Industry Week in Review – September 1, 2017

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Aerospace & Defense Update

United Technologies Corp. is in talks with Rockwell Collins about a potential deal valued at more than $20 billion to acquire the industry heavyweight with expectations of closing the deal within a week.  With the consolidation of two key aerospace and defense suppliers, the deal could lead to a wave of mergers and acquisitions (“M&A”) activity amongst other first-tier competitors.  Competitors such as Thales or Harris Corp. could have difficulty competing on contracts with Rockwell Collins with the backing of United Technologies’ resources.  Other large aircraft makers, such as Boeing and Airbus, could also have concerns over increasing costs in their respective supply chains as a result of further consolidation, which could lead to acquisitions of smaller avionics and electronics companies to lessen dependence on first-tier suppliers.  Additionally, Boeing has demonstrated interest in expanding its footprint in the aftermarket through the creation of an internal avionics business unit.  Industry analysts agree the Pentagon and other government agencies are likely to allow the acquisition without objection because neither United Technologies nor Rockwell Collins are competitive in the same space.

The U.S. Army has granted AM General a contract award for $2.2 billion in High Mobility Multipurpose Wheeled Vehicles (“Humvee”) sales to foreign countries, which equates to over 11,500 vehicles.  AM General designs, manufactures, and supplies high-quality specialized vehicles for military and commercial customers globally.  The contract award allows for foreign countries to order the Humvees over the next five years.  Two years ago, AM General lost its bid to build Joint Light Tactical Vehicles (“JLTV”) in the U.S. Army’s Humvee replacement competition to Oshkosh Defense.  However, AM General has managed to successfully expand its Humvee business internationally.  This contract would add to the more than 250,000 AM General Humvees already deployed across 60 countries.

Government Technology Solutions

On Wednesday, the White House’s American Technology Council and Office of American Innovation issued its report on the efforts needed to modernize federal technology.  Required as part of President Trump’s May 11th cybersecurity executive order, the report focuses its main priorities on modernizing and consolidating federal networks and moving to shared services.  For modernization and consolidation, the report calls for maximizing the secure use of cloud computing and modernizing government-hosted applications to protect federal data and cloud-optimized deployments.  For shared services, the report recommends increasing the use of commercial clouds, accelerating the adoption of cloud email and collaboration tools, and improving existing as well as providing additional, security shared services.  The Office of Management and Budget (“OMB”) will help agencies reprioritize funds away from obsolete, legacy Information Technology (“IT”) systems towards modern technologies, using agile development where possible.  The report made no mention of the IT modernization fund, for which the White House has requested $228 million for the next fiscal year.

Due to a shorter budget timeframe for agencies and vacancies in politically-appointed positions, delays on certain major contract awards are becoming commonplace as the end of the federal fiscal year-end looms.  Many large-dollar programs require political guidance and thus have been slowed down with delayed appointee decisions during the transition to a new administration.  All but two of Deltek’s top-20 opportunities for fiscal year 2017 have seen their award date pushed further out, and as a result, many current contracts have been extended through modifications.  However, contract opportunities are still being actively pursued; with a compressed timeframe due to full appropriations only being in place since March, companies expect a very good bookings quarter, especially in relation to military training and readiness.  Agencies have a high volume of business and backlog to clear, so they may default to easily supportable conclusions favoring lower-cost bids in making awards.

Big Movers

ICF International (up 18.0%) – Share prices were up this week due to ICF’s role as the lead consultant for the Department of Housing and Urban Development and the subsequent increased role that ICF will play for recovery efforts in the wake of Hurricane Harvey’s destruction in Texas.

Embraer (up 5.5%) – Share prices were up this week after the Pentagon announced the sale of 12 Super Tucano A-29 planes made by Embraer to Nigeria.

Transactions

Braxton Science & Technology Group has acquired Ingenicomm LLC, a provider of architecture, implementation, and deployment services for satellite ground systems.  Terms of the deal were not disclosed.

Forcepoint, majority owned by Raytheon in a joint venture with Vista Equity Partners has acquired RedOwl Analytics, Inc., a provider of security analytics focused on understanding and managing human risk.  Terms of the deal were not disclosed.

Jacobs Engineering Group, Inc. has acquired Blue Canopy Group, LLC, a provider of cloud, big data analytics, data science, and enterprise information technology (“IT”) consultancy and services for federal government and commercial markets.  Terms of the deal were not disclosed.

Point Blank Enterprises, Inc. has acquired United Shield International, LLC, a provider of personal ballistic and fragmentation equipment.  Terms of the deal were not disclosed.

Strata-G Solutions, Inc. has agreed to acquire WestWind Aerospace, Inc., a provider of rotary wing systems and integration solutions.  Terms of the deal were not disclosed.

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Industry Week in Review – August 25, 2017

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Aerospace & Defense Update

On Monday night, President Trump announced the U.S. will be sending additional troops and aircraft to Afghanistan.  The revised strategy could include as many as 3,900 additional troops that will be deployed “down to a tactical level” to better support the Afghan military.  The increased U.S. military support in Afghanistan will keep pressure on the Taliban to cease the fighting and bring negotiated peace with the Afghan government.  The additional troops will also play a critical role in counterterrorism missions to quell the rise of the Islamic State and Al-Qaeda cells in the region.  The Trump administration does not plan to publicly announce a withdrawal date or disclose any finite numbers on troop deployment levels.

According to top Pentagon budget official David Norquist, the Pentagon is prepared to operate under a short-term continuing resolution (“CR”) at the end of September if Congress is unable to pass a defense budget.  Although Norquist stated he prefers there not to be a CR, the continuing resolution is likely due to the focus on healthcare reform this summer and Congress’ inability to reach a consensus.  Additionally, Congress must work out large items such as the debt ceiling, new infrastructure, and tax legislation once lawmakers return in September.  The last extended government shutdown occurred in October 2013 and delayed military pay and benefits to service members.

