Aerospace & Defense Update
In an effort to increase national defense spending, defense contractors have ramped up lobbying efforts in Washington. In the second quarter of 2015, the top 50 defense contractors spent over $58 million on lobbying, an increase of 28% from the same quarter last year. The two firms with the largest investments, General Dynamics and Lockheed Martin, spent a combined $6.2 million during 2Q15 on defense issues.(1) Since 2011, the defense base budget has decreased from $528 billion to $496 billion due to budget caps. Defense firms are hoping the millions spent in lobbying the budget controls, set forth in the National Defense Authorization Act, will help increase or eliminate these caps moving forward.
Both BAE Systems and Airbus Group recently reported first half 2015 earnings. While BAE’s 2015 first half revenue increased by 11% (compared to 2014 first half revenues), its earnings per share (“EPS”) decreased by 3% from the same period last year. BAE’s second half guidance anticipates the company winning additional business from its Eurofighter Typhoon combat jet contract before year end. BAE’s Eurofighter partner, Airbus, also reported earnings this past week, reiterating confidence the two companies will be able to retain the current contract orders for the jet. Airbus reported strong first half 2015 results, including a 34% increase in EPS from the same period in 2014.
Government Technology Solutions Update
General Services Administration (“GSA”) Commissioner, Thomas Sharpe, has announced that the agency is continuing to review feedback on its proposal for contractors to submit pricing data for every transaction. In an effort to facilitate better, more cost-effective decisions among agencies, the proposal would require vendors to electronically report prices paid for services purchased through GSA vehicles. However, some contractors have expressed concern that the proposal would limit wages, stunt growth, and hurt small businesses. While the GSA estimates an average additional burden of six hours per month per company, one independent contractor association places the burden at 238 hours for infrastructure setup and 38 additional hours per month to report data. The GSA intends for its current review of contractor concerns to help officials better understand the effect of the burden, with an appreciation that it may ultimately lead to increased contractor prices.
The U.S. Department of Veterans Affairs (“VA”) announced this week the departure of its Deputy Chief Information Officer (“CIO”), Stephen Warren. Warren is expected to leave the VA on August 28, 2015 and transition to a position as the CIO of the Officer of the Comptroller of Currency (“OCC”). During his time as Deputy, Warren received some criticism for ineffective or vulnerable IT systems. However, others at the VA credit his recent efforts to create effective cybersecurity defense systems and formation of a new cybersecurity strategy team as the foundation for the VA’s continued efforts to improve its defenses against cyber attacks. A replacement for Warren has not been announced, temporarily leaving in question who will run the $4 billion VA IT department, which Warren handled on an acting basis during his two-and-a-half year tenure.
Engility Holdings (Up 38.9%) – Shares were up this week in response to both 2Q15 earnings beating analyst estimates and improved management EPS guidance.
Leidos Holdings (Up 8.9%) – Shares were up this week in response to 2Q15 earnings beating analyst estimates.
Rockwell Collins, Inc. to acquire International Communications Group, Inc., a designer, developer, and manufacturer of communications systems and solutions for the aerospace industry. The deal is worth an estimated $64 million.
Weinberg Capital Group acquired Accessory Overhaul Group, Inc., an FAA and EASA certified repair station specializing in the repair and overhaul of aircraft brakes and wheel assemblies. Terms of the deal were not disclosed.
Cohort plc to acquire Empresa de Investigacao e Desenvolvimento de Electronica, S.A., a Portuguese supplier of naval communication systems for the Royal Navy and other NATO navies. The deal is worth an estimated $17 million.
Battery Ventures to acquire NICE Systems Ltd., Physical Security Business, a provider of video surveillance technologies and capabilities to security-aware organizations. The deal is worth an estimated $100 million including $15 million of contingent future payments.
Accenture acquired FusionX, a provider of cyber attack simulation, threat modeling, cyber investigations, and security risk advisory services. Terms of the deal were not disclosed.
Blue Coat Systems, Inc. acquired Perspecsys, a provider of cloud data protection solutions that enable mission-critical cloud applications to be adopted throughout the enterprise. Terms of the deal were not disclosed.
CA Technologies to acquire Xceedium, Inc., a provider of privileged identity management solutions that protect on-premise, cloud and hybrid IT environments. Terms of the deal were not disclosed.
(1) The Center for Public Integrity