KippsDeSanto & Co. Industry Week in Review – November 9, 2018

Summary

Democrats recaptured the House of Representatives, while Republicans expanded their majority in the Senate in the mid-term elections. Bombardier sells of its Q-series turboprop passenger business unit to Viking Air amid its restructuring. Various corporations and executives were recognized at this week’s Greater Washington Government Contractor Awards. Amazon has reportedly commenced negotiations with Virginia regarding the location of one of its two new headquarters.

Aerospace & Defense Update

The 2018 U.S mid-term elections were held this week, with Democrats recapturing the House of Representatives, while Republicans expanded their majority in the Senate. With their majority in the House, Democrats are expected to prioritize the pursuit of domestic initiatives such as infrastructure, healthcare, and education. Currently, the government is planning a $33 billion budget reduction for fiscal year 2020 national defense spending, which could potentially more closely align with the Democrats’ agenda. With a divided government, President Trump and the Senate may have to seek additional bipartisan support to craft the defense budget and other defense-related legislation.

Viking Air, a portfolio company of Longview Aviation Capital, has reached an agreement to acquire Bombardier’s Q-series turboprop passenger business segment for an estimated $300 million. Robust global air travel has created strong demand for regional aircraft, piquing interest from both private equity and strategic suitors. Viking Air hopes to add scale to Bombardier’s operations to reduce costs, and eventually price, while maintaining operational superiority. In addition, Bombardier also divested its technical training business unit to CAE, a global designer and manufacturer of simulation equipment. That deal is worth an estimated $650 million. Bombardier is divesting these business units as it attempts to reposition the company to prioritize its business aircraft division. As part of this restructuring initiative, Bombardier’s management has indicated that it will continue to explore strategic alternatives for its existing commercial aircraft divisions and has announced plans to cut 5,000 jobs over the next 18 months.

Government Technology Solutions

At Monday’s Greater Washington Government Contractor Awards, corporations and executives were recognized for their commitment to excellence in the region’s government contracting community. This year’s winner from the largest category, consisting of contractors with over $300 million in revenue, was ICF. The strategic, digital consulting leader attributes their recent success to their ability to leverage commercial businesses to provide innovative tools and digital technologies. The winner in the $75 to $300 million category was Attain. Attain has proven to be an agile company with flexible strategic, management, and technology solutions and services. Ad Hoc was the winner from the $25 to $75 million category. The company started with a team of top engineering talent that was assembled to correct course for the troubled launch of HealthCare.gov. Since then, the business has grown into a premier government digital services agency. From the contractors with revenue up to $25 million, InCadence came out on top. The company has seen significant growth and success since its inception in 2009, including CEO Sandra Corbett’s recent win of a FedFem Award this year. Executive of the Year awardees were Accenture CEO, John Goodman, Telos Corporation CEO, John Wood, and Berico Technologies CEO, Marybeth Wootton, in their respective contractor size categories.

Earlier this week, it was reported that Amazon (NYSE:AMZN) may split up its new headquarters among two locations.  Long Island City in New York and Crystal City in Arlington, Virginia are considered the frontrunners.  Amazon establishing a major presence in the D.C. metro area would bring with it approximately 25,000 jobs, amid an already tight labor environment.  The move would bring the technology giant closer to a major customer, as Amazon has significantly increased its federal exposure over recent years by successfully selling its popular Amazon Web Services (“AWS”) into the federal government and securing billions of dollars in federal contracts.  Situating itself on GovCon home turf and a stone’s throw from the White House and the U.S. Capitol would suggest that the company intends to further embed itself within the federal market. The integration of a behemoth headquarters like Amazon’s—albeit split with a second location—is expected to drive additional growth in the technology market as a whole across the region and will hopefully attract more tech talent to the area in response.

Big Movers

Bombardier (down 19.8%) – Share prices were down this week after the Company announced its plans to cut another 5,000 jobs and to sell off two units amid its restructuring.

KeyW (up 16.2%) – Share prices were up this week after KeyW announced it beat expectations for revenue and EBITDA as well as paid down $10 million of debt during the third quarter.

Transactions

ACR Electronics, Inc. has acquired Latitude Technologies Corp., a provider of versatile aeronautical communications devices and a robust web-based aircraft tracking   and flight data analytics platform. Terms of the deal were not disclosed.

CAE, Inc. has acquired the aircraft training business of Bombardier, Inc., a provider of flight training and technical training services.  The deal is worth an estimated $645 million.

CALIBRE Systems, Inc. has acquired SPEAR, Inc., a provider of IT solutions, including cyber, analytics, and C4ISR, to federal agency clients. Terms of the deal were not disclosed.

IPG Photonics Corp has agreed to acquired Genesis Systems Group, LLC, a provider of integration of robotic welding and automation solutions, with more than 300 blue-chip customers in the transportation, aerospace and industrial end market. The deal is worth an estimated $115 million.

Viking Air, a portfolio company of Longview Aviation Capital, has acquired the Q-Series Turboprop business of Bombardier, Inc., a provider of Q-Series turboprop passenger airlines. The deal is worth an estimated $300 million.

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