Aerospace & Defense Update
Honeywell International announced that it is no longer pursuing an acquisition of United Technologies, roughly two weeks after it placed a $90 billion bid (excluding debt) for the target. Honeywell believes that a strategic combination will create value for both shareholders as both firms have complementary business portfolios; however, United Technologies has been unwilling to negotiate, stating the transaction would receive heavy anti-trust regulatory scrutiny and create resistance among customers. For now, talks between the two parties, which have been going on since last April, have ceased. In other news, Airbus received a $2.9 billion order from Air China for 12 A330-300 long-haul wide-bodied jets. Air China, which is the country’s third-largest carrier based on passenger volume, is seeking to increase capacity given the country’s growth in the industry. China is expected to surpass the U.S. as the largest aircraft market within the next two decades.
The Helicopter Association International Heli-Expo was held this week in Louisville, Kentucky with attendees ranging from corporate executives and government officials to industry professionals and media personnel. The conference, which provides a platform for many companies to showcase their innovative products and solutions, brought together roughly 20,000 attendees and 500 exhibitors from a wide range of locations. This is the first time Kentucky, which is home to a large and growing aviation industry, hosted the Heli-Expo. Aviation in Kentucky is estimated to be roughly a $10 billion industry and the conference will help bring more economic activity to both the region and the helicopter industry as a whole. During the conference, AHS executive director Mike Hirschberg stated that growth in global commercial helicopter sales will offset the decline in the military market. Military aircraft sales are expected to fall by 24% from 2016 – 2020, while civil rotorcraft sales are expected to grow by 32% during the same period.
Government Technology Solutions Update
The Pentagon is currently accepting bids for Encore III, a $17.5 billion contract to provide global IT services to branches of the military and various defense agencies. The contract is the follow-on to Encore II, a $12.2 billion vehicle awarded to 14 unrestricted contractors and 12 small businesses in 2008. The final Request for Proposal (“RFP”) released by the Defense Information Systems Agency (“DISA”) reveals the contract as an Indefinite-Delivery-Indefinite-Quantity (“IDIQ”) with a five-year base period and five one-year options. This vehicle aims to further the Department of Defense’s (“DoD”) technology modernization efforts and “enhance combat effectiveness through greatly increased battle-space awareness,” according to the RFP.
The Department of Veteran Affairs (“VA”) has raised concerns from lawmakers over its GFY2017 request for modernization of the Veterans Health Integrated System Technology Architecture (“VistA Evolution”). The VA requested $50 million less than its GFY2016 request, causing fears that the VA is scaling back its Health IT (“HIT”) system modernization and interoperability goals. According to VA CIO LaVerne Council, the smaller request is a result of a business case study examining the framework set forth by VistA Evolution, and a re-evaluation of whether the VA should pivot away from the EHR platform. In light of their concerns, Council has reassured lawmakers that despite the decreased request, the VA fully expects to meet its goal of being interoperable with the DoD by the end of 2016, as proposed in the 2014 National Defense Authorization Act.
Engility Holdings (Up 19.4%) – Shares were up this week after the company reported earnings that exceeded analyst expectations
Airbus Group (Up 8.8%) – Shares were up this week after the Company received a $2.9 billion order from Air China for 12 A330-300 wide-bodied jets
Albany International Corporation to acquire Harris Corporation, Advanced Composites Business, a provider of advanced composite products primarily for airframe applications. The deal is worth an estimated $210 million.
ARGUS International, Inc. to acquire Unmanned Safety Institute, a provider of unmanned aircraft systems safety education and training services. Terms of the deal were not disclosed.
Betafence N.V. to acquire Hesco Bastion Ltd., a provider of deployable protective barrier systems for national armed forces, civil and environmental customers, and security and government agencies around the world. Terms of the deal were not disclosed.
IBM to acquire Resilient Systems, a provider of incident response solutions empowering organizations to defend against cyber-attacks and business crises. The deal is expected to be worth more than $100 million.
J.F. Lehman & Company to acquire API Technologies Corp., a provider of systems, subsystems, modules, and components for radio frequency microwave, millimeter wave, electromagnetic, power, and security applications. The deal is worth an estimated $111 million.
Maximus Health Services acquired Ascend Management Innovations, a provider of independent, specialized health assessments and data management tools to government agencies. Terms of the deal were not disclosed.
White Wolf Capital, LLC acquired Stag Arms, LLC, a provider of rifles including AR15 rifles, AR15 upper halves, barrel assembly, bolt carrier assembly, upper assembly, lower and lower halves, stock assemblies, accessories, and magazines. Terms of the deal were not disclosed.