Industry Week in Review – January 25, 2019

Summary

As the U.S. Military continues to modernize and maintain its forces, the nuclear arsenal is a focus point as the government outlines a plan that will cost $494 billion over the next ten years.  In other news, German tank-maker Rheinmetall announced plans to purchase a majority stake in BAE systems’ Telford, England facility, that specializes in the military vehicles market.  Additionally, after 35 days, President Trump announced a halt to the partial shutdown, giving Congress until February 15th to reach an agreement on funding the remaining 25% of federal agencies.

Aerospace & Defense Update

A recent government estimate has outlined that the plans for modernizing and maintaining the U.S.’ nuclear arsenal will cost $494 billion over the next decade, an average of less than $50 billion per year.  Overall, the $494 billion figure represents roughly 6 percent of overall projected defense spending during that same time-period.  The number, which is part of a biannual estimate put out by the Congressional Budget Office, is 23 percent higher than the previous estimate of $400 billion released in 2017.  That same 2017 figure was then a 15 percent increase over the number in presented in 2015.  The spending breakdown includes $234 billion on strategic delivery systems and weapons, $106 billion for the Department of Energy’s nuclear weapons laboratories and production facilities, $77 billion on nuclear command, control, and communications, $15 billion for tactical nuclear delivery systems and weapons, and $62 billion in projected additional costs incurred over the next decade.

German tank-maker Rheinmetall plans to buy a majority stake in BAE Systems’ Telford, England facility, a move that might create a new industry leader in the military vehicles market.  The two companies signed an agreement to create the joint venture, and if regulators approve, Rheinmetall would hold 55 percent of the new business, with BAE Systems keeping 45 percent.  Rheinmetall’s announcement to gain a foothold in the U.K. armored vehicles market comes after the company announced in November that a takeover of German rival Krauss-Maffei Wegmann may be pending.  While further details remain unclear as to both transactions, this potential joint venture highlights the divergence of national export policies across Europe affecting the adapting industrial, competitive landscape.

Government Technology Solutions

Following the 36-day partial shutdown of the U.S. Government, President Trump announced that a bipartisan deal was reached with Congress on Friday to open the government through February 15th.  The 25% of the government workforce that has been unpaid since December 22nd will now resume operations and “the administration is taking steps to ensure they receive pay as soon as possible,” a senior Trump Administration official remarked.  In the interim, Congress will be required to put party lines aside and work together to find a mutual agreement, ensuring the government stays open and funded through February.

Big Movers

Triumph Group, Inc. (Up 20.7%) – Share prices were up this week following an announcement that Bombardier agreed to acquire Triumph’s wing manufacturing operations and assets associated with the Global 7500 business aircraft program.

Transactions

Dassault Aviation has acquired ExecuJet, a provider of MRO centers, Fixed Base Operations, and aircraft management activities.  The terms of this transaction were not disclosed.

DigEcor Pty Ltd. has acquired the Commercial In-Flight Entertainment Business of Collins Aerospace Systems, a provider of the PAVES family of seat back and overhead solutions, as well as PAVES™ On-demand, Total Entertainment System (“TES”), Enhanced Total Entertainment System (“ETES”), and content services.  The deal is worth an estimated $184 million.

Enlightenment Capital has acquired System High Corporation, a provider of global protection and security technical engineering solutions for critical National Security and Special Access Programs (“SAP”) across the Department of Defense (“DoD”) and Intelligence Community (“IC”).  KippsDesanto & Co. was the sell-side advisor on the deal.  The terms of the transaction were not disclosed.

Henry Schein, Inc. has acquired North American Rescue, LLC, a provider of the survivability and casualty-care medical products to the defense and public-safety markets.  The terms of the transaction were not disclosed.

NWI Holdings has acquired Triumph Group, Inc.’s Metallics Machining Operations, a provider of vertically integrated assemblies and high velocity machining of monolithic components hard metal components used to manufacture aerostructures.  The terms of the transaction were not disclosed.

Rheinmetall AG has acquired the Combat Vehicle Business of BAE Systems plc, a provider of the maintenance and upgrade of a range of military vehicles and bridging systems for the UK MoD.  The deal is worth an estimated $37 million.

VT Group, Inc., a portfolio company of The Jordan Company, L.P., has acquired National Technologies Associates, Inc., a provider of vertically integrated assemblies, high velocity machining of monolithic components, and machining of hard metal components used to manufacturer a wide variety of aerostructures.  The terms of the transaction were not disclosed.

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