Industry Week in Review – June 8, 2018

Aerospace & Defense Update

On Tuesday, Northrop Grumman received U.S. antitrust approval to complete its acquisition of rocket maker Orbital ATK, which will help Northrop expand and compete in the space market.  With the $9.2 billion Orbital deal, Northrop is projecting 2018E revenue of $30.1 billion, a 17% increase over 2017 revenue.  The transaction was approved by the Federal Trade Commission (“FTC”) on the condition that the companies provide solid fuel rocket motors on a nondiscriminatory basis to competitors for missile contracts.  Orbital is currently working on the Air Force’s Ground Base Strategic Deterrent contract for both Boeing and Northrop, and this FTC mandated firewall will help to ensure competitiveness between the two prime contractors.  Post-acquisition, Orbital will operate as Northrop’s fourth business segment named Northrop Grumman Innovation Systems.

Lockheed Martin invested an additional $100 million into its venture capital fund with the purpose of gaining early access to critical technologies in areas such as artificial intelligence and autonomous systems.  Chris Moran, the executive director and general manager of Lockheed Martin Ventures, seeks to expand the fund’s investment portfolio into companies in the UK and Australia and increase the fund’s annual investments from around four deals to six or eight.  The venture fund’s goal is to add new platforms and capabilities to Lockheed while also exploring new technologies that have lacked significant investment.  Lockheed Martin Ventures began around 2007 with $100 million in cash and has since invested in more than 20 companies.

Government Technology Solutions

After winning a protest battle in the U.S. Court of Federal Claims, the General Services Administration (“GSA”) can move forward with its $50 billion Alliant 2 Unrestricted contract for government-wide IT services.  GSA anticipates the effective date to be July 1 with a five-year base period through June 23, 2023 followed by a five-year option period through June 2028.  Alliant 2 was initially awarded to 61 large businesses last November.  Shortly thereafter, five unsuccessful bidders, including four Alliant 1 incumbents, protested but ultimately had their challenges dismissed by the Government Accountability Office (“GAO”) in December after OBXtek took up the issue with the Court of Federal Claims.  The court ruled against CenTech Group, Dynetics, OBXtek, and Octo Consulting, although Octo’s decision has not been officially released.  Alliant 1 incumbents Capgemini and Peraton both withdrew their cases from the court before a ruling.  Alliant 2‘s $15 billion small business contract is also currently being protested, preventing GSA from moving forward with that contract until the Court of Federal Claims issues a decision.

The Senate Armed Services Committee (“SASC”) has laid out guidelines for the Department of Defense’s (“DoD”) Joint Enterprise Defense Infrastructure (“JEDI”) initiative in its version of the 2019 National Defense Authorization Act (“NDAA”).  While the House has threatened funding for JEDI, the Senate’s proposal is much more supportive.  The bill states that if the DoD is committed to JEDI as a means of modernization, then it should be all-in and prepare accordingly.  The Senate’s bill also hints that the SASC would rather the DoD issue more than one award for the procurement rather than issuing it as a single award, as the DoD has proposed.  The House Appropriations Committee on Wednesday also released its preliminary spending bill, which would restrict funding for JEDI until 90 days after Secretary of Defense Jim Mattis proposes a budget accounting system for all funds spent on DoD cloud computing, including the Defense Information Systems Agency’s (“DISA”) $8 billion Defense Enterprise Office Solutions (“DEOS”) contract.  The Pentagon still has not confirmed a final request date for proposals for the JEDI contract, although it could drop any day after it was originally expected in May.

Big Movers

AeroVironment (up 4.3%) – Share prices were up this week after the company announced it will sell German auto parts supplier, Webasto, to become a pure-play maker of unmanned aerial vehicles.

OSI Systems (up 5.4%) – Share prices were up this week after the company received a contract to provide multiple units of its explosive detection system to be installed at European Union airports.


ACR Electronics, Inc. has agreed to acquire Flight Data Systems, a provider of flight data recorders, ground support equipment, and electronics manufacturing for the global aviation industry.  Terms of the deal were not disclosed.

Culmen International, LLC has acquired Analytics Strategies (PlanetRisk Federal Services), a provider of enterprise analytics services to the federal government.  Terms of the deal were not disclosed.

Leidos has acquired Aranea Solutions, Inc., a provider of IT products and services to government customers. Terms of the deal were not disclosed.

Patria Oyj has agreed to acquire by Patricomp Oy, a provider of aircraft sheet metal part manufacturing, surface treatments and assemblies.  Terms of the deal were not disclosed.

Click here to review our comparable company analysis.