Government Technology Solutions

The Social Security Administration (“SSA”) awarded CGI Federal, Leidos, and Northrop Grumman a 10-year, $7.8 billion IT services contract for new hardware and software, as well as associated services.  Leidos will perform this work through the legacy Lockheed Martin Information Systems & Global Solutions business.  The contract includes two base years and eight one-year options with specific bid ceilings for each business.  CGI, Leidos, and Northrop Grumman are eligible for up to $2.4 billion, $2.3 billion, and $3.1 billion in task orders, respectively.  The contractors’ focus on system development lifecycles is expected to help the SSA achieve its goal of increasing the use of automation in IT systems.

CliniComp International, a San Diego-based commercial electronic health record (“EHR”) vendor, has filed a lawsuit against the Department of Veterans Affairs (“VA”) arguing that Secretary David Shulkin broke Federal contracting rules by issuing a sole-source contract to Cerner for updating the VA’s EHR system.  The VA issued the sole-source contract to address its reportedly urgent need for crossover capabilities with the Department of Defense, which is currently utilizing Cerner software for its own EHR overhaul.  CliniComp, who currently holds smaller EHR contracts with both the VA and DoD, argues that it will take Cerner six to eight months to negotiate the terms of the sole-source contract.  They claim that this is plenty of time for the VA to instead compete a contract under accelerated full-and-open competition.  Additionally, CliniComp contends that the overall risky nature of this contract and the work performed could be mitigated by a multiple award contract.  CliniComp’s agency-level protest was already dismissed earlier this month, but it is yet to be determined how this current lawsuit will proceed.

Big Movers

Rockwell Collins (up 3.7%) – Share prices were up this week after merger discussions with United Technologies Corp. advanced, making it more likely a transaction could be reached.

BAE Systems (up 3.0%) – Share prices were up this week after the company unveiled a next-generation hardened single-board computer for space-based use.

Transactions

Arlington Capital Partners has acquired Shoreview Industries portfolio company Tex Tech Industries, Inc., a provider of composite fiber and fabric products used in ballistics protection and fire-retardant thermal acoustic insulation.  Terms of the deal were not disclosed.

Clarus Corp. has acquired Sierra Bullets, LLC, a provider of high-quality bullets for both rifles and pistols used for distributors, law enforcement agencies, and industry original equipment manufacturers.  The deal is worth an estimated $79 million.

Platinum Equity Holdings has agreed to purchase Exponent Private Equity portfolio company Pattonair, a provider of distribution and supply chain management services for aerospace and defense markets worldwide.  Terms of the deal were not disclosed.

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Industry Week in Review – August 18, 2017

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Aerospace & Defense Update

Based on a new report by the General Aviation Manufacturers Association (“GAMA”), shipments of general aviation airplanes totaled $9 billion during the first six months of 2017, representing a 3.4% decrease year-over-year (“YoY”).  However, Original Equipment Manufacturers (“OEMs”) supplied a total of 995 business jets, piston aircraft, and turboprops during this period, representing a 2.7% increase YoY.  Between the OEMs, Textron Aviation achieved the highest number of shipments, including 142 Beechcraft and Cessna aircraft as well as 31 Cessna 172 Skyhawks in 2Q17 alone.  Among business and luxury jet makers, Bombardier delivered 36 business jets during 2Q17, including 15 Global 5000 / 6000s.  Gulfstream supplied 30 total shipments whereas Embraer and Dassault delivered 24 and 17 shipments, respectively.

After months of strategy discussions within the Trump administration about U.S. troop involvement in Afghanistan, President Trump and his national security team, including Defense Secretary James Mattis, Secretary of State Rex Tillerson and National Security Adviser H.R. McMaster, will meet at Camp David on Friday to discuss the best path forward for U.S. troop involvement in the region.  The team is assessing a wide array of options, including large troop increases, large troop decreases, and using additional private military contractors.  Previously, Tillerson, Mattis, and McMaster have backed a proposal to deploy additional troops focused on training the Afghan special forces with the intention of demonstrating U.S. commitment to the region and dissuading counterinsurgency.

Government Technology Solutions

CACI International (“CACI”) posted strong organic growth in the second half of its most recent fiscal year, primarily as the result of its two largest-ever acquisitions – Six3 Systems and L-3 Communication’s National Security Solutions (“NSS”) division.  With two large contract wins with yet-unnamed agencies in its fourth quarter, which ended June 30, CACI recorded its sixth-straight three-month period of at least $1 billion in new awards.  CACI has generated $4.35 billion in FY2017, which exceeded analysts’ expectations and represented 16% year-over-year growth. The company is forecasting 2-4% top-line growth in FY2018.  After lowering its debt to adjusted EBITDA ratio to 3.2 from a high of 4.2, just following the NSS acquisition, CACI now has more “dry powder” for more acquisitions.  CEO, Ken Asbury, said he is particularly interested in adding new machine learning and data analytics capabilities to CACI’s portfolio.  Only 10% of CACI’s contracts are up for recompete in its next 12-months, which is well below the industry average of 15-20%.

Leidos just lost its second chance at a $564.3 million Army Corps of Engineers contract due to the perceived riskiness of the company’s acquisition of Lockheed Martin’s Information Systems and Global Solutions (“IS&GS”) segment.  Lockheed had previously pursued this contract, which was later awarded to SAIC, before the IS&GS divestiture was completed.  In its justification, the Army Corps of Engineers cited Leidos’ press release section titled “Cautionary Statement Regarding Forward Looking Statements”, which noted uncertainties from the merger including business disruption, operational problems, financial loss, and legal liability.  Such warnings, primarily directed towards investors, are commonplace in Securities & Exchange Commission (“SEC”) filings, but the Army Corps of Engineers saw Leidos’ as cause for concern.  This is the second time the U.S. Government Accountability Office (“GAO”) backed the Army’s position on the protest after originally doing so last October.  Similar uncertainties over the IS&GS acquisition also played a role in Leidos not winning a contract to manage the Nevada National Security Site in July.

