Industry Week in Review – December 2, 2016
Aerospace & Defense Update
The U.S. House of Representatives and Senate have agreed on a $619 billion defense budget for 2017, which will be finalized with votes over the next week. This bill marks a $3.2 billion increase over President Obama’s budget request. Democrats had pushed for an equal increase in domestic spending, but the provision was not accepted. When compared to the President’s original 2017 defense budget request, highlights from the new bill include adding or retaining 36,000 total military personnel, a top military brass reduction of 110 generals and admirals, and no added acquisition plans for the F-35, Apache Helicopter, and F-18 Super Hornets.
Airbus will be cutting up to 1,164 jobs of its total workforce of 136,000 in an effort to execute the previously announced restructuring plan to streamline its organizational set up and increase its margin profile. Also, more jobs may be under scrutiny as the a380 fails to procure significant new orders. The cut jobs mostly center around communications and back office support roles, and the majority of the reductions will be in France and Germany, with the remainder in Britain, Spain, and India. Airbus will start by asking for early retirements and voluntary departures, but the company may utilize forced reductions if it fails to meet targets. The company hopes to have agreements in place with labor unions by mid-2017.
Government Technology Solutions Update
On Monday, Booz Allen Hamilton announced that it had signed an agreement to acquire Aquilent, also known as eGov Holdings, Inc., for $250 million. Aquilent provides cloud and web-development solutions for the Federal government, with its major customers being the Department of Health and Human Services (“HHS”) and the General Services Administration (“GSA”). This acquisition is slightly larger than acquisitions Booz Allen has made in previous years, such as its $53 million acquisition of agile development firm SPARC in 2015, but is consistent with the firm’s strategy to pivot its core focus away from pure-play consulting by investing in software development and other technical services. Booz Allen has differentiated itself, historically, from some other government contractors by avoiding larger-scale deals. Instead, it has concentrated on acquiring strategically valuable capabilities and using its existing infrastructure to rapidly deploy them at scale. Upon close, the acquisition of Aquilent will contribute roughly $35 million to Booz Allen’s top line during the remainder of its fiscal 2017, which ends on March 31st. The deal is also expected to add approximately 350 employees to Booz Allen’s burgeoning technology business. Shortly after the deal was announced, Booz Allen’s equity partner, Carlyle Group LP, announced that it would sell its remaining 11% stake in the firm. This would complete Carlyle’s draw-down of its ownership stake in Booz Allen, which it had originally acquired in 2008 for $2.54 billion.
On Wednesday, the Senate voted unanimously to pass the GAO Civilian Task and Delivery Order Protest Authority Act of 2016. This bill grants the Government Accountability Office (“GAO”) jurisdiction to hear bid protests for all contracts with civilian agencies which are over $10 million in value. While such jurisdiction for the GAO for defense contracts has been permanent since 2008, the same ability to hear protests on civilian contracts relied on the 2012 National Defense Authorization Act (“NDAA”). That authority briefly ended when the sunset provision on the 2012 NDAA expired on September 30th. Since then, the GAO has declined to hear or otherwise dismissed protests on several tasks orders, some as large as $200 million. This had also affected task orders whose end customers were defense agencies, as long as those agencies were using civilian vehicles, such as Alliant or OASIS, to make procurements. The new bill does not provide any mechanism to retroactively reinstate jurisdiction for the GAO over protests made during the interim period between the expiration of the 2012 NDAA and this new bill. As of right now, it is unknown if the GAO will decide whether or not they will decide to hear any outstanding protests made since September.
Big Movers
Rockwell Collins (up 2.4%) – Shares were up this week after news broke that an investor activist was pressuring Rockwell Collins to reconsider the B/E Aerospace deal.
Textron (up 3.4%) – Shares were up this week after Textron was selected to supply its Advanced Architecture Phase Amplitude and Time Simulator (“A2PATS”) to support F-35 testing.
Transactions
Blackwatch International has acquired FutureWorld Technologies Inc., a provider of IT services to state and Federal agencies. FutureWorld holds a marquee contract with the Defense Microelectronics Activity (“DMEA”), designing and testing microprocessors for the Department of Defense (“DoD”). Terms of the deal were not disclosed.
Booz Allen Hamilton Holding Corporation has agreed to acquire Aquilent (also known as eGov Holdings, Inc.), a provider of website and mobile development solutions, as well as cloud services for Federal government customers. The deal is worth $250 million, and is expected to close by the end of 2016.
Cubic Corp. has acquired Vocality International Ltd., a provider of embedded technology that unifies communications platforms, enhances voice quality, and optimizes data throughput. The deal is worth an estimated $10 million.
FLIR Systems, Inc. has acquired Prox Dynamics AS, a provider of nano-class unmanned aerial systems (UAS) for military and para-military intelligence, surveillance, and reconnaissance applications. The deal is worth an estimated $134 million.
Trelleborg AB Business Unit Trelleborg Sealing Solutions has acquired CoorsTek, Inc. Subsidiary Tetrafluor, a provider of high-precision seals and bearings produced from high performance polymers and metals. Terms of the deal were not disclosed.
