Industry Week in Review – September 4, 2015
Aerospace & Defense Update
According to an article by Reuters on August 30 labeled, “Boeing uses its clout to control supplier consolidation”, Boeing has played an important role in some recent M&A transactions in the aerospace industry. The article describes Boeing use of its “assignability clause” to refuse or delay the transfer of ownership for some of its supply contracts. While Boeing states it has not changed the process it uses to evaluate acquisitions, many company owners believe approvals are taking longer than usual. From Boeing’s perspective, a change in ownership increases the company’s risk, as delays caused by key suppliers could postpone its delivery of an aircraft. With recent acquisition trends in the space, Boeing is likely to continue its close evaluation of all transactions involving its suppliers, irrespective of size.
Lockheed Martin’s Aeronautics division continues its F-35 hot streak, announcing its win of the U.S. Navy contract for the F-35 Lightning II Block 3F upgrade. The contract, which has a $311 million ceiling value and will last until September 2021, was announced shortly after Lockheed secured a $430 million F-35 fighter jet contract to provide support equipment and services. Lockheed Martin’s success on the F-35 program is critical, as its Aeronautics division anticipates the program to be an integral part of the company’s organic growth in 2016. In addition to the F-35, Lockheed Martin partnered with Boeing to recently submit a design for the U.S. Air Force’s new long range strike bomber (“LRS-B”). They are competing against Northrup Grumman to be the prime contractor, as both parties’ reportedly submitted designs at an unusually high level of detail for this stage in the process. The initial LRS-B will be manned and is expected to be awarded in October. However, the Air Force states that unmanned operations are possible by the mid 2020’s, several years after initial operational capability.
Government Technology Solutions Update
The General Services Administration (“GSA”) digital services innovation arm announced that it has awarded 16 vendors a spot on its 18F agile Blanket Purchase Agreement (“BPA”). The BPA has a ceiling of $25 million over a one-year base period with four one-year options. The announcement came after the submission deadline was pushed back twice to accommodate the large volume of questions from contractors about the new type of BPA. Unlike typical contract vehicles, the agile BPA seeks to pool GSA Schedule 70 vendors for rapid agile or DevOps work. In order to win a spot on the BPA, vendors participated in a two-week sprint to offer a functional deliverable in addition to a traditional proposal. Agile processes emphasize flexibility, the creation of ongoing deliverables to clients, constant revaluation of project progress, and responsiveness to client concerns. With this new award evaluation process, the 18F team hopes the BPA will serve as a framework for the Federal Government on how to integrate agile processes into the delivery of technology solutions to Federal agencies.
The GSA also announced the award of a BPA to address identity theft and IT network security concerns following recent breaches of Federal data systems. Awarded to three contractors, the BPA will last 5 years and has an estimated overall value of $500 million. The contract is in response to an Office of Personnel Management (“OPM”) hack that has prompted the Federal Government to accelerate network security evaluations. $133 million is dedicated to identity theft insurance and identity restoration services for the 21.5 million individuals affected by the OPM breach. However, the BPA requirements were evaluated by departments and agencies beyond OPM, with proposals also going before GSA, the Department of Homeland Security (“DHS”), the Federal Trade Commission, and components of the Department of Defense (“DoD”), as part of a wide-ranging evaluation and improvement of IT security across the Federal Government.
Big Movers
Engility Holdings (Down 3.7%) – Shares were down this week as macroeconomic trends overshadowed Engility receiving contracts from both the U.S. Army and Navy.
Boeing Co. (Down 2.6%) – Shares were down this week as macroeconomic trends overshadowed Boeing receiving a $2.6 billion order for 27 of its 737-800 aircraft.
Transactions
Resilience Capital Partners LLC acquired Porter’s Group LLC, a provider of metal fabrication solutions serving the security, military, mining, heavy equipment, and trucking industries. Terms of the deal were not disclosed.
Donaldson Company, Inc. acquired Engineered Products Co., a designer, manufacturer, and supplier of filter monitoring devices. Terms of the deal were not disclosed.
Keysight Technologies acquired Electroservices Enterprises Ltd., a manufacturer of test equipment services and solutions. Terms of the deal were not disclosed.
CSC to acquire SRA, a provider of information technology (“IT”) and professional services to the U.S. Federal government. SRA will be combined with the government services unit of CSC. The shareholders of the government services unit will own 84.68% and SRA’s shareholders will own 15.32% of the combined company and will receive $390 million of cash as part of the transaction.
Calibre to acquire the health and life sciences and defense and public sector groups of IMC, a provider of IT services to Federal, commercial, and health and life sciences clients. Terms of the deal were not disclosed. KippsDeSanto & Co. acted as the exclusive financial advisor to IMC.
