Industry Week in Review – October 31, 2014

Aerospace & Defense Update

On the evening of Tuesday, October 28th, an unmanned Orbital Sciences Corp. rocket carrying cargo for the international space station endured a catastrophic failure moments after liftoff.  Although there were no injuries, launch facilities suffered significant damage.  The explosion will likely ground the Antares rocket for at least a few months as the National Aeronautics and Space Administration and the Company analyze and fix associated problems.  Insurance is expected to cover a portion of damages on the $200 million rocket and capsule and the Company will maintain its financial guidance for the rest of the year.  CEO, David Thompson, does not expect the failure to slow the planned merger with Alliant Techsystems, Inc. however, it is still too early to decide whether to delay the planned December 9th shareholder vote regarding the deal or take further time to review long-term financials.  Expectations for close date have already been pushed to early 2015 due to regulatory approvals.

Lockheed Martin announced a $4.55 billion agreement with the U.S. Department of Defense to build its eighth batch of F-35 jets.  The Company will build 43 additional jets at a 3.6% lower average cost than under previous contracts.  This order includes 29 U.S. aircraft, 19 of which are F-35As, six are F-35Bs, and four are F-35Cs the remaining aircraft are F-35As intended for foreign partner nations including Israel, Japan, Norway, Italy, and Britain.  The aircraft will now feature Pratt & Whitney engines under a contract modification with a total value of $1.05 billion.  The agreement was initially supposed to finalize in May or June, however, negotiations were delayed after engine failures grounded the entire fleet.

Government Technology Solutions Update

The Department of Defense (“DoD”) now requires senior officials to review major acquisitions before programs move into the technology development phase.  This review, known as Milestone A, is part of the Better Buying Power 3.0 (“BBP”) initiative, which focuses on driving technical excellence into systems bought by the military.  The review will ensure well-defined user’s needs, thorough alternatives analysis, and significant program support.  This new step if the acquisitions process seeks to eliminate discrepancies between the original acquisition strategy and requests for proposals (“RFP”) that are issued.

The Army is seeking to modernize the Army Knowledge Online-Enterprise System (“AKO-ES”) through the use of a four-year indefinite delivery / indefinite quantity (“IDIQ”) contract.  A draft of the performance work statement (“PWS”) was issued on October 29th.  The contract will cover a broad range of technical support services to manage the system’s operations and maintenance, as well as the reuse and redesign of existing systems.  The Army will consider closing down applications, systems, and facilities in order to redevelop and repurpose existing systems.

Big Movers

Engility Holdings, Inc. (Up 19.6%) – Shares were up this week after the Company announced the close of its $1.1 billion acquisition of TASC, Inc.

Sturm, Ruger & Co. (Down 19.0%) – Shares were down this week after the Company reported a sharp drop in firearms sales with revenue decreasing to $98.3 million from $170.9 million one year ago.

Relevant Transactions

Delta Information Systems, Inc. acquired Ampex Data Systems Corporation, a developer and manufacturer of digital storage systems.  Terms of the deal were not disclosed.(1)

Outdoor Venture Corporation acquired Sotera Defense Solutions, Engineered Solutions Division, a provider of testing and engineering services to the aerospace and energy markets.  Terms of the deal were not disclosed.

Gen Cap America, Inc. acquired AeroSystems Engineering, a provider of testing and engineering services to the aerospace and energy markets.  Terms of the deal were not disclosed.

Acentia acquired Optimos, Inc., a provider of mission-centric information technology solutions to public sector customers.  Terms of the deal were not disclosed.

Booz Allen Hamilton acquired Epidemico, Inc., a provider of early insights, continuous monitoring, and consumer engagement for varied aspects of population health.  Terms of the deal were not disclosed.

Engility entered into a definitive agreement to acquire TASC, Inc., a provider of professional services to the national security and public safety markets.  The deal is an all-stock transaction valued at approximately $1.1 billion.

Lockheed Martin entered into a definitive agreement to acquire Systems Made Simple, Inc., a provider of health information technology solutions to the U.S. Federal Government.  Terms of the deal were not disclosed.

(1) KippsDeSanto & Co. acted as the exclusive financial advisor to Ampex Data Systems Corporation

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