Industry Week in Review – November 18, 2011

This week, Defense Secretary Leon Panetta provided a dire outlook for the Defense Department, as the Pentagon will undergo automatic cuts across the board if the 12-member Super Committee created by the Budget Control Act in August cannot compromise on a plan to eliminate $1.2 trillion in debt. Mr. Panetta warned that the cuts do not allow the department to decide the distribution, but instead applies a 23% reduction to each major investment and construction project, rendering most ship and construction projects deficient.

Uncertainty looms as the November 23rd deadline approaches, as both sides of the Super Committee have shown little signs of swaying from their stoic positions on spending and taxes. Should Sequestration be triggered, 42% of every dollar shy of $1.2 trillion will automatically be cut from the Defense budget.

Boeing announced two record orders this week, as the company signed an $18 billion deal with Emirates Airlines, a Dubai-based airline, for 50 777 – 300ER (“extended range”) airliners with the option to expand the deal by an additional 20 aircraft or $8 billion. Four days later, Boeing announced an even bigger deal with Lion Air, which agreed to purchase 29 737-900s and 201 737 MAXs for nearly $22 billion. Such large deals coupled with record 777 sales presents signs of robust company health.

Big Movers

Wesco Aircraft Holdings (Up 11%) – Shares are up this week after the company released results for its fiscal fourth quarter and full-year ended September 30, 2011. Fourth quarter and full-year revenue of $181.3 million and $710.9 million, respectively, both setting company records.

Northstar Aerospace Inc. (Down 37%) – Shares are down this week after the company reported revenue for the three months ended September 30, 2011 of $45.9 million compared to $49.4 million in the same period of 2010. The company simultaneously ended a 30-day strike with its employees, agreeing to new a deal which maintains workers’ cost-of-living allowance and creates new job security language.

Recent Acquisitions

Kratos Defense & Security Solutions acquired SecureInfo, a leading provider of National Security Solutions for $17.5 million with an earn-out option of $2 million. The acquisition expands Kratos’ cyber security capabilities and helps the company deliver advanced solutions in key growth areas such as Continuous Monitoring and Securing the Cloud.

CH2M HILL Companies, Ltd. completes acquisition of Halcrow Holdings Ltd, a provider of professional engineering services for just under $200 million. The acquisition will strengthen CH2M Hill’s global footprint and advance its leadership in water, environmental, transportation and other markets. Halcrow Holdings had 2010 revenue of around $730 million representing a 0.27x deal multiple.

Carlisle to acquire Tri-Star Electronics, a provider of electronic components to commercial aerospace, defense and industrial customers for $285 million. The acquisition expands Carlisle’s capabilities offering to its customers. Tri-Star posts sales of about $95 million and EBITDA of $26 million, representing a 3.00x and 11.0x deal respectively.

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