Industry Week in Review – February 19, 2016
Aerospace & Defense Update
The Government Accountability Office (“GAO”) denied Boeing and Lockheed Martin’s protest of the Pentagon’s award of the Long Range Strike Bomber (“LRS-B”) contract to Northrop Grumman. However, Boeing still has the option of pursuing the matter in court, and has suggested it’s considering doing so. Northrop Grumman was initially awarded the contract on October 27, 2015, but the decision was soon after protested. Now that the GAO has denied the protest, Northrop Grumman will resume its development and engineering work for the LRS-B, which is tentatively scheduled for initial operating capability in 2025. The LRS-B contract, which is expected to exceed $55 billion over the program’s lifespan, is the largest military aircraft contract since the F-35 Joint Strike Fighter was awarded to Lockheed Martin.
Airbus Group announced it will not include its border security business in the planned sale of its defense electronics unit. The decision was driven by the border security business missing its goal to reach a deal by early 2016 on a border project in Saudi Arabia. For now, the border security business will be retained within Airbus’ Defence and Space division, but it could be sold separately at a later date. According to a source familiar with the matter, the removal of the border security business, which is experiencing substantial declines in revenue over recent years, is not expected to lower the overall valuation of the defense electronics unit (~$1.5 billion). As a result, the sale process of the defense electronics unit is expected to continue as planned, with a potential announcement likely to come within several weeks. The sale is part of a company-wide initiative to reduce its exposure in the defense market and further shift its focus to the aerospace market, where growth prospects are expected to be more attractive.
Government Technology Solutions Update
On Thursday, IBM announced that it has agreed to purchase Truven Health Analytics (“Truven”), a provider of health data analytics solutions, from Veritas Capital. The $2.6 billion acquisition stands to be IBM’s largest purchase in three years, and the Company’s fourth health data-related acquisition in the past 12 months, after Merge Healthcare, Explorys, and Phytel. The acquisition highlights IBM’s commitment to expanding its presence within the healthcare industry through continued investment in data and technology solutions. Truven will provide IBM with access to various health-related data points from 300 million patients, allowing the Company to focus on delivering insights into value-based care for patients. Partially as a result of the acquisition, IBM’s stock rose 5.0% on Thursday, the largest single-day increase for the company in more than four years. The deal is expected to close before the end of 2016.
The President’s GFY2017 budget request proposes a significant change to how Federal IT modernization should be prioritized. The GFY17 $89.8 billion Federal IT request includes provisions for a $3.1 billion IT Modernization Fund run by the General Services Administration (“GSA”), which would encourage spending on modernized systems as opposed to continued maintenance of legacy systems. The latest estimates show that while only approximately 24% of the GFY16 $88 billion Federal IT budget was allocated to Development, Modernization, and Enhancement (“DME”), compared to Operations and Maintenance (“O&M”), the GFY17 request has a proposed 9% hike in spending on new IT systems. David Bray, the Federal Communications Commission (“FCC”) CIO explained that modernizing IT systems should prioritize three things: first and foremost, agility; secondly, resiliency, cybersecurity, and continuity of operations; and finally, improving efficiencies.
Big Movers
Engility Holdings (Up 13.7%) – Shares were up this week after the company won a prime position on the $900 million Joint Enterprise-Contracted Logistics and Services Support (“JE-CLaSS”) contract
ViaSat (Up 15.0%) – Shares were up this week after American Airlines announced it is considering switching its Wi-Fi provider from Gogo Inc. to ViaSat
Transactions
Assured Enterprises, Inc. acquired Nova Defense & Aerospace International, LLC, a provider of intelligence, IT, and business strategy consulting solutions for aerospace, security, and acquisition markets. Terms of the deal were not disclosed.
IBM to acquire Truven Health Analytics, a provider of health data analytics solutions for Federal and commercial customers in the healthcare industry. The deal is worth an estimated $2.6 billion.
L-3 Communications Holdings Inc. has acquired Advanced Technical Materials, Inc., a provider of microwave RF components used for satellite communications, military systems, and microwave telecommunication applications. Terms of the deal were not disclosed.
MW Industries, Inc. has acquired USA Fastener Group, Inc., a provider of various fasteners including studs, nuts and other precision machined parts. Terms of the deal were not disclosed.
United Flexible, Inc. has acquired Fulton Bellows, LLC, a provider of thin wall precision metal bellows and bellows assemblies. Terms of the deal were not disclosed.
Hexagon AB has acquired Sigma Space Corporation, a provider of next-generation LiDAR, laser ranging, attitude determination, spectroscopy, and radiometry instrumentation for remote sensing. Terms of the deal were not disclosed.