Big Movers

HEICO (down 3.6%) – Share prices were down this week after the company agreed to purchase AeroAntenna Technology for $316.5 million in cash, plus a $20 million earnout payment if AAT meets earnings targets.

Elbit Systems (up 6.3%) – Share prices were up this week after the company confirmed that a jury found Hughes Network Systems to have infringed an Elbit Systems patent.

Transactions

B&E Group, LLC has acquired Safe Fuel Systems, Inc., a provider of testing, repair, overhaul and modification of fuel systems, hydraulics and accessories for major domestic and international civil transport and military aircraft.  Terms of the deal were not disclosed.

HEICO Corp. has agreed to purchase AeroAntenna Technology, Inc., a provider of high performance active antenna systems for critical defense applications, precision guided munitions, commercial aircraft.  The deal is worth an estimated $316.5 million.

H.I.G. Capital has completed the tender offer to acquire NCI, Inc., a provider of IT and professional services and solutions, primarily big data and data analytics, agile development, and intelligence-to-operations initiatives to defense, intelligence, healthcare, and civilian government agencies worldwide.  The deal is worth $283 million.

HPS Partners, LLC and Tennenbaum Capital Partners, LLC have agreed to acquire EagleTree Capital Portfolio Company Globecomm Systems Inc., a provider of design, integration, and operation of complex communication solutions with capabilities in satellite and wireless.  Terms of the deal were not disclosed.

JW Hill Capital has acquired Bandy Machining, Inc., a provider of complex, close-tolerance hinges that are used on numerous commercial and military aerospace platforms.  Terms of the deal were not disclosed.

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Industry Week in Review – August 11, 2017

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Aerospace & Defense Update

United Technologies Corp. is in takeover talks with Rockwell Collins, Inc. in what would be one of the largest aerospace deals in history.  In April, Rockwell Collins significantly increased in size as it closed a $6.4 billion acquisition of B/E Aerospace, which is expected to bring $3 billion in additional annual revenue to Rockwell’s existing $5.3 billion in sales.  Reportedly, the takeover price of Rockwell Collins would exceed $20 billion even though United Technologies executives have indicated the Company would focus on smaller deals.  Strategically, the deal makes sense for United Technologies as it would allow the Company to expand its current product offerings to include cockpit displays, communications systems, and other high-technology aviation products with little overlap.  The reported transaction would combine the largest and fourth-largest aircraft parts suppliers, providing the newly combined entity increased bargaining power with large aircraft makers like Boeing and Airbus.  Last week, Boeing announced its creation of an avionics business unit that puts itself in competition with key suppliers.  Rockwell Collins share price has increased as much as 7% since announcements about the potential takeover.

The U.S. Air Force placed a request of $52.5 million to acquire 140 Joint Light Tactical Vehicles (“JLTV”) from the JLTV Program for fiscal year (“FY”) 2018.  The service intends to replace its entire aging inventory of 3,720 Humvees with new JLTVs; however, the fleet management strategy is still being formalized, and there are no procurement plans for FY2019 through FY2022 in its current budget documentation.  Primary concerns over the Humvee inventory include frequent maintenance in the hot temperatures of the Middle East as well as heavy armor additions leading to increased strain on brake pads and limited power and agility.  The Air Force is joining the Army and the Marine Corps, who spearheaded the JLTV Program and expect to procure 49,100 and 5,500 vehicles, respectively.  Oshkosh, the manufacturer of JLTVs, announced that the Company will be able to meet the emerging demands of the Air Force without affecting Army or Marine Corps deliveries.

Government Technology Solutions

On Thursday, Jacobs Engineering Group won an eight-and-a-half-year IDIQ contract worth $4.6 billion to provide research and development and IT services for the Missile Defense Agency (“MDA”).  Northrop Grumman was the previous incumbent on this contract, having originally won the contract in 2005.  Jacobs will be responsible for managing MDA’s enterprise communications and IT environments.  As part of the program, the company will provide products and services to support testing, training, and operations.  Additionally, the contractor will be tasked with supporting MDA’s Missile Defense Integration and Operations Center by handling models and simulations.  Jacobs will complete the majority of this work at MDA’s main center at Schriever Air Force Base in Colorado, as well as in Huntsville, Dahlgren, and Fort Belvoir in Virginia.

The Department of Veterans Affairs (“VA”) revealed additional details this past week regarding its new electronic health records (“EHR”) system through a recently released sources sought notice.  Cerner has been selected to provide the software licenses, product integration, deployment planning, configuration management, testing, and other services in support of the new EHR system.  However, the company is expecting to seek additional partners to assist in the implementation of the system as well as integration with the Department of Defense’s (“DoD”) Genesis EHR system.  The VA opportunity is expected to be larger than the $4.5 billion DoD EHR contract, due in part to the increased scope of the project.  The VA’s EHR system will cover 1,600 care sites, 300,000 employees, and 9,000,000 veterans enrolled in the VA health care system.  The VA anticipates additional contract opportunities as the EHR system rolls out, which would encompass solutions such as network upgrades, communications, and other technical and management activities once the deal with Cerner is finalized.

Big Movers

Astronics Corp. (up 4.2%) – Share prices were up this week after the Company was selected to supply fuel tank access doors for the new family of long-range Boeing 777X and 787 Dreamliner airplanes.

Vectrus, Inc. (down 15.2%) – Share prices were down this week after the Company announced second quarter earnings with earnings and revenue down year-over-year.

Transactions

Arsenal Capital Partners has agreed to acquire Cyalume Technologies Holdings, Inc., a provider of chemiluminescent devices, primarily light sticks, whose applications include training ammunition, training and simulation, and specialty products.  The deal is worth an estimated $45 million.

