Industry Week in Review – November 10, 2017
Aerospace & Defense Update
On Wednesday, Congressional negotiators from both the House and Senate agreed on a $700 billion defense authorization plan for GFY 2018 with ~$634 billion set aside for base defense funding and ~$66 billion for the overseas contingency operations (“OCO”). The proposal authorizes 90 new joint strike fighters (“JSF”), a new littoral combat ship, extra funding for Army helicopters, and five more ships than President Trump’s budget proposal. The bill adds more than 20,000 service members as well as a 2.4% pay raise for troops, the largest increase since 2010. The plan will need final approval from the full House and Senate, which will need to reconcile the bill’s plan as it currently exceeds the GFY2018 spending caps.
Last week, U.S. and Chinese negotiators signed a pact allowing Chinese-manufactured airplanes and parts to be sold in the U.S. and other countries. The pact will increase Chinese companies’ opportunities to become key, global suppliers of commercial jetliners, which is a market currently dominated by Boeing and Airbus. The Chinese-manufactured Comac C919 jetliner is leading China’s efforts to gain a stronger foothold in the global aerospace industry, directly competing with the Boeing 737 and Airbus A320 jets. The C919 has already secured over 300 orders, which have mainly come from Chinese customers. For Boeing, this agreement allows the company to deliver its new 737 Max jet to Chinese airlines after previously being warned that the approval would be delayed until 2018. Boeing is also set to open a new facility near Shanghai in 2018 to work in partnership with Comac to work on 737’s that will be delivered for Chinese airlines.
Government Technology Solutions
The Defense Information Systems Agency (“DISA”) announced 20 awardees for the full and open portion of the $17.5 billion Encore III contract. While usual suspects, such as Booz Allen Hamilton and CACI International, made the list, several notable incumbents on the predecessor Encore II contract were left out, including SAIC, Raytheon, and BAE Systems, among others. Encore is one of DISA’s primary vehicles for a wide range of IT services across the Department of Defense (“DoD”), covering capabilities such as enterprise IT policy and planning, business process re-engineering, network support, and cloud professional services. The contract has a five-year base and five one-year options. DISA received 72 proposals, meaning the Government Accountability Office is likely to face protests like it did with Encore II, when 26 companies, including five small businesses, were ultimately awarded spots. Companies will have 10 days after debriefings to file bid protests.
The Department of Housing and Urban Development (“HUD”) fell short of the Digital Accountability and Transparency Act’s (“DATA”) required reporting for the second quarter of fiscal year 2017. Inspector General (“IG”) officials found that the agency’s chief financial officer (“CFO”) failed to implement standards required by the Office of Management and Budget (“OMB”) and the Department of Treasury, causing HUD to underreport billions of dollars in obligations and outlays to USASpending.gov. The DATA Act requires federal agencies to submit standardized spending information to improve federal transparency. However, HUD’s submission consisted of widespread errors, inconsistencies, omissions, and false values, according to the IG report. Investigators found that HUD did not carry out necessary system upgrades to ensure financial data fit the DATA Act Information Model Schema. The IG offered new recommendations on how the HUD could achieve DATA Act standards, including designating additional personnel and financial resources towards compliance.
Big Movers
ULE (down 15.5%) – Share prices were down this week after the U.S. Department of Justice delayed its decision regarding Ultra Electronics’ purchase of Sparton Corp.
ESL (down 25.7%) – Share prices were down this week after the company missed fourth quarter consensus earnings and sales estimates.
Transactions
Blue Cross and Blue Shield of South Carolina has acquired JBS International, Inc., a provider of professional services to public and private sector clients. KippsDeSanto & Co. served as the exclusive advisor to JBS International, Inc. on this transaction. Terms of the deal were not disclosed.
MAG Aerospace Corp. has acquired Avenge, Inc., a provider of Manned ISR (Intelligence, Surveillance, Reconnaissance) Operations and Training. KippsDeSanto & Co. served as the exclusive advisor to Avenge, Inc on this transaction. Terms of the deal were not disclosed.
Booz Allen Hamilton, Inc. has completed its acquisition of Morphick, a provider of managed detection and response (“MDR”) services. Terms of the deal were not disclosed.
Radiant Power Corp. has acquired Interface Displays & Controls, Inc., a provider of electronic products for aviation, marine, military fighting vehicles, and embedded computing markets. Terms of the deal were not disclosed.
Speedcast International Ltd. has completed its acquisition of UltiSat, Inc., a provider of remote communications and professional services. The deal was worth an estimated $100 million.
Structural Monitoring Systems plc has agreed to acquire Anodyne Electronic Manufacturing Corp., a provider of electronic components for the aerospace industry. The deal is worth an estimated $8 million.
