Industry Week in Review – October 21, 2016
Aerospace & Defense Update
Orbital ATK successfully launched an unmanned Antares rocket into space this past week, almost two years after an engine malfunction caused the rocket to explode immediately after take-off. Orbital ATK replaced its older-designed Russian engines with more advanced Russian built engines which allow the rocket to carry transport cargo in excess of two tons. This launch was the third flight of the reengineered capsule which has a greater pressurized cargo capacity and improved solar panel arrays. The National Aeronautics and Space Administration (“NASA”) has contracted Orbital ATK to transport cargo into orbit over the next decade, as the agency has opted to rely on corporate cargo vehicles and company-built capsules to service the space station. Orbital ATK also aims to launch midsize commercial and scientific payloads for customers other than NASA.
After the November election, 70 House lawmakers are hoping to increase appropriations for F-35 purchases in the FY17 budget. Both the Marine Corps and Air Force recently declared initial operating capability, adding a sense of urgency to the production of F-35s. These lawmakers feel F-35 production must be increased in order to meet future threats and anticipate that an increase in production would help to lower unit costs. While the House bill requests 11 F-35s, the Senate bill only requests four F-35s. The Senate bill also requests an increase in the advance procurement of F-35s by $100 million to allow the Air Force to increase its F-35 production rate in 2018. The 70 House lawmakers are advocating an increase in funding so the Air Force can reach its goal of 120 U.S. aircraft per year as soon as possible.
Government Technology Solutions Update
On Monday, Engility Holdings Inc. announced that they won a five-year, $369 million award to provide a variety of professional services for the U.S. Department of Transportation’s (“DOT”) Volpe National Transportation Systems. At just under $75 million per year, this is the largest contract that Engility has won to date since it was spun off from L-3 Communications in 2012, marking a major milestone as the Company continues to shift its focus towards larger business opportunities. Engility has aggressively pursued this goal both organically and inorganically through increased bidding on larger-scale contracts as well as through its strategic acquisition of TASC Inc. in 2014, which helped to increase their average contract bid to $20 million in 2015. Given recent strategic shifts to focus on larger procurements, it is expected that this figure could double by the end of 2016. These efforts have put Engility on pace to grow the total value of submitted bids to $5 billion, up from $3 billion in 2013.
According to a recent presentation made by the Federal Risk Authorization and Management Program (“FedRAMP”), recent efforts made by the organization to streamline the authorization process for cloud services have shown considerable signs of success. Authorization for new cloud services has increased 85% since the strategy was initially announced in August, leading to the authorization of more than 75 cloud service providers, with an additional 50 providers currently in line for imminent approval. The effort aims to reduce the lead-time for authorizations without compromising on the program’s stringent security standards, with the goal of giving Federal agencies the “go-ahead” to consider these services in as little as three months. The recently launched FedRAMP Dashboard also lends additional transparency to the process by allowing the Federal community to view the available services as well as which agencies are utilizing them.
Big Movers
Leonardo – Finmeccanica (up 9.0%) – Shares were up this week after Leonardo – Finmeccanica increased its stake in Avio.
Orbital ATK (Up 3.4%) – Shares were up this week after Orbital ATK’s unmanned Antares rocket launched into space.
Transactions
Aavid Thermalloy, LLC has acquired Thermacore, Inc., a provider of high performance thermal management, electronics cooling, and materials solutions. Terms of the deal were not disclosed.
Orangewood Partners, LLC has acquired George Industries, LLC, a provider of mission critical engineered components for the aerospace, defense, and industrial end markets. Terms of the deal were not disclosed.
Saab AB has acquired Nordic Defence Industries A/S, a provider of mine disposal charge systems for the naval defense industry. Terms of the deal were not disclosed.
Space2 and Leonardo – Finmeccanica have agreed to acquire Avio Space Propulsion, a provider of advanced technologies for space launchers and missiles. The deal is worth an estimated $334 million.
xG Technology, Inc. has agreed to acquire the assets of the Vislink Communication Systems division, a provider of secure video communications and mission-critical solutions for law enforcement, defense, and homeland security applications. The deal is worth an estimated $16 million.
