Industry Week in Review – August 4, 2017
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.
