Industry Week in Review – September 9, 2016
Aerospace & Defense Update
According to Breaking Defense, Under Secretary of Defense for Acquisition, Frank Kendall, firmly believes Congress will be unable to implement a new defense funding bill before October 1st. With the Senate failing to pass the bill for the third time earlier this week, the real question has changed to whether the Continuing Resolution (“CR”) will last for three or six months. Todd Harrison, from the Center for Strategic & International Studies, believes a three-month CR is more probable because President Obama will not want a budgetary decision to span administrations. However, much of the process is out of President Obama’s hands as the House and the Senate’s bills still need to be reconciled. In an act Kendall has condemned, the House seeks to shift $18 billion from current combat readiness to administrative operations.
With General Electric’s (“GE”) pending $1.4 billion aggregate purchase of Arcam AB and SLM Solutions Group, the company seeks to combine 3-D printing capabilities with its jet engine production and power turbine businesses. According to David Joyce, CEO of GE Aviation, the technology will allow engines to be built cheaper and with hundreds of fewer parts, saving weight. The company expected to purchase ~1,000 new 3-D printing machines in the next 12 years, but now hopes to realize cost synergies totaling $3 – 5 billion. In addition to these cost benefits, GE hopes to expand the two company’s current $140M aggregate revenue by over $1 billion before 2020. Even in light of these proposed synergies, analysts believe GE paid a substantial premium; when news of these two acquisitions become public, Arcam and SLM shares rose by 54% and 38%, respectively.
Government Technology Solutions Update
Members of the House Committee on Oversight and Government Reform (“HCOGR”) released a report on Wednesday harshly criticizing the Office of Personnel Management’s (“OPM”) cybersecurity habits, placing blame on OPM’s leadership and culture for a series of major data breaches. These breaches led to the hacking of more than 20 million U.S. citizens’ personal information records. According to the report, OPM leadership ignored early warnings about critical infrastructure vulnerabilities. Furthermore, the agency failed to detect system breaches or the presence of malware in a timely manner. Democrats on the HCOGR want to hold contractors, such as KeyPoint, partially responsible for these incidents due to what they claim were poor practices contributing to the data breaches, while HCOGR Republicans want to push legislation requiring the certification of websites containing sensitive information.
The Defense Information Systems Agency (“DISA”) released a revised request for proposal (“RFP”) for the 10-year, $17.5 billion ENCORE-III indefinite delivery / indefinite quantity (“IDIQ”) contract, roughly one month after the Government Accountability Office (“GAO”) found that DISA’s original contracting process was flawed. DISA still plans to award the contract on a lowest price technically acceptable (“LPTA”) basis, despite that point being a major component of the bid protests made by CACI and Booz Allen Hamilton. However, the revised RFP has been amended to address GAO’s main concerns that bidders must now propose rates for both the fixed-price and cost-plus portions of the contract, whereas the previous iteration of the bids only required rates for the fixed-price portion of the contract. DISA will make 40 total awards – with 20 being awarded full and open (“F&O”) and 20 awarded to small businesses (“SB”).
Big Movers
Bombardier (Down 5.2%) – Shares were down this week after Bombardier lowered its CSeries delivery guidance.
Rolls Royce (Down 7.6%) – Shares were down this week after reports surfaced of ANA’s plans to claim compensation for replacement of all turbine blades across its 787 fleet.
Transactions
Aviation Technical Services has acquired Texas Pneumatics, a provider of repair and overhaul services for commercial airlines. Terms of the deal were not disclosed.
Broadcast Microwave Services has acquired Data911, a provider of modular information systems for military and law enforcement agencies. Terms of the deal were not disclosed.
Cybraics, Inc. has acquired Caerus Analytics, a provider of big data analytics and cybersecurity for intelligence fusion, campaign assessments, systems analysis, and monitoring and evaluation. Terms of the deal were not disclosed.
ESCO Technologies has acquired Westland Technologies, a provider of custom-molded rubber parts for vibration and sound dampening, thermal insulation, and shock absorption in industrial and defense applications. Terms of the deal were not disclosed.
GE Aviation has agreed to acquire SLM solutions, a provider of metal-based additive manufacturing technology solutions. The deal is worth an estimated $761.4 million.
GE Aviation has agreed to acquire Arcam AB, a provider of additive manufacturing solutions for the production of metal components. The deal is worth an estimated $697.5 million.
InfoTek Corp., has acquired SilverRhino LLC, a provider of cybersecurity and IT services for Federal agencies such as the Department of Defense (“DoD”), Transportation Security Administration (“TSA”), and the Department of Homeland Security (“DHS”). Terms of the deal were not disclosed.
L-3 Communications Corp. has agreed to acquire Micreo, Ltd., a provider of solutions for high-performance microwave, millimeter wave and photonic technology. Terms of the deal were not disclosed.
MAG Aerospace Corp. has agreed to acquire Discovery Air Fire Services, Inc., a provider of forest fire detection, aerial infrared detection, birddog, and aerial transportation services. The deal is worth an estimated $15.4 million.
TransDigm Group, Inc. has acquired Young & Franklin, a provider for turbine controls for the energy, oil and gas, and aerospace markets. The deal is worth an estimated $260.0 million.
