Industry Week in Review – March 27, 2015
Aerospace & Defense Update
RBC Bearings Incorporated demonstrated its commitment to growth this week with its acquisition of Dover’s Sargent Aerospace & Defense business, a precision-engineered manufacturer for commercial aerospace and military programs. The transaction, valued at $500 million, was viewed positively by the market as its stock price jumped significantly since announcement on March 26th. The stock could increase further as the transaction is reported to be $.25 to $.35 accretive to EPS and have $1.5 million in estimated net synergies for the first year of combined operations. The transaction represents a 13.3x Last Twelve Months (“LTM”) EBITDA multiple, but 9.4x LTM EBITDA multiple when tax benefits and synergies are included. Furthermore, this could be illustrative of RBC’s future plans to grow through acquisitions. The public company’s unlevered balance sheet and the continuation of financing availability poise RBC to deploy cash through further M&A.
This week, the U.S. House of Representatives and Senate approved their individual budget resolutions. Both entities approved a $499 billion base budget which maintains the caps mandated by the 2011 Budget Control Act and approved significant increases to Overseas Contingency Operations (“OCO”) spending. The House approved $96 billion for the OCO account which reflects a combination of the $58 billion in OCO funding and $38 billion excess base budget approved by the Obama Administration. The Senate approved a slightly lower sum for OCO funding of $89 billion. The budget drafts released thus far suggest that Congress will sidestep the sequestration spending level with these swollen OCO accounts in order to fully fund defense initiatives. This positive momentum provides additional confidence that 2016 will be a stand-out year for government spending on defense related items as current capital stores are approved for use.
Government Technology Solutions Update
The Intelligence Community IT Enterprise (“ICITE”) initiative is now in the adoption phase by all 17 Intelligence Community (“IC”) agencies. Initiated in 2013, ICITE seeks to standardize and implement shared commodity IT services. At this stage in the program, the technological foundation for using standardized desktops and networks, and common cloud computing solutions have been laid. However, ICITE now faces the challenge of buy-in from IC users with regards to both the new IT architectural and the business model change. The IC’s Mission Users Group (“MUG”) has been tasked to drive adoption of ICITE solutions and development of new capabilities utilizing the shared infrastructure.
The National Aeronautics and Space Administration (“NASA”) has rereleased awardees under the Enterprise Wide Procurement (“SEWP”) V vehicle. The original awards were pulled back in October 2014 to work through the large number of bid protests. Under the rerelease, contract awards announced include 84 companies; 36 in “Group A” for computer-based systems and 48 in “Group D” for networking, security, video, and conferencing. With a combined $20 billion ceiling value, the award includes four more contracts than the initial set. All contracts have a 10-year period of performance and a five-year add-on option.
Big Movers
Leidos (Down 9.2%) – Shares were down this week after the Company announced that its 4Q15 revenue decreased 9% year-over-year to $1.2 billion.
Transactions
StandardAero acquired General Electric Co.’s DutchAero Services, a producer of complex advanced machining, sheet metal, and thermal spraying components for the world’s leading aerospace manufacturers. Terms of the deal were not disclosed.
RBC Bearings Inc. acquired Sargent Aerospace and Defense business from Dover Corp., a provider of precision-engineered products, solutions, and repairs for aircraft airframes and engines, rotorcraft, submarines, and land vehicles. The deal is worth approximately $500 million.
Ferchau Engineering GmbH to acquire Rostock System-Technik GmbH a subsidiary of Airbus Defense and Space, a provider of system engineering as well as product manufacturing for aerospace customers worldwide. Terms of the deal have not yet been disclosed.
Rockwell Collins, Inc. acquired Pacific Avionics Pty. Limited, a provider of technologies used for wireless information distribution, including inflight entertainment and connectivity. Terms of the deal were not disclosed.
Data Device Corp., a portfolio company of Behrman Capital, to acquire EMRISE Electronics Ltd. from EMRISE Corp. The acquisition includes Pascall Electronics, Ltd. and XCEL Power Systems, Ltd. which design and manufacture an extensive range of custom, semi-custom, and standard power supply products. The deal is worth approximately $22 million.
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