KeyLogic Systems, Inc. has acquired CrossResolve, LLC, a provider of biometrics, forensics, identity management, and identity intelligence solutions and services to federal and private sector customers.  Terms of the deal were not disclosed.

Lanzen, Inc. has acquired the Petoskey, Mich. manufacturing operations of Demmer Corp., a provider of welded fabrication, light assembly, production machining, precision machining of contoured surfaces, and fixtures for the defense industry.  Terms of the deal were not disclosed.

PRC Composites, LLC has acquired Globe Plastics, Inc., a provider of compression, transfer, and injection molding as well as custom mold, insert, and tool making services for aerospace and other industries.  Terms of the deal were not disclosed.

Sierra Peaks Corp. has acquired Mechtronic Solutions, a portfolio company of Cornerstone Capital Holdings, LLC, a provider of custom, automated test systems and payload pods for the aerospace and defense industries.  Terms of the deal were not disclosed.

Solix Group AB has acquired Dynasafe International AB, a portfolio company of the Perusa Partners Fund 1, a provider of specialized services in unexploded ordnance clearance and weapons disposal solutions.  Terms of the deal were not disclosed.

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Industry Week in Review – August 4, 2017

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Aerospace & Defense Update

BAE System, Bombardier, and Huntington Ingalls all reported 2Q17 earnings this past week with strong results.  BAE reported earnings higher than consensus expectations with earnings per share (“EPS”) and revenue up ~17% and ~10% year-over-year (“YoY”), respectively.  BAE’s new CEO, Charles Woodburn, credited this growth to the increasing defense budgets worldwide.  Bombardier beat consensus Earnings Before Interest & Tax (“EBIT”) expectations and saw its shares increase as much as ~6%, while Huntington Ingalls beat consensus earnings expectations by ~23% with revenue up ~9% YoY.  Huntington Ingalls’ strong performance was primarily attributable to higher revenues from assault ships and the Legend-class National Security Cutter program.

Per a Boeing internal memo released on Monday, the company is launching a new business unit, Boeing Avionics, that will make aircraft controls and electronics.  The avionics technology will serve military, civil, and space vehicles that the company plans to bring into service over the next decade.  The unit will allow Boeing to vertically integrate its manufacturing process and cut costs.  However, through insourcing key technology, Boeing places itself in direct competition with key suppliers such as Rockwell Collins, Honeywell, and United Technologies.  Boeing Avionics will be led by Allan Brown, a senior defense executive and will grow its current workforce of 120 employees into 600 by 2019.

Government Technology Solutions

On Wednesday, Jacobs Engineering Group announced its intent to acquire CH2M Hill Companies, LTD for $3.3 billion in cash and stock to strengthen its reach in the government services and infrastructure sectors.  The deal comes at a time when U.S. engineering firms, like Jacobs, are likely to benefit from President Donald Trump’s proposed $1 trillion infrastructure spending plan.  Jacobs targeted CH2M for growth in water, transportation, environmental and nuclear capabilities.  The deal is expected to more than double Jacobs’ revenue from its buildings and infrastructure divisions and possibly reduce costs by up to $150 million by the end of the second year following a transaction.   Jacobs believes that the two firms’ complimentary capabilities, culture, and relationships will result in an enhanced platform for sustainable and profitable growth.  Post close CH2M stockholders will own 15% of Jacobs’ shares, which rose by 2.4% upon the announcement of the acquisition.

The Defense Information Systems Agency (“DISA”) announced Thursday its plans to upgrade its telecommunications operations in the Pacific Rim next year.  To modernize the network, the new Pacific Enterprise Services – Hawaii (“PES-HI”) program will shift existing analog communications for the Department of Defense (“DoD”) to an upgraded Internet Protocol (“IP”) technology base in order to integrate modern features, including voice over internet protocols and web conferencing.  Such telecom solutions had previously been provided by AT&T under the Joint Hawaii Information Transfer System (“JHITS”), which was first awarded in 2006.  That contract currently provides more than 45,000 Defense Switched Network telephone lines for U.S. personnel in addition to 3,100 point-to-point intra-Hawaii dedicated transmission circuits for the DoD.  DISA requested information on how to upgrade the system in 2012, and with JHITS set to expire in June 2018, officials plan on shifting legacy services onto the PES-HI platform until IP services are fully implemented.

Big Movers

Spirit AeroSystems Holdings (up 17.2%) – Share prices were up this week after the company reached a tentative agreement with Boeing on pricing terms related to parts its supplies for aircraft.

Leidos Holdings (up 4.8%) – Share prices were up this week after the company beat earnings with stronger revenue and backlog figures than analysts expected.

Transactions

Measure has acquired Pilatus Unmanned, a provider of drone customization for commercial customers.  Terms of the deal were not disclosed.

Bertin Technologies has acquired Exensor Technology AB, a provider of network unattended ground sensor systems for Homeland Security and military applications.  Terms of the deal were not disclosed.

Ricardo plc has agreed to acquire Control Point Corp., a provider of engineering and technology solutions for a range of sectors and industries, including defense, transportation, aerospace, logistics, and energy.  The deal is worth an estimated $10.2 million.

Jacobs Engineering Group has agreed to acquire CH2M Hill Companies, LTD, a provider of design, engineering, and program management to key infrastructure and government service sectors.  The deal is worth an estimated $3.3 billion.

AGC Aerospace & Defense, a portfolio company of Acorn Growth Companies, has acquired Telecommunication Support Services, Inc. (“TSS”), a provider of technical services around the world for all segments of the telecommunication and broadband industries, with an emphasis on DoD programs.  Terms of the deal were not disclosed.

