Aerospace & Defense Update
Warren Buffet’s Berkshire Hathaway has agreed to purchase Precision Castparts (“PCP”) for $37 billion, approximately 14x PCP’s LTM EBITDA. This deal is the largest purchase by Mr. Buffet to date, and demonstrates confidence that airlines will continue to drive positive momentum for the aerospace manufacturing market. This transaction also exemplifies the recent wave of consolidation in the aerospace industry. Berkshire Hathaway is currently one of PCP’s largest shareholders with 4.2 million shares (~3% of PCP). The deal is expected to close in the first quarter of 2016.
In a recent report by FlightGlobal, the General Aviation Manufacturers Association (“GAMA”) stated the general and business aviation sector experienced mixed results in Q2. Total fixed-wing aircraft deliveries decreased, however, the sales increased from $154 million to $5.9 billion. Single-engine pistons also experienced an increase from 176 airplanes delivered in Q1 to 234 in Q2. Furthermore, Argus International reported an increase in business jet activity (5.6% YOY increase for July). New models such as the Bombardier’s Challenger 350 and Embraer’s Legacy 500 helped drive business jet deliveries, which increased from 172 units last year to 181. Finally, pre-owned business jets saw a decline of 6.1% from last year, but experienced a 17.4% increase in asking prices.
Government Technology Solutions Update
The U.S. Cyber Command (“USCYBERCOM”) is planning to establish a five-year $460 million multiple-award indefinite delivery / indefinite quantity (“IDIQ”) contract for cyber operations and planning support. USCYBERCOM is the central command of the Department of Defense (“DoD”) cyberspace capabilities and an integrator of the DoD’s cyber expertise. The General Services Administration (“GSA”) Federal Systems Integration and Management Center (“FEDSIM”) issued a request for information (“RFI”) in June and is expected to release a request for proposals (“RFP”) next month on behalf of USCYBERCOM. Work on this contract will include a focus on directing operations and defense for the DoD Information Network (“DoDIN”) in addition to managing the full-spectrum of defense cyberspace operations.
Multiple Federal agencies are searching for contractors to keep on call as part of a new proactive measure to manage post-cyber breach cleanup. The Office of Personnel Management (“OPM”) demonstrated the need for revamped security measures following two recent cyber attacks. Instead of offering one-off contracts, the GSA in conjunction with the DoD is looking to enter a five-year blanket purchase agreement with multiple contractors and is committing to spend at least $500 million over the life of the contract. However, the agency notes that the $500 million is not a contract ceiling and the total value could exceed the initial estimates without requiring a modification to the contract. The primary benefit of on call contractors is a quicker response times to major data breaches, facilitated by previously agreed-upon pricing structures with identified providers.
Precision Castparts (Up 18.9%) – Shares were up this week in response to the news of Berkshire Hathaway’s acquisition of PCP. The offer price of $235 per share for PCP was a 21.2% premium over the closing price on August 7th.
LMI Aerospace (Up 12.3%) – Shares were up this week in response to a strong 2Q15 earnings report, with an increase in top-line revenue of ~5%. Through the Company’s revamping efforts, operating profit in the aero structures business in the first half of 2015 increased $5 million over the same period a year ago.
Berkshire Hathaway to acquire Precision Castparts, a manufacturer of metal components and products for aerospace, power, and general industrial markets. The deal is worth an estimated $37 billion.
Meggitt PLC to acquire the advanced composites businesses of Cobham plc, a developer of highly engineered aerospace composite engine components, radomes, and complex secondary structures. The deal is worth an estimated $200 million.
Impresa Aerospace LLC acquired Dynamic Solutions LLC, a supplier of electro-dynamic vibration test equipment, and test solutions. Terms of the deal were not disclosed.
Air Industries Group, Inc. to acquire Compac Development Corporation, a manufacturer of RFI / EMI shielded enclosures for electronic components. Terms of the deal were not disclosed
Victory Park Capital to acquire GLE Precision, a provider of tungsten carbide machining, ceramic machining, and other hard exotic material machining. Terms of the deal were not disclosed.
CSC to acquire Fruition Partners, Inc., a provider of cloud service management focusing on technology-enabled tools and solutions. Terms of the deal were not disclosed.
Salient Federal Solutions to merge with CRGT. Salient is a provider of IT engineering, and intelligence analytic services. CRGT is a provider of information management and technology services. The combined company, Salient CRGT, will be backed by Bridge Growth Partners, LLC and Frontenac Co. Terms of the deal were not disclosed.