Industry Week in Review – May 30, 2014
President Obama announced this week that the U.S. plans for approximately 9,800 American troops to remain in Afghanistan in 2015, following the scheduled completion of combat operations in the country this year. The 9,800 U.S. troops, along with some allied forces, staying in Afghanistan would get cut roughly in half by the end of 2015. Furthermore, by the end of 2016 and less than a month before Obama leaves the White House, the U.S. military presence would scale down to what officials described as a “normal” embassy security contingent to provide embassy security and engage in cooperative security efforts with the host government and military. With roughly 32,000 troops currently in Afghanistan, senior political officials have stated the number of U.S. service members in Afghanistan beyond 2016 will likely be around 1,000, symbolizing an end to the U.S. military mission that began as a response to the 9/11 terrorist attacks. Tony Blinken, Obama’s deputy national security adviser, stated that the U.S. will spend about $20 billion on the continued military presence in Afghanistan after 2014. Although a final decision on troop levels is still contingent upon Afghanistan’s next president signing a bilateral security agreement, both candidates have indicated they will sign the security pact.
A recent survey conducted by Deltek found that government contractors are expecting a 14% increase in revenue in FY15, citing a more stable budgetary environment over the near-term as a primary reason. Contractors pointed towards recent events in Congress, such as the passage of both the Bipartisan Budget Act (“BBA”) of 2013 and the Consolidated Appropriations Act (“CAA”) of 2014, as key indicators for greater funding visibility over the near-term. Additionally, recent procurement data shows spending on federal contracts in the second quarter of GFY14 increased 58% over spending levels a year ago, while the number of solicitations and task orders in GFY14 have increased 54% over comparable GFY13 levels, and contractors are expecting these trends to continue into GFY15. While not all areas of the Federal market are expected to grow throughout GFY14 and GFY15, Deltek analysts see intelligence and cybersecurity as key priorities over the near-term.
Big Movers
KBR, Inc. (Up 4.2%) – Shares were up this week after the Company announced it had been awarded a contract by Maersk Oil for topsides front-end engineering and design (“FEED”) work as a part of the Culzean Project, an ultra high-pressure, high-temperature (“uHPHT”) gas condensate development project in the North Sea. The contract value was not disclosed, but expected revenue from the contract will be included in Backlog of Unfilled Orders for KBR’s Hydrocarbons segment in the second quarter of 2014.
Booz Allen Hamilton Corporation (Down 7.7%) – Shares were down this week after the Company announced the sale of 10 million shares of its Class A common stock by an affiliate of The Carlyle Group to Citigroup Global Markets, Inc. and Barclays Capital, Inc., who will act as the underwriters in the registered offering of the shares. Booz Allen Hamilton will not sell any shares of common stock in the offering, and will not receive any of the proceeds. The offering is expected to close and settle on June 3, 2014.
Relevant Transactions
Lockheed Martin Corporation to acquire Astrotech Corporation’s Space Operations, a provider of satellite launch processing services to government and commercial customers sending satellites to low-earth-orbit or geosynchronous orbit. Lockheed Martin will pay $61 million for the acquisition.
Winchester Electronics Corporation acquired TRU Corporation, a provider of high performance RF connectors and cable assemblies for aerospace, military, semiconductor, and test and measurement end markets. Terms of the deal were not disclosed.
Triumph Group, Inc. to acquire GE Aviation’s Hydraulic Actuation Business, a provider of landing gear actuation systems, door actuation, nose-wheel steering, hydraulic fuses, manifolds, flight control actuation, and locking mechanisms for the commercial, military and business jet markets. Triumph will pay $70 million for the acquisition.
The Boeing Company to acquire AerData Group BV, a provider of integrated software solutions for lease management, engine fleet planning and records management. Terms of the deal were not disclosed.
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