Constellis Group, Inc., a portfolio company of Apollo Global Management, LLC, has agreed to acquire OMNIPLEX World Services Corp., a portfolio company of Altamont Capital Partners, a provider of government security and background investigation services.  Terms of the deal were not disclosed.

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Industry Week in Review – July 14, 2017

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Aerospace & Defense Update

Earlier this week, the Terminal High Altitude Area Defense (“THAAD”) system, which was previously designed for short-range defense, had its first test against an intermediate-range ballistic missile (“IRBM”), a weaponry system mirroring North Korea’s.  The results of the test were promising as the system seamlessly defended against the incoming threat.  The success adds credibility to the U.S. military’s missile defense program, which has come under intense scrutiny in recent years, due to various delays.  Recently, THAAD has been implemented in Guam and South Korea, which has drawn resistance from China and Moscow, who believe the implementation expands U.S military infrastructure in Asia and risks upsetting the military dynamic in the region.  However, the U.S contends the program is vital to regional stability and global safety.  The Missile Defense Agency plans to deliver 52 more THAAD systems to the U.S. military by the end of 2018, totaling 210 deliveries since 2011.

The U.S. Navy recently announced its search for a multi-mission guided-missile frigate that is both agile and lethal.  The competition calls for private companies to update any existing frigate designs to create a ship capable of joining a full carrier strike group and withstanding war-zone environments.  By drawing from already existing designs, the Navy hopes to speed up the process and deploy the ship with the fleet as soon as possible.  In addition to speed, durability, and fighting capabilities, the Navy anticipates the frigate will contain sensors connected to the rest of the fleet, expanding the mission viewpoint.  The new frigate program will be called FFG(X). The Navy expects to award this contract in 2020 and is planning to buy one ship per year beginning in 2020.

Government Technology Solutions Update

Despite overwhelming support from the House of Representatives and the White House, the Modernizing Government Technology Act has stalled in the Senate.  The IT modernization bill passed the House in May, three weeks after its introduction; however, the Senate Homeland Security and Government Affairs Committee (“HSGAC”) has yet to schedule a committee markup. Concerns over funding mechanisms have arisen as a result of the General Services Administration’s (“GSA”) reorganization, which rolled the Technology Transformation Service (“TTS”) up into the Federal Acquisition Service.  The House’s legislation, naming TTS as the home of the central fund for the bill, creates an obstacle as the fund will now need to move to the GSA’s administrative level.  Regardless, the bill will most likely have to go through the House again to accommodate the changes to the GSA’s structure.

The National Oceanic and Atmospheric Administration (“NOAA”) has awarded positions to 23 firms for the ProTech-Satellite Domain IDIQ opportunity.  The award consists of five full-and-open awardees and 18 small business awards.  The vehicle will be used for professional, technical, scientific, and engineering services under the Satellite Domain.  This opportunity is a $3 billion indefinite delivery / indefinite quantity (“IDIQ”) contract vehicle supporting of five Domains: Satellite, Ocean, Fisheries, Weather, and Enterprise Operations.  There are four task areas under the Satellite Domain consisting of: Studies, Analyses and Reports, Applied Research and Consulting, Data Collection and Surveys, and Program and Project Management.  

Big Movers

FLIR Systems, Inc. (up 8.8%) – Share prices were up this week following a strong financial performance after the appointment of a new CEO in late May and a stock rating upgrade from Raymond James this week

Rockwell Collins (up 3.9%) – Share prices were up this week following the announcement of the company supplying tactical radios for the US, Coalition Forces as part of a joint venture with BAE Systems

Transactions

Consolidated Machine & Tool Holdings, LLC has acquired Astro-Tek Industries, Inc., a provider of specialized equipment used by Tier 1 aerospace and defense companies. Terms of the deal were not disclosed.

Ensign-Bickford, Inc. has acquired Honeybee Robotics, Ltd., a provider of advanced robotic and electromechanical systems. Terms of the deal were not disclosed.

Agile Six Applications, Inc. has acquired The Informatics Applications Group, Inc., a provider of leading mission critical program initiatives in support of those who serve in the military and civilian sectors of our government.  Terms of the deal were not disclosed.

Convergint Technologies, LLC has acquired SigNet Technologies, Inc., a provider of integrated physical security management systems.  Terms of the deal were not disclosed.

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Industry Week in Review – July 7, 2017

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Aerospace & Defense Update

Congress is currently discussing the 2018 military budget, which is centered around two main ideas: the human capital component and equipment element.  The human capital portion is comprised of increasing military pay and growing the number of active troops.  Several house members are advocating for a 2.1% pay raise, while others are proposing a 2.9%, which is intended to compensate for years of not keeping par with private-sector wage increases.  Furthermore, the House plans to add nearly 19,000 more troops than President Trump’s original budget request.  From an equipment standpoint, the F-35 Joint Strike Fighter is the headline product with an expected purchase order that ranges from 70 to 94 new aircraft, while the Navy is expected to receive anywhere from 5 to 13 new ships. The various budget proposals in House and Senate are ~$700 billion, which are well above the $549 billion cap mandated by Congress for fiscal 2018.  Congress plans to work towards a solution to either revise or revoke these caps in the coming months.

Last week’s biennial Paris Air Show highlighted the ever-increasing presence of data-analytics to predict aircraft’s maintenance schedules.  Boeing foresees its Boeing Global Services (“BGS”) business to benefit greatly from the trend, predicting sales to reach $50 billion by 2020.  BGS serves defense and commercial customers with over 300 locations and approximately 20,000 employees.  This move toward providing airlines data services is one example of the recent trend of original aircraft manufacturers (“OEM”) insourcing work.  At the show, Boeing launched its operations system AnalytX, which combines the work of hundreds of its analytic experts and data tracking products to help airlines save time and money with a better understanding of when its aircraft are due for the shop.  Currently, BGS has 7% share of the commercial support market and 9% of the defense support market.  BGS hopes to take advantage of its broad customer base to become a leader in providing data-analytic services to both commercial and government customers.

