Industry Week in Review – December 9, 2016
Aerospace & Defense Update
After months of culminating dissent between Defense Secretary Ash Carter and Navy Secretary Ray Mabus about naval procurement strategy, the Navy has rejected the Pentagon’s proposed $17 billion in budget cuts over the next five years. Pentagon leaders want funding allocated more to weapon systems, aircraft and less on ship procurement. In contrast, Secretary Mabus seeks to increase the current ship count of 273 to over 300 and argues that shipbuilding programs are “least reversible” due to the multiyear long procurement cycle and contribution of highly paid jobs to the economy. Similar to Secretary Mabus’ goal, President Elect Trump has commented he would like to see the Navy fleet possess 350 ships.
President Elect Donald Trump has nominated General John Kelly to head the Department of Homeland Security (“DHS”). General Kelly draws on experience as Chief of the U.S. Southern Command (“USSC”) where he oversaw planning and security operations in Central and South America and the Caribbean. This nomination marks Trump’s third military official nomination, the first being General Michael Flynn as National Security Advisory and the second being General James “Mad Dog” Mattis who will lead as Defense Secretary. Trump has also expressed interest in appointing General David Petraeus as Secretary of State and Admiral Michael Rogers as Director of National Intelligence.
Government Technology Solutions Update
On Tuesday, it was announced that Deltek, Inc. would be acquired by Roper Technologies for $2.8 billion. Deltek, headquartered in Herndon, VA, is a leading provider of software for project-based businesses. The company’s primary focus is on providing software and information solutions for government contractors, who contribute just over half of Deltek’s revenue, as well as engineering and construction firms. Roper Technologies was interested in Deltek due to its strong competitive position in what is seen as a fairly niche market, as well as its stable customer base, which has 95+% retention rates. Deltek had originally been taken private by Thoma Bravo, a Chicago-based private equity firm, for $1.1 billion in 2012. Since then, Thoma Bravo has helped Deltek acquire six additional companies, most of which also focused on project-based software and information management. Deltek expects to generate roughly $535 million of revenue and $200 million of EBITDA in 2017. According to the company, Deltek expects to be further buoyed by an anticipated ramp-up in defense, government services, and infrastructure spending under the Trump administration.
The Commission Enhancing National Cybersecurity released a report last Friday, highlighting 53 initiatives that it believes are necessary in order to strengthen cybersecurity standards across the nation. This commission was created by President Obama in February to address concerns regarding the state of the nation’s cyber infrastructure. According to the commission, many of its recommendations should be put into action under the new Trump administration within the first 100 days of his taking office. Some of the recommended actions are more ambitious than others, including the implementation of a cyber training program which would produce over 150,000 new cybersecurity professionals within four years. The report further stressed other urgent measures to be taken immediately, such as the securing of Internet of Things (“IoT”) and other public-facing systems, which may be vulnerable and pose a critical threat if exploited. The remainder of the recommendations generally foster increased cooperation between the public and private sector, and encourages the development and implementation of new best practices surrounding cybersecurity. While some of the report’s recommendations are more time-sensitive than others, it stressed that a strong stance must be taken on these issues in order to maintain the security of the country’s cyber infrastructure.
Big Movers
Aerojet Rocketdyne (down 9.0%) – Shares were down this week after Aerojet Rocketdyne announced its intent to offer $200 million in convertible notes.
Comtech Telecommunications (down 4.1%) – Shares were down this week after Comtech’s 1Q17 revenue fell short of expectations
Transactions
Boeing Co. has agreed to acquire Liquid Robotics, Inc., a provider of autonomous maritime systems and developer of the Wave Glider® ocean surface robot, the first wave powered, autonomous marine robot. Terms of the deal were not disclosed.
Curtiss-Wright Corp. has agreed to acquire Teletronics Technology Corp., a provider of high-technology data acquisition and comprehensive flight test instrumentation systems for critical aerospace and defense applications. The deal is worth an estimated $233 million and is expected to close in early 2017.
Dassault Systemes S.A. has acquired Next Limit Dynamics SL, a provider of highly dynamic fluid flow simulation software solutions used in aerospace and defense, transportation and mobility, high-tech, energy and other industries. Terms of the deal were not disclosed.
Gores Group has agreed to acquire Triumph Air Repair, Triumph Engines – Tempe, and the Auxiliary Power Unit (APU) Overhaul Operations of Triumph Aviation Services – Asia, providers of military, commercial, and regional airline customers with a comprehensive maintenance solution for their legacy and new APU engine models. Terms of the deal were not disclosed.
PSI Services, LLC has acquired Computer Assisted Testing Service, Inc., a provider of full service testing for licensure, certification, assessment, and educational testing programs. Terms of the deal were not disclosed.
Roper Technologies, Inc. has acquired Deltek, Inc., a portfolio company of Thoma Bravo, a provider of software and information solutions for project-based business, primarily focused on government contracting, engineering, architecture, and construction. The deal is worth $2.8 billion and is expected to close by the end of December.
