Aerospace & Defense Update
Italian aerospace and defense group Finmeccanica has taken DRS Technologies off the market following results that beat expectations for the first half of 2015. Finmeccanica acquired DRS, a U.S. defense electronics business, in 2008 before major cuts in defense spending. Last summer, CEO Mauro Moretti indicated his plans to sell DRS as part of a business review and debt reduction program. DRS reported $1.87 billion in annual sales for 2014, a decline from the $3.2 billion DRS had in 2008, the last full year before the acquisition by Finmeccanica.
Precision Castparts Corp. (“PCC”), a manufacturer of complex metal components and products, plans to acquire Noranco, a supplier of complex machined and fabricated components for aero-engine, landing gear, and airframe applications. The deal is worth an estimated $560 million and is expected to close during 3Q15. Noranco’s offerings are expected to strengthen PCC’s existing market position in airframe products while also expanding PCC’s current product offering. Noranco will take advantage of PCC’s forging and fasteners capabilities, and add its machining and fabrication capabilities to PCC’s airframe products segment. Currently, Noranco serves a variety of Tier 1 manufacturers including Honeywell, Safran, and Bombardier.
Government Technology Solutions Update
The Department of Defense (“DoD”) announced this week that the Defense Healthcare Modernization Management System Modernization (“DHMSM”) contract has been awarded. Originally anticipated to have an $11.0 billion lifetime cost through 2030, the actual award stands at $4.3 billion over ten years, including all option years. Awarded on the basis of best value, the contract will be performed by the Leidos-led team which includes Accenture and Cerner. The DHMSM program seeks to enhance operation coordination between the Department of Veterans Affairs (“VA”) and DoD by developing a single, commercial product that includes full interoperability between the Veterans Health Information Systems and Technology Architecture (“VistA”) health records system, private records, and DoD’s healthcare management system. DHMSM is expected to be tested in eight Pacific Northwest sites in 2016, and rollout fully by 2022. The system will run along ~50 legacy systems and gradually facilitate the consolidation of military health services.
The Office of Management and Budget (“OMB”) is drafting new cybersecurity guidelines for contractors to bolster protection against cyber breaches via third-party vendors. As agencies provide more services online, store digital data, and rely on contractors for these IT services, cyber threats to the Federal IT system have dramatically increased. Additionally, current regulations involving protocols for reporting possible cybersecurity breeches are often unclear or confusing, resulting in delayed reactions to potential threats. The new OMB effort intends to diminish vulnerabilities in third-party vendor security protocols that hackers may exploit to gain access to sensitive information and are expected to clarify existing regulations. Furthermore, though the framework will require a high degree of judgement from contractors, it will set a clear standard for precautions and defense from cyber threats.
DigitalGlobe (Down 14.1%) – Shares were down this week in response to management keeping FY 2015 outlook the same despite strong 2Q15 results. Analysts are concerned about DigitalGlobe’s performance over the second half of 2015.
Griffon Corp. (Up 9.7%) – Shares were up this week in response to 3Q15 earnings beating analyst estimates.
Sensata Technologies Holding N.V. to acquire Custom Sensors & Technologies, Inc., a designer and manufacturer of sensing, control, and motion products for the aerospace industry. The deal is worth an estimated $1 billion.
Solva S.A. to acquire Cytec Industries, Inc., a developer and manufacturer of added products for the aerospace and industrial materials, mining, and plastics industries. The deal is worth an estimated $6.4 billion.
TransDigm Group, Inc. to acquire PneuDraulics, Inc., a designer, developer, manufacturer, and supplier of precision hydraulic components for the aerospace industry. The deal is worth an estimated $325 million.
GKN plc to acquire Fokker Technologies Group B.V., a designer, developer, and manufacturer of aircraft components and systems. The deal is worth an estimated $1.1 billion.
Accurus Aerospace Corp. to acquire LaCroix Industries, Inc., a manufacturer of sheet metal products for the aerospace industry. Terms of the deal were not disclosed.
Vista Outdoor Inc. to acquire CamelBak Products, LLC, a manufacturer of hydration products and solutions for commercial and military sectors. The deal is worth an estimated $413 million.
Precision Castparts Corp. to acquire Noranco Inc., a manufacturer of aero-structures, landing gear systems, and aero engine precision components. The deal is worth an estimated $560 million.