Government Technology Solutions Update

On Monday, NCI, Inc. announced that it had signed a definitive agreement to be acquired by private equity firm H.I.G. Capital.  NCI provides IT and professional services and solutions, to defense, intelligence, healthcare, and civilian government agencies worldwide.  Following this announcement, a tender offer will commence on July 17th to acquire all outstanding shares of NCI’s class A and Class B common stock for $20 per share.  Despite a somewhat turbulent first quarter during which NCI announced that it had launched an investigation into the embezzlement of $19 million by its controller, NCI has since turned in a strong second quarter performance.  Following a handful of new award wins, including a prime position on the Army’s $35 billion Responsive Strategic Sourcing for Services (“RS3”) contract, the company boosted its full-year sales outlook and expects the “first organic sales increase in six years.”  H.I.G. hopes to help NCI accelerate its sales growth, enhance its solutions to its customers, and create new opportunities for employees.

Washington Technology recently released its second quarter Contractor Confidence Index, gauging expectations from the government contracting community in areas such as revenue growth, hiring, and job satisfaction.  With a base value of 100, the index measured at 112.9 in the second quarter, slightly down from the all-time high of 113.3 in the first quarter, but still indicating an overall bullish sentiment. Over 47% of respondents indicate that the government contracting market is headed in a positive direction, and 44.5% of survey respondents expect their firms to increase hiring, while job satisfaction remained high at 67%.   Many in the industry feel that current conditions are still very conducive to growth in the market, and are expecting the Federal government to prioritize spending in key areas such as defense and IT modernization.    56% of survey respondents expect their firm revenue to grow compared to 10% expecting a decline in sales.

Big Movers

Sparton Corporation (up 5%) – Share prices were up this week after the company announced that it agreed to be acquired by Ultra Electronics

Booz Allen Hamilton (up 3.7%) – Share prices were up this week after the company was awarded a $40 million single-award BPA by the Defense Information Systems Agency (“DISA”).

Transactions

Data Systems Analysts, Inc. has acquired Project Performance Company LLC, a provider of knowledge and information management, energy management and environmental sustainability, enterprise systems development and operations, and cyber security and information assurance solutions.  Terms of the deal were not disclosed.

H.I.G. Capital has agreed to acquire NCI, Inc., a provider of IT and professional services and solutions, primarily big data and data analytics, agile development, and intelligence-to-operations initiatives to defense, intelligence, healthcare, and civilian government agencies worldwide.  The deal is worth approximately $290 million.

Mercury Systems, Inc. acquired Richland Technologies, LLC, a provider of safety-critical and high integrity systems, software, and hardware development as well as safety-certification services for mission-critical applications.  Terms of the deal were not disclosed.

National Technologies Associates, Inc. has acquired V1 Analytical Solutions, a provider of intelligence and information solutions, special activity support, and specialized training for defense, intelligence, and other government customers.  Terms of the deal were not disclosed

Odyssey Investment Partners, LLC has agreed to acquire CPI International, Inc., a provider radio frequency, microwave, power, and control products for defense, communications, medical, and scientific purposes.  The deal is worth approximately $800 million.

Smith & Wesson Corp. agreed to acquire Gemini Technologies, a provider of high quality suppressors and accessories for the consumer, law enforcement, and military markets.  Terms of the deal were not disclosed.

StandardAero Holdings, Inc. has agreed to acquire Vector Aerospace Corporation, a provider of aviation maintenance, repair, and overhaul (“MRO”) services.  Terms of deal were not disclosed.

Ultra Electronics Holding Plc has agreed to acquire Sparton Corp., a provider of services for complex electromechanical devices, as well as sophisticated engineered products.  The deal is worth approximately $235 million.

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Industry Week in Review – June 30, 2017

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Aerospace & Defense Update

The Senate Armed Services Committee unveiled a $700 billion defense authorization bill that will set the stage for a showdown with House budget planners and the White House over national defense spending priorities.  The Senate plan calls for a lower wage increase for troops compared to the House version as well as a smaller boost to troop levels.  Instead, the additional funding would procure new equipment, including $3.1 billion for 24 Joint Strike Fighters, $1.2 billion for 12 MC-130J aircraft for the Air Force, and $400 million for two KC-46A tankers.  The Navy would receive an additional $1.7 billion for 10 F/A-18 Super Hornets and six P-8A Poseidon aircraft along with an incremental $5.0 billion in funding for five ships over the president’s plan.  The Army would receive an increase of $2.2 billion for ground combat vehicles and $3.0 billion for helicopter procurement.  With the Senate, House, and White House proposals far exceeding the $549 billion sequestration cap, Republican and Democrat lawmakers will need to negotiate a deal to surpass the established cap.

In panel deliberations for 2018 defense spending legislation, Representative Barbara Lee led an amendment to remove the Authorization for Use of Military Force (“AUMF”) language from the bill.  The AUMF, signed by President George W. Bush in 2001, authorized the president to use “all necessary and appropriate force” against persons who participated in the 9/11 attacks.  Although that bill passed nearly 16 years ago, the executive branch has continued to call upon the AUMF to bypass Congress and authorize troop deployments and other military measures to counter actions of various terrorist and militant groups.  The amendment aimed to end what Lee described as “a blank check” for the president and reestablish Congressional oversight of the president’s war–making powers.  The House Appropriations Committee approved the amendment and will send the bill, without the AUMF, to the House floor.

Government Technology Solutions Update

IBM and the Air Force Research Laboratory (“AFRL”) are uniting efforts and resources to develop a supercomputing system to deliver state-of the-art sensory processing.  IBM’s TrueNorth Neurosynaptic System’s artificial intelligence (“AI”) capabilities provide the ability to convert data such as images, text, and audio into symbols.  AFRL seeks to combine this technology with existing symbol processing systems to create an innovative and cerebral machine capable of deep neural-network learning and information discovery.  Weapons systems are expected to benefit the most from this newly enhanced system. The Air Force hopes that this new system can improve computing capabilities and enable the Air Force and the country as a whole to maintain its technical advantage among world powers.  The technology is expected to be implemented mid-year 2018.

