Industry Week in Review – August 19, 2011

The U.S. government is taking the first steps since its downgrade to avoid a possible double-dip recession. Fed officials announced this week that they will hold short-term interest rates at record, near zero, levels, until at least the middle of 2013, in an effort to spur economic growth. Additionally, the Fed discussed the use of quantitative easing, but, due to the surge in inflation in July (core inflation increased 0.2%, 1.8% since June of last year), a third round of government bond purchases will most likely be postponed.

The White House has also taken steps to prevent a second recession, directing the Defense Department, along with all federal agencies to draw up 2013 budget options that will meet the strict spending guidelines laid out in the Budget Control Act of 2011. Every government office will have to submit proposals based on two scenarios—a 5% cut and a 10% cut from 2011 discretionary spending—very close to what the DoD would experience given the first $350 billion spending cut and possible $1.2 trillion trigger. The 10% scenario, for example, would lower the DoD budget to $477 billion, just $5 billion above what the trigger would instate, however, supplemental spending on overseas operations in Iraq and Afghanistan, veterans programs, and possibly military pay, would be exempt from all spending cuts.

Notes on some big movers:

AeroFlex Holding Corp. (Down 26.2%) – Shares are down this week after 1Q2012 guidance was released below analysts’ estimates. AeroFlex forecasted 1Q2012 revenue and adjusted EBITDA of $160 – $165 million and $24 -$27 million, respectively, while the market was expecting revenue of $175 million and EBITDA of $42 million.

BE Aerospace Inc. (Down 12.1%) – Shares are down due to broader market forces as well as RBC Capital’s downgrade of BE Aerospace two notches from Top Picks List at RBC Capital to Outperform.

Notes on some relevant transactions:

General Dynamics to acquire Vangent Inc., a subsidiary of Vangent Holding Corp, for $960 million, or 11.0x LTM EBITDA. Vangent Inc., majority-owned by Veritas Capital, is a leading provider of healthcare information-technology and business systems to federal agencies. The acquisition will add depth and breadth to General Dynamics’ healthcare IT organization and create a Tier 1-level healthcare IT business unit.

GTSI Corp. to acquire Information Systems Consulting Group Inc. (“InSysCo”), a privately held Federal IT professional service provider, for $14.4 million. The acquisition expands GTSI’s professional services capabilities in the areas of software and database development and maintenance. InSysCo will help grow GTSI’s professional services business component.

Dovel Technologies to acquire ZapThink LLC, a provider of thought leading content, training, advisory, and expertise to an audience of over 20,000 senior IT executives, enterprise architects, and other IT practitioners. The acquisition will allow Dovel Technologies to expand its pool of talent and create more customized courses to further educate the market on the realities of SOA and Cloud. The details of the deal were not disclosed.

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