Industry Week in Review – August 2, 2013

This week the Senate Appropriations Defense Subcommittee approved a $594 billion defense budget for the 2014 fiscal year, further easing uncertainty about future defense spending. The Subcommittee voted in favor of a bill that provides the Pentagon with a $516.4 billion base budget and an additional $77.8 billion for Overseas Contingency Operations.  The bill calls for increased funding in multiple areas, such as restoring $3 billion to readiness accounts, adding over $320 million to Naval shipbuilding initiatives, and introducing a 1% pay increase for various personnel.  Among the components of the bill is a new spending restriction on the F-35 Joint Strike Fighter program that, although providing full funding for the purchase of 29 new aircraft in 2014, reduces advanced procurement for 2015 in order to focus on testing, design, and development of the current aircraft.  To counteract the proposed funding increases for specific programs, the bill looks to reinforce Defense Secretary Chuck Hagel’s planned pay cuts and 20% personnel reduction to create a savings of about $8 billion.  Additionally, the Subcommittee hopes to carefully reduce spending within the budget and transfer $12.6 billion of “wasteful, unnecessary, and duplicative” spending from lower to higher priority programs.

Big Movers

EADS N.V. (Up 2.2%) – Shares were up this week after EADS announced plans to restructure the Company’s business divisions and rebrand itself as Airbus, its commercial aerospace division, in 2014.

CGI Group, Inc. (Up 12.4%) – Shares were up this week after CGI Group announced its fiscal year third quarter earnings of $0.68 per share and $2.57 billion in revenue, both of which beat analyst estimates by 6.8% and 2.0%, respectively.

Relevant Transactions

Integrated Missions Solutions, LLC has agreed to acquire Michael Baker Corporation, an architecture, construction, and engineering firm.  Integrated Mission Solutions, an affiliate of DC Capital Partners, will use the acquisition to increase its global presence and expand its engineering capabilities to execute larger projects.  Michael Baker shareholders will receive $40.50 per share, valuing the transaction at $397 million.

Accenture Federal Services has agreed to acquire ASM Research, Inc.,a provider of advanced information technology and services to U.S. Defense and Federal health clients.  Accenture will use the acquisition to expand its Federal health capabilities, serve military personnel, and support its growing health business. Terms of the deal were not disclosed.(1)

(1) KippsDeSanto & Co. served as exclusive financial advisor to ASM Research, Inc.

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