Industry Week in Review – September 1, 2017
Aerospace & Defense Update
United Technologies Corp. is in talks with Rockwell Collins about a potential deal valued at more than $20 billion to acquire the industry heavyweight with expectations of closing the deal within a week. With the consolidation of two key aerospace and defense suppliers, the deal could lead to a wave of mergers and acquisitions (“M&A”) activity amongst other first-tier competitors. Competitors such as Thales or Harris Corp. could have difficulty competing on contracts with Rockwell Collins with the backing of United Technologies’ resources. Other large aircraft makers, such as Boeing and Airbus, could also have concerns over increasing costs in their respective supply chains as a result of further consolidation, which could lead to acquisitions of smaller avionics and electronics companies to lessen dependence on first-tier suppliers. Additionally, Boeing has demonstrated interest in expanding its footprint in the aftermarket through the creation of an internal avionics business unit. Industry analysts agree the Pentagon and other government agencies are likely to allow the acquisition without objection because neither United Technologies nor Rockwell Collins are competitive in the same space.
The U.S. Army has granted AM General a contract award for $2.2 billion in High Mobility Multipurpose Wheeled Vehicles (“Humvee”) sales to foreign countries, which equates to over 11,500 vehicles. AM General designs, manufactures, and supplies high-quality specialized vehicles for military and commercial customers globally. The contract award allows for foreign countries to order the Humvees over the next five years. Two years ago, AM General lost its bid to build Joint Light Tactical Vehicles (“JLTV”) in the U.S. Army’s Humvee replacement competition to Oshkosh Defense. However, AM General has managed to successfully expand its Humvee business internationally. This contract would add to the more than 250,000 AM General Humvees already deployed across 60 countries.
Government Technology Solutions
On Wednesday, the White House’s American Technology Council and Office of American Innovation issued its report on the efforts needed to modernize federal technology. Required as part of President Trump’s May 11th cybersecurity executive order, the report focuses its main priorities on modernizing and consolidating federal networks and moving to shared services. For modernization and consolidation, the report calls for maximizing the secure use of cloud computing and modernizing government-hosted applications to protect federal data and cloud-optimized deployments. For shared services, the report recommends increasing the use of commercial clouds, accelerating the adoption of cloud email and collaboration tools, and improving existing as well as providing additional, security shared services. The Office of Management and Budget (“OMB”) will help agencies reprioritize funds away from obsolete, legacy Information Technology (“IT”) systems towards modern technologies, using agile development where possible. The report made no mention of the IT modernization fund, for which the White House has requested $228 million for the next fiscal year.
Due to a shorter budget timeframe for agencies and vacancies in politically-appointed positions, delays on certain major contract awards are becoming commonplace as the end of the federal fiscal year-end looms. Many large-dollar programs require political guidance and thus have been slowed down with delayed appointee decisions during the transition to a new administration. All but two of Deltek’s top-20 opportunities for fiscal year 2017 have seen their award date pushed further out, and as a result, many current contracts have been extended through modifications. However, contract opportunities are still being actively pursued; with a compressed timeframe due to full appropriations only being in place since March, companies expect a very good bookings quarter, especially in relation to military training and readiness. Agencies have a high volume of business and backlog to clear, so they may default to easily supportable conclusions favoring lower-cost bids in making awards.
Big Movers
ICF International (up 18.0%) – Share prices were up this week due to ICF’s role as the lead consultant for the Department of Housing and Urban Development and the subsequent increased role that ICF will play for recovery efforts in the wake of Hurricane Harvey’s destruction in Texas.
Embraer (up 5.5%) – Share prices were up this week after the Pentagon announced the sale of 12 Super Tucano A-29 planes made by Embraer to Nigeria.
Transactions
Braxton Science & Technology Group has acquired Ingenicomm LLC, a provider of architecture, implementation, and deployment services for satellite ground systems. Terms of the deal were not disclosed.
Forcepoint, majority owned by Raytheon in a joint venture with Vista Equity Partners has acquired RedOwl Analytics, Inc., a provider of security analytics focused on understanding and managing human risk. Terms of the deal were not disclosed.
Jacobs Engineering Group, Inc. has acquired Blue Canopy Group, LLC, a provider of cloud, big data analytics, data science, and enterprise information technology (“IT”) consultancy and services for federal government and commercial markets. Terms of the deal were not disclosed.
Point Blank Enterprises, Inc. has acquired United Shield International, LLC, a provider of personal ballistic and fragmentation equipment. Terms of the deal were not disclosed.
Strata-G Solutions, Inc. has agreed to acquire WestWind Aerospace, Inc., a provider of rotary wing systems and integration solutions. Terms of the deal were not disclosed.
