Industry Week in Review – January 18, 2019
Summary
President Trump formally released its 2019 Missile Defense Review at the Pentagon. Moreover, Apollo Global Management nears a deal to acquire Arconic, Inc., for an estimated $10 billion. Furthermore, the mobile version of Microsoft’s personnel information management software, Outlook, announced it will allow permitted users to use the platform to access sensitive controlled unclassified information.
Aerospace & Defense Update
This week, President Trump formally released the 2019 Missile Defense Review at the Pentagon. In his announcement, Trump emphasized the importance of modernizing missile capabilities and expanding their reach. To accomplish this, the Missile Defense Agency plans to integrate layers of sensors and interceptors within its products to track and defeat hypersonic weapons, unmanned aircrafts, and stealth fighters. President Trump’s message was met with mixed reviews, as a Democratic House of Representatives that is looking to cut defense spending must approve the major funding increase to make Trump’s plan a reality. The exact amount of funding that will be allocated towards new and existing missile technologies has not been released and will partially depend on the overall defense budget for 2020, which is expected to fall between $700 – $750 billion.
According to report by The Wall Street Journal, Apollo Global Management is nearing a deal to acquire Arconic, Inc. for more than $10 billion. Arconic engineers, manufactures, and distributes lightweight metals to customers worldwide for aerospace, transportation, building and constriction, and industrial end markets. Aerospace customers typically comprise the largest percentage of Arconic’s revenue, totaling over $4.3 billion dollars of Arconic’s 2018 sales (~41%) through September 30, 2018. Apollo’s potential acquisition would pay anywhere from $21 – $22 per share, representing a 5% – 10% premium on a stock that was already buoyed by hopes of a deal. The transaction comes on the heels of The Carlyle Group’s $5 billion acquisition of StandardAero announced in 4Q18 and reinforces a trend of large and high-profile private equity transactions in the aerospace and defense industry.
Government Technology Solutions
Last week, the mobile version of Microsoft’s personnel information management software, Outlook, attained Guide Impact Levels 4 and 5 for the Department of Defense (“DoD”) Cloud Computing Security Requirements Guide, which allows permitted users to use the platform for access to the “most sensitive controlled unclassified information.” In October 2018, the mobile versions of the Outlook platform gained FedRAMP compliance, a critical step in its ability to meet the compliance standards authorized last week. Microsoft has emphasized mobile agility for its federal clients, helping customers “stay connected and on top of what’s important while on the go and with confidence that their sensitive information is more protected” per a statement from Microsoft. The company plans to make the Azure cloud service and Dynamics 365, Microsoft’s Enterprise Resource Planning tool, compliant for Level 5 DoD security requirements in 2019 as well, demonstrating Microsoft’s emphasis on repurposing traditional commercial offerings to meet government requirements and subsequently expand its footprint within the federal government. This is just yet another example of the federal government leveraging commercial technologies and software applications to improve operations and security concerns.
Big Movers
Embraer (Down 9.5%) – Share prices were down this week after the company announced it does not expect to generate meaningful profits until 2021.
Jacobs Engineering (Up 3.4%) – Share prices were up after the company raised its quarterly dividend 13.3% to $0.17 and approved a $1 billion incremental share repurchase. These announcements are results of a long-term transformation to a high-margin, less cyclical business.
Transactions
Culmen International, LLC has acquired Centrifuge Systems, a provider of next-generation big data business intelligence and visualization software. Terms of the deal were not disclosed.
ETL Systems Ltd. has acquired Atlantic Microwave Ltd., a provider of RF and microwave equipment, components and interconnects to the satcom, telecommunications, aerospace, defense and scientific research industries. Terms of the deal were not disclosed.
Grand Traverse Economic Development has acquired Bay Shore Steel Works LLC, a provider of process engineering, fabricating, machining, and finishing services company with significant contracts from the U.S. military for armor plating. Terms of the deal were not disclosed.
Huntington Ingalls Industries has acquired Fulcrum IT Services, LLC, a provider of applications development, cyber security, network and communications engineering, online collaboration, help desk and call centers, information security, and disaster recovery. Terms of the deal were not disclosed.