In line with recent government IT trends, the Air Force is implementing several initiatives to help detect and protect its weapons systems against potential cybersecurity threats.  These plans include the engineering of hardware that can patch holes in security walls, implement agile computing automation that can quickly detect threats, and identify potential cybersecurity weaknesses in early stages of weapons development.  In addition, the Air Force has created a new unit specializing in the detection of potential cyber threats called the Cyber Resilience Office for Weapons Systems, (“CROWS”).  Through detailed analysis and research, CROWS works to identify weaknesses in the weapons systems to further mitigate risks of future cyber-attacks.  By operationalizing these efforts, the Air Force hopes to better secure mission planning as well as excel in defending its systems against cyber-attacks in the future.

Big Movers

Vectrus Inc. (up 7.1%) – Share prices were up this week on unusually higher trading volumes.

ManTech International (up 6.5%) – Share prices were up on a positive stock upgrade from Loop Capital.

Transactions

AMS Technologies AG has acquired Elforlight Ltd., a provider of diode pumped solid state lasers and optical parametric oscillators.  Terms of the deal were not disclosed.

Hensoldt Sensors GmbH has agreed to acquire Kelvin Hughes Ltd., a provider of security and maritime radar solutions.  Terms of the deal were not disclosed.

Kellstrom Aerospace has acquired Vortex Aviation, Inc., a provider of on-wing engine maintenance services and quick-turn engine repairs across all major commercial aircraft engine platforms.  Terms of the deal were not disclosed.

Spell Capital Partners, LLC. has acquired Jet Edge, Inc., a provider of ultra-high pressure waterjet technology for the world’s leading airlines, the automotive industry, and industrial manufacturers.  Terms of the deal were not disclosed.

Trelleborg AB has agreed to acquire Automated Dynamics, a provider of composite parts in a wide variety of shapes and sizes, including cylinders, cones, box beams, I-beams, coils, flat laminates, and complex geometries.  Terms of the deal were not disclosed.

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Industry Week in Review – June 23, 2017

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Aerospace & Defense Update

Both Boeing and Airbus outperformed analyst order expectations at the Paris Airshow this past week.  At the end of the week-long show, Boeing and Airbus booked $75 billion and $42 billion in orders, respectively.  As buyers have strayed from buying bigger jets, single-aisle aircraft are driving both companies’ revenues.  Boeing’s new 737 Max garnered 16 new customers and 361 orders at the Paris Airshow while in comparison, Airbus received 286 single-aisle plane orders.  Boeing noted that 214 of the orders for the 737 Max were order conversions from other models, but the company is interpreting these conversions as an effort for customers to more quickly acquire the new plane.

During its second intercept test, the Standard Missile-3 Block IIA (“SM3 Block IIA”) failed to intercept a test missile launched off the coast of Hawaii.  The SM3 Block IIA is a joint effort between Japan and the U.S. designed to intercept short and intermediate range ballistic missiles.  The effort was initiated in light of rising missile threats from North Korea.  Though the USS John Paul Jones destroyer successfully tracked and engaged the test missile using the AN / SPY-1 radar and the latest Aegis Combat System Baseline 9.C2, it failed to intercept.  Program officials will now conduct extensive reviews of the test data to find the cause of failure.

Government Technology Solutions Update

The Trump Administration plans to launch a major upgrade to its antiquated Federal IT platform.  This endeavor is planned to be outsourced to private enterprises, such as Accenture, Amazon, AMD, Apple, IBM, and various other commercial and government services providers.  President Trump and select cabinet members held a conference earlier this week with several tech CEOs to further discuss desired internal IT advancements.  Using part of the estimated $95 billion Federal IT budget in government fiscal year 2018, Trump intends to initiate the process of revamping the Federal government’s IT infrastructure, with the objective of providing higher quality services at lower costs.  Data center consolidation, cloud migration, and modernizing legacy systems are at the forefront of this IT overhaul, which will require leaning heavily on the private sector.  Several government agencies have welcomed this initiative, including VA Secretary David Shulkin, who was acclaimed by the Trump Administration this month for transitioning the outdated Vista electronic health records system to a more effective and cost efficient commercial provider.  This is the first of a series of anticipated modernizations at the Federal level.

After two years of protests and setbacks, Raytheon has finally prevailed with a $1 billion contract to provide cybersecurity services for the Department of Homeland Security (“DHS”).  The project, known as DOMino or Development, Operations and Maintenance, requires Raytheon to protect the information systems of over 100 Federal government departments and agencies.  The contract was first awarded in 2015, however, Northrup Grumman quickly protested, citing a potential conflict of interest surrounding the company’s hiring of a former DHS official.  With the protest now resolved, Raytheon will move forward supporting the National Cybersecurity Protection System, (“NCPS”), also known as EINSTEIN, operationally.  The NCPS, which is part of the Federal government’s initiative to strengthen its cyber capabilities, provides various Federal networks with intrusion prevention and detection, data analytics, and information sharing services.

Big Movers

Triumph Group (down 7.2%) – Share prices were down this week as investors pulled back from the strong upward momentum after their full year results.

Kongsberg Gruppen (up 7.3%) – Share prices were up as the company announced a partnership with Raytheon to offer the Naval Strike Missile for the Littoral combat ship.

Transactions

Safran S.A. has acquired ISEI, a provider of flight data acquisition systems and associated services for helicopters and light airplanes.  Terms of the deal were not disclosed.

