Aerospace & Defense Update
To end the current continuing resolution (“CR”), which has put new-start defense procurements on hold, the United States House of Representatives voted 371-48 to pass a $578 billion defense bill for GFY2017. The spending bill includes $516.1 billion in the base budget and $61.8 billion in overseas contingency operations (“OCO”). If ultimately passed, it would increase funding for the troubled F-35 program by $1.2 billion and increase funding for the F-18 by ~$1.0 billion. The Navy would also benefit by receiving an additional $1.6 billion for a new amphibious ship. The bill will now move to the Senate where it is expected to be met with some resistance from Democrats who are expected to want to evaluate the defense bill in the context of other non-defense budgets.
Heli-Expo was held from March 7th to March 9th in Dallas, TX and hosted over 20,000 industry professionals from around the world who visited 700+ exhibitors. With over 1 million square feet of exhibit space, the conference included a display of over 60 helicopters. In advance of the conference, Honeywell released its updated rotorcraft delivery estimates which decreased last year’s forecast by ~400 units. Honeywell is now forecasting 3,900 to 4,400 civilian use helicopters will be delivered from 2017 to 2021. However, even with this news, the atmosphere at the Heli-Expo conference was still filled with high energy and excitement for the industry.
Government Technology Solutions Update
KeyW Corporation agreed this week to acquire Sotera Defense Solutions, Inc. from global asset management firm, Ares Management, L.P, for approximately $235 million. This acquisition is highly strategic as it will nearly double KeyW’s size. At the end of 2016, KeyW employed 1,000 people and had $288 million in revenue and Sotera will add another 1,100 employees and a projected $225 million of revenue in 2017. Sotera was attractive to KeyW given its contract mix, high-profile customer base, and unique, high-end technical capabilities. Approximately 80% of Sotera’s revenue is derived from prime contracts, driving KeyW’s prime revenue mix up to 67% from 58%. In its investor presentation, KeyW noted that Sotera also provides KeyW with a stronger foothold in the Intelligence Community (“IC”), as well as across the Department of Defense (“DoD”). KeyW, which has historically served 25% of the IC’s agencies, will now have access to 60% of its agencies. The combined company will also have enhanced cyber security, cloud computing, big data, analytics, machine learning, artificial intelligence, and agile development capabilities. The deal is expected to generate $7 to $10 million of long-term synergies via consolidated facilities and IT infrastructure and is expected to close by the end of June.
On Monday, Microsoft announced that it would expand its Azure Government Cloud offerings with the addition of two products, Power BI Pro and HDInsight. The latter is an open-source platform which enables its users to more easily and efficiently create powerful big data analytics solutions, applying machine learning capabilities to process large amounts of data in real-time. Power BI Pro is a cloud-based data visualization suite capable of tracking real-time or interactive changes in data. In addition to Power BI Pro and HDInsight, the expanded Microsoft Azure Government suite would also include Cognitive Services, allowing for voice, facial, and emotional recognition. Industry insiders believe that the ability to analyze, visualize, and stream large amounts of data in real time has great innovative potential, and may allow for significantly increased efficiency and speed with which functions can be carried out.
Bombardier (down 15.2%) – Share prices were down this week after Bombardier officials suspected of bribery were arrested in Sweden.
KeyW (down 8.3%) – Share prices were down this week after the Company announced disappointing 4Q16 earnings.
CeramTec GmbH has agreed to acquire Morgan Advanced Materials plc’s UK Electro-Ceramics Business, a provider piezo and dielectric ceramic products used in a wide range of industrial, electronics, medical, and defense applications. The deal is worth an estimated $57.3 million.
HEICO Corp. has agreed to acquire Air Cost Control SAS, a provider of connectors, wire, cable, protection, and fastening systems. Terms of the deal were not disclosed.
KeyW Corporation has agreed to acquire Sotera Defense Solutions, Inc., from Ares Management, L.P., a provider of technology-based systems and solutions, including cyber security, big data analytics, machine learning, artificial intelligence, and data visualization, primarily for the IC and DoD. The deal is worth an estimated $235 million.
Leonardo S.p.A has agreed to acquire Daylight Solutions, Inc., a provider of quantum cascade laser products and technology. The deal is worth an estimated $150 million.
Rockwood Equity Partners, LLC has acquired Ibis Tek, LLC, a provider of transparent armor and accessory products for tactical and combat vehicles. Terms of the deal were not disclosed.
Samuel, Son and Co., Ltd. has acquired Burloak Technologies, Inc., a provider of additive metal and plastic components for aerospace, defense, and commercial high-tech companies. Terms of the deal were not disclosed.
West Star Aviation, LLC has acquired Avant Aerospace, Inc., a provider of Dassault Falcon Jet spares and equipment. Terms of the deal were not disclosed.