Industry Week in Review – July 13, 2018
Industry Week in Review – July 13, 2018
Aerospace & Defense Update
Uncertainty regarding Brexit’s impact on the U.K. aerospace industry continues to rise as there have been no withdrawal agreements put in place between the U.K. and the EU. Amidst the concerns, President Trump visited the U.K. this week to discuss a potential trade deal with Prime Minister Theresa May and put pressure on Brexit negotiations, which will have ramifications for the U.S. aerospace industry as well. The lack of clarity around a Brexit agreement has been worrisome for some U.S. and U.K. aerospace companies, which could face potential delays in shipments of British-manufactured aircraft components if no regulation and customs arrangements are in place when the U.K. officially exits the EU. At the Farnborough Airshow this week, the aerospace industry will be looking to the UK government for clarity regarding its vision for the post-Brexit British aerospace industry.
Boeing has won a $1.6B contract with the Royal New Zealand Air Force to supply four P-8 Poseidon patrol planes to replace its Orion aircraft. New Zealand seeks to strengthen its surveillance capabilities following a defense policy statement last week warning that China’s rising influence in the South Pacific could undermine regional stability. New Zealand has lost sway over small island nations to China in the South Pacific, where they are responsible for patrol and rescue missions in an area of the Pacific Ocean bigger than Europe. Last month, South Korea agreed to buy the Poseidon to strengthen anti-submarine capabilities, and Australia will replace its Orion aircraft next year with 15 Poseidon planes.
Government Technology Solutions
L3 Technologies continues to augment high-end capabilities through M&A, acquiring two information security firms this past week as part of the Company’s ongoing initiative to bolster its defense technology profile. L3 announced on Wednesday that it would acquire Azimuth Security and Linchpin Labs for approximately $200 million in a move to strengthen C6ISR capabilities and access to classified operations. The announcement comes just a week after the Company announced its acquisition of Applied Defense Solutions, a supporter of critical space and satellite operations. Over the past two and a half years, L3 has made 15 acquisitions worth approximately $800 million as part of its ongoing M&A strategy. L3’s recent acquisitions highlight an industry-wide trend of contractors attempting to expand next-generation IT (“NGIT”) capabilities across DoD, Intel, and space customers via M&A. In May, Parsons made a similar move when the company acquired national security IT services contractor Polaris Alpha. For Parsons, this addition was in line with a broader strategy to enhance its offerings with NGIT capabilities in the national security market. Given strong market conditions and a favorable budgetary environment, this trend is likely to continue.
On Tuesday, CACI International opened the Dr. J.P. (Jack) London Shared Services Center in Oklahoma City in an effort to lower costs and seek out more available talent. This development is part of a growing trend seen among D.C. area-based contractors, which have been opening long-term operational centers (rather than just contract-specific offices) in less populated metropolitan areas across the country in a strategy known as onshoring. Other companies that have recently started large operational centers in less traditional areas of the country include Leidos, CGI Federal, CSRA, SAIC, and DXC Technology. The moves attempt to take advantage of talent pools in parts of the country where the competition for quality labor is less expensive and less intense to lower costs while gaining access to quality talent, either graduating from local universities (such as Leidos’ software development center in West Virginia University’s Morgantown, WV) or currently working in the commercial sector.
Big Movers
Engility (up 12.1%) – Share prices were up this week after reports that the company is exploring a sale and has attracted interest from companies that include CACI International and Science Applications International Corp (“SAIC”).
Airbus (up 8.2%) – Share prices were up this week after JetBlue Airways replaced Embraer’s E190 fleet with the Airbus A220 fleet.
Transactions
Aptiv PLC has agreed to acquire Snow Phipps Group’s portfolio company Winchester Interconnect, a provider of custom engineered interconnect solutions to the military, aerospace, and other diversified end markets. The deal is worth an estimated $650 million.
AssetWorks, LLC has acquired E-Innovative Services Group, LLC (E-ISG), a provider of software-as-a-service enterprise asset management software. Terms of the deal were not disclosed.
Aviation Technical Services, Inc., has acquired Ranger Air Aviation, a provider of inventory management and aircraft components to a variety of commercial airframes and engine platforms. Terms of the deal were not disclosed.
Cadence Aerospace, a portfolio company of Arlington Capital Partners, has agreed to acquire Perfekta, Inc., a provider of large monolithic structures, and machined components and assemblies to the aerospace, defense, and space markets. Terms of the deal were not disclosed.
Excelitas Technologies, a portfolio company of AEA Investors, has acquired Research Electro Optics, a provider of high-precision optical components, optical thin film coatings, and optical subassemblies. Terms of the deal were not disclosed.
L3 Technologies, Inc. has agreed to acquire Azimuth Security and Linchpin Labs. Azimuth Security is a provider of information security consultation on in-depth analysis of software systems, including threat modelling and design, configuration, and source code review. Linchpin Labs is a provider of computer network operations, cross-platform and low-level systems development, and IT security services. The two companies were acquired for around $200 million in total.
Prototek Sheetmetal Fabrication, a portfolio company of CORE Industrial Partners, has acquired Hayes Manufacturing Services, Inc., a provider of rapid prototyping and low-volume precision machining services to the medical, aerospace, robotics, and electronics industries. Terms of the deal were not disclosed.
TransDigm Group Incorporated has acquired Graycliff Partners’ portfolio company Skandia, Inc., a provider of highly-seating foam, foam fabrication, flammability testing, and acoustic solutions to the business jet market. The deal is worth an estimated $84 million.
