Industry Week in Review – December 23, 2011

This week, House and Senate Appropriation Committees passed a $1 trillion-plus 2012 omnibus spending measure, including $531 billion for the Pentagon’s base budget. In total, the appropriations bill provides the Defense Department with $518 billion for its base budget, plus $13 billion for military construction, for a total of $531 billion. In addition, the bill includes $115 billion for Overseas Contingency Operations (OCO), $2.8 billion below the president’s request and $43 billion below last year. The end of U.S. military operations in Iraq contributed to the OCO drop.

Several notable programs were considered in the budget discussions. Lawmakers trimmed $346 million from the Pentagon’s $9.4 billion F-35 Joint Strike Fighter procurement and research-and-development budget request. Furthermore, funding was restored for the Joint Light Tactical Vehicle (JLTV) program. The bill allocates $244 million for a competitively-selected vehicle with a less complex design and a significantly accelerated time line. The bill makes few changes to Navy ship construction programs, as these programs tend to have enormous sunk costs.

Big Movers

The Shaw Group (Up 19.1%) – Shares are up this week after earnings per share of $0.69 for the quarter, beating consensus estimates of $0.44. Shares were also up after Pacific Contingency Services LLC, a joint venture between The Shaw Group and AECOM Technology Corporation, was awarded an Indefinite Delivery, Indefinite Quantity contract with 5 other primes worth $900 million. The contract will provide short-term facility support services with incidental construction in response to natural disasters, humanitarian efforts, full-range military actions and incumbent breaks in services at various locations throughout the world.

Recent Acquisitions

J.F. Lehman & Company acquired Doss Aviation, Inc., a provider of aviation support services primarily to the U.S. military and other government customers. The acquisition by the private equity firm will help Doss Aviation’s management achieve its long-term financial and strategic goals while leveraging Doss Aviation’s long-standing relationships with its customers, workforce, and reputation. Terms of the deal were not disclosed.

Linsalata Capital Partners-backed Whitecraft Group acquired Dell Manufacturing, a provider of value-added manufacturing of machined and fabricated parts for commercial and military aircraft engines. The acquisition increases Whitecraft’s manufacturing capabilities for existing and next generation jet engine platforms. Terms of the deal were not disclosed.

National Security Partners LLC acquired Summit Solutions, a provider of strategic planning, cybersecurity analysis and intelligence systems engineering services for the federal government. The acquisition complements the company’s May 2011 acquisition of cybersecurity policy, cyber analytics and mission support provider Point One LLC. Terms of the deal were not disclosed.

URS Corp. acquired CATI Training Systems, a designer and developer of virtual visual environments for flight simulators and a variety of other training systems for the Department of Defense and commercial customers. The acquisition enables the company to meet the evolving training requirements of federal customer by leveraging CATI’s technology and intellectual property. Terms of the deal were not disclosed.

Mercury Computer Systems to acquire KOR Electronics, Inc. and its wholly owned subsidiary Paragon Dynamics, Inc., providers of radio frequency simulation and jamming technology for modern Electronic Warfare (EW) applications and exploitation solutions for the Intelligence Community. The acquisition enhances Mercury’s sensor processing capabilities in the Electronic Warfare and Signals Intelligence (SIGINT) markets. Terms of the deal were not disclosed

Akamai Technologies, Inc. acquired Cotendo, a provider of an integrated suite of web and mobile acceleration s­­­­ervices for $268 million. The acquisition expands Akamai’s capabilities in cloud and mobile technologies.

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