Aerospace & Defense Update
The Wall Street Journal reported that Lockheed Martin is in advanced talks to acquire United Technologies Corp’s (“UTC”) Sikorsky Aircraft business for approximately $8 billion, making it Lockheed’s largest acquisition in the past decade. Sikorsky has been struggling as of late due to a steep downturn in the oil and gas sector, but is expected to have long-term potential gains due to its next-generation technologies. Lockheed and Sikorsky have strong existing relationships through prior work on a number of helicopter programs. Recent Sikorsky contract wins, including a deal to supply the next-generation presidential helicopter and another for U.S. Air Force rescue helicopters, as well as a $40 billion backlog, helped drive Lockheed’s acquisition interest. An agreement could be reached in the coming days.
The U.S. Air Force award of a contract for the long-range strike bomber (“LRSB”) continues to be delayed. The announcement of the LRSB award was originally expected last spring, but may be delayed for another three months. Northrop Grumman and a joint consortium of Lockheed Martin and Boeing continue to make their case for the ~$80 billion next-generation bomber contract, which would have a significant impact on the future of the winning company. Along with delays in the contract award, the Air Force has faced challenges in Congress, with the House of Representatives suggesting a $460 million decrease in funding for the program.
Government Technology Solutions Update
The Department of Homeland Security (“DHS”) has made recent efforts within cybersecurity and procurement processes to become a more nimble and innovative agency. In order to better combat cybersecurity threats, DHS Secretary Jeh Johnson has turned the focus of the National Cybersecurity and Communication Integration Center (“NCCIC”) towards near-real time communication of emerging cyber threat information among civilian agencies. NCCIC is charged with communicating vital information about cyber threats and coordinating civilian agency and private sector response. Johnson expects multiple civilian agencies and companies to start receiving information from the automated system by October. Based on NCCIC information, the DHS now has the authority to force agencies to make cybersecurity changes by issuing a Binding Operation Directive. In another effort to spur innovation, the DHS has created a virtual Procurement Innovation Lab (“PIL”). PIL will give the contracting community an opportunity to put forward ideas on how to streamline the procurement process and shorten lead times. It is set up to mimic the “fail fast” culture of Silicon Valley which allows ideas to be tested and developed in a fast-paced environment. While the center does represent more calculated risk for the agency, PIL plays the role of a cultural catalyst for innovation within the Federal Government.
Bombardier (Down 15.0%) – Shares were down this week in response to the announcement of a full review of its timeline for the Global 7000 and 8000 business-jet programs, sparking speculation that the programs are likely to be delayed.
Lockheed Martin (Up 3.7%) – Shares were up this week in response to an announcement that the company is the frontrunner to buy the Sikorsky helicopter unit for up to $8 billion.
Cree, Inc. acquired Arkansas Power Electronics International Inc. (“APEI”), a designer and manufacturer of high power density and high efficiency power electronic solutions and products. KippsDeSanto & Co. advised APEI on the deal. Terms of the deal were not disclosed.
A management group backed by Alaris Royalty Corp. acquired KLH Capital’s Federal Resources Supply Co., a value-added provider of mission-critical products and solutions to defense, first responder, homeland security, and maritime end users. Terms of the deal were not disclosed.
Handyman & Harman Ltd. acquired JPS Industries, Inc., a manufacturer of sheet and mechanically formed glass and aramid materials for specialty applications in markets requiring highly engineered products. The deal is worth an estimated $110 million.
Cisco Systems to acquire OpenDNS, a provider of cybersecurity services, including Web filtering, threat intelligence, and phishing protection. The deal is worth an estimated $635 million to be paid in cash and is expected to close during the first quarter of next year.