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.
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.
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.