Industry Week in Review –April 20, 2018

Aerospace & Defense Update

In response to evolving threats from Russia and China concerning hypersonic missiles penetrating existing U.S. missile defense systems, the U.S. Air Force has revealed it will spend close to $1 billion to develop its own hypersonic missile. The Air Force awarded a $928 million contract to Lockheed Martin for the design, development, and testing of an air-launched hypersonic strike weapon capable of easily exceeding the speed of sound.  The contract furthers Pentagon efforts to develop state-of-the-art hypersonic technologies (defined as those capable of traveling faster than Mach 5) and would bolster existing missile defense systems which may be ill-equipped to handle such speeds.  This Air Force-led effort through the Hypersonic Conventional Strike Weapon program, along with the Tactical Boost Glide program joint-led by the Air Force and the Defense Advanced Research Projects Agency (“DARPA”), are aimed at protecting the U.S. from the possibility of a nuclear first strike.

The U.S. Federal Aviation Administration (“FAA”) this week ordered the inspection of certain CFM International jet engines following the engine explosion on Southwest Airline flight 1380, the first fatal U.S. airline accident in nearly a decade.  CFM International, a joint venture between Safran and General Electric, produces the approximately 8,000 CFM56-7B engines currently in operation on Boeing 737s, a pillar of the aerospace industry which has logged over 350 million hours of safe travel.  While Southwest and other airlines have vowed to accelerate inspections on similar engines over the next 30 days, the U.S. National Transportation Safety Board (“NTSB”) is launching an investigation into the cause of the accident.  The NTSB, along with French investigators, plans to complete its investigation within 15 months, but early efforts focus on metal fatigue of the fan blade.

Government Technology Solutions

The Internal Revenue Service (“IRS”) announced late Tuesday that it would allow tax payers to submit their returns a day late, through Wednesday, without penalty after technical problems impaired the agency’s ability to process tax returns filed electronically.  The IRS described Tuesday’s glitch as hardware-related, and the agency announced later that day that its systems were back online and able to process returns.  However, the episode raised fresh questions of whether the IRS’ antiquated computer systems are prepared for the massive overhaul mandated by last year’s tax reform.  The IRS has over 60 different IT systems for managing the cases of individual tax payers, most of whom file electronically.  A report submitted to Congress by an internal IRS watchdog noted that many of the IRS’ systems have not been updated in decades, including two of them that are nearly six decades old.  Senior IRS officials stated that replacing the agency’s aging IT infrastructure is a high priority.

A Council of the Inspectors General on Integrity and Efficiency (“CIGIE”) report identified IT security and management as one of the top management and performance challenges faced by federal agencies.  The CIGIE report was produced by compiling information from 61 top management and performance challenges reports written by the offices of various inspector generals at agencies across the federal government.  The report specifically identified data security, ongoing IT modernization, contingency planning, and building a qualified workforce as the primary difficulties faced in the IT realm.  Among examples, the CIGIE report noted existing backup challenges in the Department of the Interior (“DOI”) that could leave the DOI without access to important data should a computer fail or its systems be compromised.  Federal IT management was also on the Government Accountability Office’s (“GAO”) latest high-risk list, released in 2017.

Big Movers

Textron (up 12.0%) – Share prices were up this week after the company beat first quarter earnings estimates and agreed to sell its tool unit to Emerson Electric.

Tyler Technologies (up 5.8%) – Share prices were up this week after the company announced it has signed a definitive agreement to acquire Socrata, Inc.


Arsenal Capital Partners has acquired Fralock, a provider of components and subassemblies designed and engineered using specialty materials for the semiconductor, aerospace, satellite, and life sciences industries.  Terms of the deal were not disclosed.

Fastener Distribution Holdings, a portfolio company of Audax Private Equity, has acquired Blue Sky Industries, a provider of c-class parts to aerospace and defense MRO and OEM customers.  Terms of the deal were not disclosed.

HEICO Corporation’s subsidiary Dukane Seacom, Inc. has acquired Instrumar Limited’s Emergency Locator Transmitter Beacon product line, a provider of safety-critical devices such as location and distress beacons for commercial aviation and defense markets.  Terms of the all cash deal were not disclosed.

Polaris Alpha has acquired Fourth Dimension Engineering, LLC, a provider of electronic product development services in multiple engineering disciplines to government and commercial clients.  Terms of the deal were not disclosed.

Tyler Technologies has acquired Socrata Inc., the venture-backed industry leader in open data and data-as-a-service solutions for government, providing cloud-based data integration, visualization, analysis, and reporting solutions.  Terms of the deal were not disclosed.

Valiant Integrated Services has acquired Cubic Global Defense Services, a provider of training, operations, intelligence, maintenance, technical, and other support services to the U.S. government and other nations.  The deal is worth an estimated $138 million.

Vantage Specialty Chemicals Holdings, Inc. a portfolio company of H.I.G. Capital, LLC has acquired B&B Tritech, Inc., a provider of military grade surface treatment solutions engineered for defense and commercial aviation markets.  Terms of the deal were not disclosed.

Click here to review our comparable company analysis.