, 2018

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KippsDeSanto & Co. Industry Week in Review – November 30, 2018

Summary

A little over a year after its $30.0 billion acquisition of Rockwell Collins, United Technologies Corporation (“UTC”) announced a decision to break itself up to focus on pure, aerospace opportunities.   In other A&D news, German armored vehicles-maker Rheinmetall signaled a potential acquisition of Krauss-Maffei Wegmann (“KMW”) through a joint venture with French tank maker, Nexter.  In the Government Technology Solutions arena, government efficiency remains a top priority as the General Services Administration (“GSA”) consolidates its award schedules in order to make its offerings more accessible and increase competition. Also, Amazon continues to stir headlines with its plans to penetrate the government satellite market through a partnership with Lockheed Martin.

Aerospace & Defense Update

UTC has decided to separate itself into three independent companies, splitting apart one of America’s last industrial conglomerates.  Following the approval of its acquisition of Rockwell Collins, UTC plans to spin off its Otis elevator division and Carrier building systems business.  This separation is expected to be completed by 2020 and leave UTC as a pure-play aerospace company.  UTC believes that being a more focused aerospace company will drive higher valuations as aerospace companies have tended to trade at higher multiples than manufacturing companies.  Surprisingly, shares closed at $122.68 (down 4 percent) following the news.  UTC intends to keep its current CEO and Chairman, Greg Hayes, and he stated that its newly merged aerospace business would have reported about $39 billion in revenue last year.

German armored vehicles-maker Rheinmetall has confirmed initial talks about an acquisition of its rival KMW, a move that would significantly alter the European tank industry.  According to Rheinmetall, a takeover of KMW through a joint venture with French tank maker, Nexter, is on the table.  Coincidentally, Rheinmetall is expected to pitch its design proposal for the pivotal Main Ground Combat system next year, and it will be interesting to see how the dynamic of a KMW acquisition will play into this design proposal.  Rheinmetall’s statement on Monday noted that a final decision regarding the acquisition depends on a “multitude of political, economic and regulatory” aspects.  However, a takeover deal could put to rest the question of what vehicles German defense companies will pitch for multibillion-dollar modernization programs of U.S. ground services.

Government Technology Solutions

 In an effort to improve the efficiency of the federal acquisition process, the General Services Administration (“GSA”) will consolidate 24 award schedules into a single contract vehicle for products and services—reforming the Multiple Award Schedule program.  The initiative seeks to simplify the large and confusing web of contracts currently in place by providing agencies with a single, larger schedule.  Per Federal Acquisition Services Commissioner, Alan Thomas, “a single schedule for products and services will make it easier for customers to find and purchase the solutions they need to meet their respective missions.”  The reform will make offerings more accessible by allowing agencies to focus on acquiring and delivering the right solutions rather than navigating administrative logjams and contracts on multiple schedules.  The intent is that by streamlining acquisition of critical solutions, barriers to entry will be reduced and competition will be increased amongst contractors, providing for more optimized acquisitions for federal agencies. Further consolidation details will be unveiled at GSA’s December 12 industry day at its Washington, DC location.

On Tuesday, AWS hosted its annual re:Invent conference in Las Vegas, where it announced plans to provide antenna services that will allow users to download satellite data.  The new business venture, AWS Ground Station, includes a partnership with Lockheed Martin to access its network of antennas, called “Verge”, and combines it with Amazon’s cloud capabilities.  The partnership will allow AWS to deliver satellite capabilities to government customers, with services ranging from storage and hosting to analytics and data processing.  Additionally, the satellite network is expected to significantly cut costs for customers by providing them with an alternative to building their own ground centers that come with costly infrastructure requirements.  AWS also announced it will build 12 satellite facilities around the world as it attempts to penetrate the growing space-related hardware market and expand their existing cloud services, further affirming their commitment to satellite and space-related services in the government sector.

Big Movers

 Boeing (up 10.3%) – Share prices were up this week after Cowen aerospace analyst, Cai von Rumohr, singled out the Company as the “number one stock pick for 2019.” The analyst confirmed his report stating, “given visibility of a seven-year backlog and still-solid traffic growth, it would take a sharp economic slowdown to disrupt the favorable current production outlook.”

 KeyW Corporation (up 15.9%) – Share prices were up this week following an announcement by the Company on Wednesday that it had received $35.0 million in new awards and additional work to existing contracts for delivery over the next 12 months.

Transactions

Aersale, Inc. has acquired Avborne Accessory Group, Inc., a subsidiary of RBC Bearings, a provider of mid-life aircraft, engines, used serviceable material, and maintenance, repair, and overhaul services.  The deal is worth an estimated $21.5 million.

E3 Federal Solutions has merged with The Sentinel Company, a portfolio company of NewSpring Holdings, creating a provider of mission consulting, information technology, program management, and systems engineering and technical services for the DoD, Intelligence, Homeland / National Security, and other Federal Civilian agencies.  The terms of the transaction were not disclosed.

 Electronic Connector Company of Illinois LLC has acquired the Aerospace and Defense Division of Magellan Distribution, a provider of interconnect and MRO products to top tier U.S. defense contractors.  The terms of the transaction were not disclosed.

EverWatch Corporation, a portfolio company of Enlightenment Capital, has acquired Dynamic Engineering Solutions, a provider of cloud and network administration solutions to intelligence agencies.  The terms of the transaction were not disclosed.

General Dynamics European Land Systems (“GDELS”) has acquired FWW Fahrzeugwerk GmbH, a provider of maintenance and repair of military wheeled and tracked vehicles as well as complex weapon systems for the German Army and other international customers.  The terms of the transaction were not disclosed.

 HEICO Corp. has acquired Apex Microtechnology, Inc., a designer and manufacturer of precision power analog monolithic, hybrid, and open frame components for a wide range of aerospace, defense, industrial, medical, and test applications.  The terms of the transaction were not disclosed.

Kitron has acquired the EMS division of API Technologies Corp., a provider of design engineering and contract electronic manufacturing services for the commercial / industrial, energy, medical, military, and telecommunications markets.  The deal is worth an estimated $15.9 million.

 MTS Systems Corp. has acquired E2M Technologies B.V., a provider of high-quality, durable, electrical-driven motion systems, serving primarily the training sublimation markets.  The deal is worth an estimated $80 million.

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