Industry Week in Review – December 26, 2014
Aerospace & Defense Update
The Pentagon approved another $3 billion in foreign arms sales to Iraq for General Dynamic’s M1A1 Abrams tanks and for AM General’s Humvee armored cars. Pending congressional approval, the deal would bring the total U.S. weapons sales to Iraq to almost $15 billion. Military arms deals with Iraq have grown significantly, with sales tripling in the past year. In order for Congress to approve these deals, some lawmakers require reassurances that weapons will not fall into enemy hands and that Iraq will remain able to pay despite falling oil prices. If approved, the increase in demand will help to keep AM General operating as it slows production rates and considers job cuts.
On December 24, Astronics Corporation announced that it will acquire Armstrong Aerospace for approximately $51 million. Armstrong Aerospace is headquartered in Itasca, Illinois and provides engineering, design, and certification solutions for commercial aircraft, specializing in connectivity, in-flight entertainment, and electrical power systems. The target’s 2014 sales are expected to be $27 million suggesting a 1.9x enterprise value to LTM revenue multiple. The acquisition builds on Astronics’ range of capabilities, specifically in the connectivity and power niche for commercial airlines. Armstrong’s experience in providing certifications for OEMs, integrators, and airlines made it a fit for Astronics, which adjusted its 2015 revenue to be between $680 million and $725 million.
Government Technology Solutions Update
A potential flaw within a Department of Veterans Affairs (“VA”) patient database may have exposed veterans’ information including name, address, date of birth, phone number, and VA patient identification number. The database in question is managed by a contractor vendor who has assured the VA the information was only leaked to vendor and VA staff and the flaw has been corrected. This breach is in line with current cybersecurity concerns of insider threats and the challenge of evaluating if a contractor systems is secure. To mitigate issues such as these, the VA is spending an additional $60 million on cybersecurity efforts in GFY2015.
The General Services Administration (“GSA”) is planning on soliciting feedback from government customers and industry on an overhaul of its largest buying program, the Multiple Award Schedules (“MAS”). The GSA is looking to reduce acquisition burdensome regulations and processes while decreasing price variability. Already in process is “horizontal pricing,” which compares proposals to current contracts in addition to commercial market prices. Additionally, the GSA is already planning on automating and expanding modifications, the review process, and eBuy opportunities.
Big Movers
Astronics Corporation (Up 10.8%) – Shares were up this week after the Company announced that it will acquire Armstrong Aerospace.
Transactions
Astronics Corporation to acquire Armstrong Aerospace, Inc., a provider of aviation engineering, designing, and manufacturing services. The deal is worth an estimated $51 million.
Krauss-Maffei Wegmann GmbH to acquire Diehl Defence Land Systems GmbH, a manufacturer of different track types for tanks and armored vehicles. Terms of the deal were not disclosed.