Down Range Solutions Group has acquired U.S. Optics, Inc., a provider of rifle scopes for hunting, sporting, military, and law enforcement applications.  Terms of the deal were not disclosed.

HEICO Corp. has acquired Carbon by Design LP, a provider of composite components for unmanned aerial vehicles (“UAV”), rockets, spacecraft, and other specialized applications.  Terms of the deal were not disclosed.

IPG Photonics Corp. has agreed to acquire Innovative Laser Technologies, Inc., a provider of custom laser workstations used to produce high-value, mission-critical components for numerous industries, including defense, energy, and aerospace.  The deal is worth an estimated $135.0 million.

Kaneka Americas Holding, Inc. has agreed to acquire Applied Poleramic Incorporated, a provider of high performance composites to OEMs and their subcontractors.  Terms of the deal were not disclosed.

The MEL Group has acquired Oldbury Engineering Co. Ltd, a provider and repairer of aircraft ground support equipment.  Terms of the deal were not disclosed.

Novaria Group has acquired Space-Lok, Inc., a provider of high quality fasteners and multiple component mechanisms.  Terms of the deal were not disclosed.

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Industry Week in Review – June 16, 2017

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Aerospace & Defense Update

The 52nd biennial International Paris Air Show will take place from June 19th – 25th and will bring together   2,379 exhibitors from 47 countries to showcase the latest technological innovations in the industry.   Notably, the show will include the first showing of the F-35 at the Paris Air Show and additional information regarding Boeing’s New Midsize Airplane (“NMA”).  Although the F-35 has participated in other airshows, the demonstrations at the Paris Air Show will be the first opportunity for the joint strike fighters to showcase their aerodynamic capabilities through “acrobatic and high G-force maneuvers.”  Boeing will also discuss the manufacturing processes and production systems that allow it to achieve a twin-aisle cross-section with single-aisle operating costs in the NMA.  Most industry analysts anticipate new order announcements at the show to be light relative to past years.

During a meeting between U.S. Secretary of Defense Jim Mattis and Qatari Minister of State for Defense Khalid al-Attiyah, the U.S and Qatar signed a $12 billion letter of acceptance to finalize the sale of 36 F-15 fighter jets, spares, logistical support, and munitions.  The sale was cleared by the U.S. State Department in November and was initially an agreement covering up to 72 jets rather than the signed 36.  However, this agreement will still extend the F-15 production line, once at risk for closure, well into the 2020s. The deal comes at a time when U.S Gulf allies are boycotting Qatar, accusing the country of supporting terrorism.

Government Technology Solutions Update

Over the last year, the CIA has transitioned to cloud computing through Amazon Web Service’s (“AWS”) platform, which has had a material impact on the agency’s operations and security posture.  The CIA’s top tech executive, John Edwards, stated, at the AWS Public Sector Summit, that cloud computing has directly led to improved security, enhanced mission quality, and reduced costs associated with the maintenance of legacy systems.  Part of AWS’s success has been attributed to the Commercial Cloud Classified Marketplace, where customers can evaluate several types of software packages, developer tools, and other products to determine which one most adequately suits various needs.  This marketplace contains over 100 different apps and has drastically shortened acquisition cycles, which in turn enhances mission efficiency.  The cloud’s popularity spans a plethora of agencies in the federal government and its implementation has increased more than 200% year over year.

Jon Frank, former controller of NCI Inc., pled guilty on Friday to the charge of federal wire fraud.  The former executive has admitted to stealing approximately $19.3 million over a 10-year period.  Per the Department of Justice (“DOJ”), this was done through the creation of fraudulent documentation which masked the transfer of funds into Mr. Frank’s personal account as reimbursements to the company’s health insurance administrator.  To aid in collecting lost funds, Mr. Frank must forfeit assets as well as fulfill a restitution order, and could now be facing a 20-year prison sentence as well as further civil charges.  NCI is unsure how long the process will take to recover the lost funds.  Despite the turbulence caused by the ongoing investigation, NCI experienced a strong first quarter in 2017, exceeding earnings expectations and raising revenue guidance for the full year, citing margin improvements caused by an increase in the contribution of fixed-price contracts to its revenue mix as well as additional task order awards.  The company’s stock has risen over 50% since nearing a 52-week low in January when news of the embezzlement first broke.

Big Movers

Booz Allen Hamilton (down 17.3%) – Share prices were down this week after the company announced that the Justice Department is investigating the Company’s accounting and the way it charges the government.

Science Applications International Corp (down 7.9%) – Share prices were down after the Company reported revenue below Wall Street targets and lower margins.

Transactions

Compunetix, Inc. has acquired Circuits, LLC, a provider of built-to-spec flexible printed circuit boards for the defense, aerospace, communication, high speed computing, medical, and semiconductor markets.  Terms of the deal were not disclosed.

Epec, LLC has agreed to acquire Putnam RF Filters, Inc., a provider printed circuit board based RF filters, diplexers, and other custom products.  Terms of the deal were not disclosed.

Fincantieri – Cantieri Navali Italiani S.p.A. has acquired Isselnord SRL, logistic support engineering and maintenance activities related to orders in the naval sector.  Terms of the deal were not disclosed.

GE Aviation has acquired OC Robotics Ltd, a provider snake-arm robots and software for confined and hazardous environments.  Terms of the deal were not disclosed.

Liberty Hall Capital Partners has acquired Dunlop Aircraft Tyres Ltd., a provider and re-trader of aircraft tires.  The deal is worth an estimated $135.0 million.

Nammo A/S has acquired Moog, Inc.’s European Space Propulsion Businesses, a provider of liquid rocket engines, thrusters, valves, and components for satellite and in-space propulsion.  Terms of the deal were not disclosed.

Z Systems Corporation has acquired Logistics Support, Incorporated, a provider of a range of management consulting, logistics, supply chain management, and other professional services to Federal and commercial customers.  Terms of the deal were not disclosed.

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