Industry Week in Review – June 5, 2015

Aerospace & Defense Update

As a continuation of the red-hot M&A activity that’s been occurring in the defense microwave / radio frequency (“RF”) sector, Ultra Electronics announced the acquisition of the Electronics Products Division (“EPD”) of Kratos Defense & Security Solutions for $265 million.  The purchase price represents a multiple of 10.7x LTM EBITDA.  The division produces RF and microwave integrated systems and subsystems for use in electronic warfare (“EW”).  EPD is well-positioned for opportunities on the F-35 Joint Strike Fighter, in addition to a number of other critical next-generation programs.  The acquisition establishes Ultra as a major player in the EW market, while bringing a number of long-term contracts to the table that strengthen Ultra’s order book visibility.  The transaction comes on the heels of other notable defense microwave / RF deals including the RF Micro Devices and TriQuint Semiconductor merger and Analog Devices’s acquisition of Hittite Microwave Corp.

On Tuesday, the House of Appropriations Committee approved a bill that proposes $578.6 billion in defense spending for government fiscal year (“GFY”) 2016, $24.4 billion above the amount enacted in GFY 2015.  Notably, the bill includes an $88.4 billion overseas contingency operations (“OCO”) account and $116.7 billion for weapons procurement, approximately $3 billion more than the White House’s request.  Specifically, the bill fully funds most major weapons programs, with $8.4 billion provided for 65 F-35 Joint Strike Fighters, $16.9 billion for nine Navy ships, $1.2 billion for 64 AH-64 helicopters, and $3.0 billion for 16 P-8A Poseidon aircraft.

Government Technology Solutions Update

The Mobile Technology Tiger Team, a group under the Federal CIO Council, released a standardized protection profile for Federal agency application development in response to the Digital Government Strategy (“DGS”), a government initiative to enhance federal digital services.  The profile creates a baseline for security and acts as a set of common standards for the evaluation and validation of mobile application security.  Mobile security has become especially important as more and more Federal employees use their mobile devices for work and hackers are focusing more of their efforts on mobile operating systems.  Already gaining traction, the Department of Defense (“DoD”) and Department of Homeland Security (“DHS”) have agreed to adopt the standards for future application development.

The General Services Administration (“GSA”) is looking to add two new special item numbers (“SIN”) on IT Schedule 70 for Health IT (“HIT”) and cybersecurity.  The Office of Integrated Technology Services (“ITS”) is expected to issue a request for information (“RFI”) within the next two weeks asking industry players and Federal agencies to comment on the requirements for a HIT SIN.  The SIN seeks to create a central location to procure HIT needs making it easier for agencies to classify work, compare costs, and compare capabilities.  Still in its infancy, the RFI for a cybersecurity SIN is expected to be released by ITS before the end of the year.

Big Movers

Esterline Technologies Corp. (Down 12.8%) – Shares were down this week after the company announced second quarter FY 2015 earnings.  The company reported earnings per share (“EPS”) of $1.20 for the period, missing analysts’ estimates of $1.33 and declining from $1.28 for the same period last year.


AE Industrial Partners to acquire Belcan Corporation, a provider of engineering services and technical staffing in the aerospace, power generation, and industrial markets.  Terms of the deal were not disclosed.

PPG Industries, Inc. acquired Cuming Microwave Corp, a provider of specialty coatings and materials that absorb microwaves and radio waves in military aircrafts. Terms of the deal were not disclosed.

Apollo Global Management, LLC acquired the OM Group, a diversified industrial company serving the automotive systems, electronic devices, aerospace and defense, industrial, and medical markets. Terms of the deal were not disclosed.

Ultra Electronics acquired the Electronics Products Division of Kratos Defense & Security Solutions, a provider of radio frequencies and microwave integrated systems for use in electronic warfare, radar, communication, missile, and flight test and simulation applications. The deal is valued at $265 million.

Tech Data Corp. to acquire select assets of Signature Technology Group, a provider of data center and professional services to both the public and private sector.  Signature Technology Group generated 2014 revenue of $17.5 million.

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