Industry Week in Review – December 7, 2012

As Congress and the Administration continue to negotiate a budget deal, on December 4 the Senate passed a bill authorizing the Pentagon to spend $650 billion in GFY13, which includes $525.3 billion in baseline funding with an additional $88.5 in OCO funding.  While the bill does not address the impending cuts under sequestration, it provides insight into the makeup of spending for weapons systems in the event a compromise is reached.

The bill largely supports the weapons systems plans set forth in the Administration’s request, including $5.9 billion for the F-35 fighter program, $60 billion for the Navy’s F-18 fighter program, $1.3 billion  for the Army to buy UH-60 Black Hawk helicopters, $639.9 million to develop the Army’s Ground Combat Vehicle, and various other authorizations. 

However, the bill also scales back some of the Administration’s proposals, including placing restrictions on the development of modules for the Navy’s Littoral Combat Ship Fleet and “fencing” funds for a second Ford-class aircraft carrier pending the delivery of additional data from the Navy.  The bill will now move through a House-Senate conference committee before advancing to the President’s desk.

In other news, TransDigm’s agreement to acquire the Goodrich Pump and Engine Control Systems business, announced on October 25th, has been terminated after the Department of Justice objected to the deal.  Under a consent agreement between Goodrich owner United Technologies and the DoJ, the transaction required the Department’s approval, and the decision was in the DoJ’s sole discretion.

Big Movers

EADS (Up 14.5%) – Shares were up for the week following the company’s announcement of a proposed new shareholder agreement that caps sovereign ownership of the firm by France, Germany, and Spain at 12%, 12%, and 4%, respectively.  The firm also announced plans for a set of governance rules that seek to limit the influence these governments will have over the company’s decisions.

Relevant Transactions

LMI Aerospace to acquire Valent Aerostructures, a manufacturer of complex structural components, major sub-assemblies, and machined parts for OEM and Tier 1 airframe manufacturers, for $246.7 million, which LMI has indicated represents an EV/EBITDA multiple of ~8.6x, adjusted for tax benefits from the transaction.  The acquisition expands LMI’s capabilities on key platforms, including the “highly-desirable” Boeing 737 platform, and will enable the Company to compete for larger and more complex projects.  According to its filings, LMI is expected to generate over $480 million in revenue and over $80 million in EBITDA in 2013P on a combined basis.

Insight Equity acquired Micross Components, a manufacturer of specialty semiconductor products for UAV guidance systems and other defense and industrial applications, from Vance Street Capital for an undisclosed amount.  The acquisition represents an investment in an “important and growing industry niche” and will enable Micross to expand its product offerings.

SRA International to acquire MorganFranklin National Security Business, a provider of C4ISR, cybersecurity, and continuity of operations services, for an undisclosed amount.  The transaction expands SRA’s capabilities in a number of specialized technical and functional domains.

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