Aerospace & Defense Update
On Friday, GKN Plc, a British manufacturer of aerospace and auto parts, announced its intentions to split its aerospace and automotive businesses after rejecting a takeover bid from Melrose Industries. Melrose, a turnaround specialist firm, made an unsolicited offer of £4.05 ($5.47) per share, giving GKN a total valuation of $9.5 billion, a figure which GKN said fundamentally undervalued the company. GKN’s aerospace business is a key supplier to Airbus and Boeing, providing airframe and engine structures. The company has expanded its aerospace business through acquiring Volvo’s aircraft engine group in 2012 and Fokker Technologies Group in 2015, making it the second largest aerostructures supplier behind Spirit AeroSystems. The Company is currently evaluating several alternatives, including a possible sale, related to splitting the business, noting that an attractive purchase offer may accelerate the planned separation.
Boeing has unveiled the first details of a new, reusable Mach-5 plus demonstrator vehicle that could be critical to the development of future high-speed strike and reconnaissance aircraft. The Boeing design will compete with Lockheed Martin’s SR-72 concept as a hypersonic successor to the SR-71 Blackbird reconnaissance aircraft originally built by Lockheed. Development of Boeing’s hypersonic vehicle concept is occurring through Defense Advanced Research Projects Agency’s (“DARPA”) Advanced Full Range Engine initiative run by the U.S. Air Force Research Laboratory. Hypersonic research and development has been identified as part of the “third offset” by the Pentagon, placing it in a category of technologies that the U.S. military sees as imperative to maintaining its edge over potential adversaries.
Government Technology Solutions
The General Services Administration (“GSA”) is working towards implementing a provision from the 2018 National Defense Authorization Act (“NDAA”) that provides government buyers the autonomy to purchase items from commercial e-commerce companies. The law calls for online portals, such as Amazon, Wal-Mart, and Staples, to be available for acquisitions that are below $250,000. On January 9th, the GSA held a town hall-style meeting with industry leaders and stakeholders to help shape the new program ahead of its ninety day deadline. Speakers at the meeting focused most of the discussion on regulatory oversight of buyers and sellers. The objection is to create a portal that promotes a competitive marketplace that is easy to navigate for commercial sellers, but at the same time remains compliant with federal laws and regulations. Although disagreements arose around the level of regulation that should be enforced, all parties agreed on the potential efficiencies from a well-designed portal.
The government continues to favor, and increase its reliance on, large government wide acquisition contracts (“GWACs”) that grant a limited universe of players with the ability to perform a greater piece of the overall $95 billion federal contracting market. In 2012, the federal government procured $6 billion on IT products and services through GWACs, as compared to more than $13 billion in 2017. As a result, this has enabled selected companies, that are able to obtain highly-coveted spots on GWACs, such as Alliant, OASIS, and Encore, to grow at rates that often exceed companies that rely on smaller and more traditional contract vehicles. In addition, this trend has supported small businesses as set-aside spending through GWACs has increased by approximately 137% since 2012. GWACs are becoming popular acquisition strategies for government agencies as they ensure limited competition while providing greatly simplified acquisition processes for follow-on tasking.
Boeing (up 8.9%) – Share prices were up this week as investors view the potential acquisition of Embraer with a higher probability of occurring.
KeyW (up 7.2%) – Share prices were up this week after the company was awarded an IDIQ contract to provide tagging, tracking, and locating electronic equipment and support services to support joint commands within the DoD.
BlueCross BlueShield of South Carolina, Inc. has acquired Karna LLC, a provider of a broad range of health-related services primarily to the federal government. Terms of the deal were not disclosed.
Celero Strategies, LLC has acquired CGR Associates, Inc., a provider of market research, strategic planning, acquisition search, and program and budget analysis. Terms of the deal were not disclosed.
Cyxtera Technologies has agreed to acquire Immunity, Inc, a provider of offense-oriented systems vulnerability research, exploit development and penetration testing services. Terms of the deal were not disclosed.
HKW Capital Partners has acquired GCR, Inc., a provider of professional services and software products to public sector clients. Terms of the deal were not disclosed.
Leading Edge Aviation Services, Inc. has acquired Pro Air Services, Inc., a provider of fixed-base operator, maintenance, avionics and flight school services. Terms of the deal were not disclosed.
ZRODelta has acquired Critical Capabilities, a provider of original equipment manufacturer supply-chain management solutions for firearm parts. Terms of the deal were not disclosed.