Industry Week in Review – February 10, 2017

Aerospace & Defense Update

Navy and Marine F-18 availability has dropped from traditional in-service levels of ~70% to under 40% due to decades of reduced aircraft procurement and the limitation of aviation support services from the 2013 budget sequestration.  Reduced procurement dates back to the end of the Cold War when the Navy bought fewer F-18s than originally expected and the Marine Corps didn’t buy any because of beliefs in decreased future military operations and anticipation for the new Joint Strike Fighter.  However, with the F-35 being billions of dollars over budget and still in the low rate initial production (“LRIP”) stages, the Navy and Marine Corps have been struggling to keep up with the heavier than expected use of F-18s to fight terrorism.  Decreased procurement is then compounded by an increase in grounded strike fighters due to limited availability of maintenance funds and personnel.

In a recent congressionally chartered study, the Center for Strategic & Budgetary Assessments (“CSBA”) concluded the Navy needs a larger fleet consisting of smaller ships as compared to the Navy’s proposed amount in its official Force Structure Assessment (“FSA”).  When including smaller patrol aircraft in the ship total, the CSBA believes the Navy will require 382 ships compared to the Navy’s own FSA amount of 368 ships.  While both parties stand in agreement about many big ticket items like the number of aircraft carriers (12) and the number of attack submarines (66), the CSBA sees the need for 42 patrol vessels while the Navy requested only 13.  Additionally, the CSBA calls for 71 Frigates / Littoral Combat Ships (“LCS”) while the Navy FSA only requested 52.

Government Technology Solutions Update

At Tuesday’s meeting of the House Veterans Affairs Committee, Representatives and other Federal officials pushed for the Department of Veterans Affairs (“VA”) to consider adopting a commercial replacement for Vista, the VA’s proprietary electronic health record (“EHR”) system.  Rob Thomas, the current acting Chief Information Officer (“CIO”) of the VA has noted that his preference was to utilize commercial solutions as much as he could.  Many in the industry think that Vista is not an adequate solution to the VA’s current issues with its IT infrastructure. This is despite the VA finishing up the five-year Vista Evolution program, which was aimed at improving and modernizing the Vista system.  While the VA decides on whether or not to proceed with its legacy EHR system or to replace it with a commercial solution, the Department of Defense (“DoD”) has begun rolling out a commercial EHR solution of its own.  On Tuesday, Cerner’s MHS Genesis system went live at Fairchild Air Force base. The installation and maintenance of the MHS Genesis system is being performed by Leidos in a 10-year, $4.3 billion contract.

On Wednesday, Avi Bender, Director of the National Technical Information Service (“NTIS”), provided some additional color on its joint venture partnership (“JVP”) program.  The NTIS originally selected 35 JVPs back in October, which included a mix of large government contractors, small contractors, universities and research groups, and non-profit organizations.  The JVPs include organizations such as Booz Allen Hamilton, Deloitte Consulting, Stanford University, Govini, Palantir Technologies, and HP Enterprise Services.  According to Mr. Bender, the plan is for Federal agencies to outline their unique technological issues, goals, or strategic modernization priorities to the NTIS.  The NTIS would, in turn, more succinctly summarize what that particular agency needs, and meet with the JVPs who would further analyze, condense, and redefine what the necessary solution for that agency would be.  Once the NTIS has a clear, planned, and detailed solution for the problem, it will then go out to the JVPs and solicit bids to perform that work.  This entire process would be expected to take less than three months from start to the awarding of a contract.  According to Mr. Bender, by awarding work in this manner, the NTIS and JVPs essentially handle the bulk of drilling down to the crux of an agency’s issues, allowing that organization to more efficiently perform its own core functions.

Big Movers

Elbit Systems (up 4.7%) Share prices were up this week after the Company was awarded a roughly $110M contract to upgrade M-17 helicopters.

Transdigm (up 12.4%) – Share prices were up this week after the Company raised its EPS and EBITDA guidance for FY2017.


Accenture Federal Services has acquired the Federal Services business of Endgame, Inc., a provider of sophisticated cybersecurity solutions specializing in proactive cyber defense, hunt-as-a-service, and red-teaming for Federal government customers.  Terms of the deal were not disclosed.

Accenture Security has acquired iDefense Security Intelligence Services from VeriSign, Inc., a provider of information security and cyber threat intelligence services relating to vulnerabilities, malicious code, and global organizational threats.  Terms of the deal were not disclosed.

Salient CRGT, Inc., a portfolio company of Bridge Growth Partners and the Frontenac Company, has agreed to acquire Information Innovators, Inc., a portfolio company of DFW Capital Partners, Inc., and a provider of healthcare IT services, enterprise IT solutions, agile development capabilities, and cloud services for a variety of Federal customers.  Terms of the deal were not disclosed.  KippsDeSanto & Co. served as exclusive financial advisor to Information Innovators in this transaction.

Soaring Pine Capital has acquired ETI Tech, a provider of more than 200 flight hardware parts for military aircraft and ground support equipment for fixed and rotary wing aircrafts.  Terms of the deal were not disclosed.

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