Industry Week in Review – September 21, 2018
KippsDeSanto & Co. Industry Week in Review – September 21, 2018
Summary
Increased defense spending continues to be a primary emphasis for the federal government. Multiple branches of the military have received or will receive increased funding in the foreseeable future. Furthermore, IT modernization and heightened security continues to be an ongoing area of focus for the both the commercial and federal end markets.
Aerospace & Defense Update
U.S. Army weapons and munitions technology development is receiving a large-scale cash injection in the recently passed GFY2019 spending bill, which was passed much earlier this calendar year than in 2018. (“RDT&E”) dollars for weapons and munitions technology increased by $343 million in the bill, representing more than the $40 million in RDT&E funding that the Army had previously requested for 2018. Even though the Army’s budget request had dropped in February of this year, the service has been proactive by forming cross-functional teams to tackle top modernization priorities. These teams are essential to rapidly modernize forces to go up against adversaries such as Russia and China with top priorities being long-range precision munitions and small unmanned aircraft systems.
The U.S. Air Force estimates that creating a Space Force will cost a total of approximately $13 billion over the next five years, including an initial $3 billion cost to start up this program. The proposal, put forth by the Air Force to add a sixth branch of the military, estimates that more than 13,000 personnel will be needed on top of existing space operators to help stand up the Space Force. In addition, the proposal estimates that the Space Force headquarters would be established in GFY2020, and the services would begin transferring the space personnel and programs the following year. Under the proposal, there is a possibility of re-integrating the intelligence community within the newly-formed military space community through the use of the National Reconnaissance Office.
Government Technology Solutions
In the ongoing quest for federal IT modernization and security, Microsoft and Amazon have both ramped up their federal cloud pursuits to capture part of this burgeoning market. Following the integration of Microsoft’s on-premises application software—Azure Stack—with the Azure Government Cloud in August, the Seattle-based software company intends to attract public sector clients with a hybrid cloud approach that addresses latency and connectivity locally. Along with these capabilities, Azure aspires to accelerate the IT modernization timetable, ensuring that “applications can be moved without making any changes in code, DevOps tools, processes, or people skills.” Not to be outdone, Amazon Web Services (“AWS”) established a two-part program to guide and facilitate government customers’ transitions to Amazon’s cloud platform. Amazon understands the inherent competition in such a largescale overhaul and responded to Azure’s announcement with the AWS Public Sector Partner Transformation Program, a 110-day initiative aimed at moving its clients to the cloud. As the market for modernization continues to heat up, signs point to a showdown between Amazon and Microsoft for meaningful federal cloud market share.
The American Council for Technology and Industry Advisory Council (“ACT-IAC”), a partnership that strives to modernize the government via IT implementation, held a meeting this Tuesday which assessed the potential impacts of automating government agencies’ processes. The biggest challenge is not the automation itself, but rather the optimization of legacy processes required beforehand, according to General Services Administration (“GSA”) senior advisor Ed Burrows. Once implemented, however, time and cost savings could be significant. For National Aeronautics and Space Administration (“NASA”), adopting a robotic process automation (“RPA”) for the agency’s grants management system has resulted in $50,000 in savings so far, on an initial investment of only $7,000. Further RPA initiatives at NASA are expected to continue to eliminate low-value manual work—efforts the Trump administration deems inefficient and dated. Shifting away from time-intensive, manual work and towards automation to focus on high-value tasks could potentially attract more technical and skilled graduates into the government space workforce, as evident in initiatives like Harvard’s “Code It Forward” program, which sponsored fellowships performing high-end, “civic tech” work at six federal agencies this past summer.
Transactions:
AEVEX Aerospace, a portfolio company of Trive Capital, has acquired Special Operations Solutions, LLC (“SOS”), a provider of ISR platform modification engineering, custom system design, software development, flight test services and processing, exploitation, and dissemination (“PED”) technical support for special operations in highly complex environments. The terms of the transaction were not disclosed.
BBA Aviation plc has agreed to acquire Firstmark Corp., a provider of highly engineered, proprietary components and subsystems for the aerospace and defense industries. The deal is worth an estimated $97 million.
Braidy Industries, Inc. has acquired NanoAI, LLC, a provider of the design, development, and commercialization of high-end performance aluminum alloys for a diverse set of industries. The terms of the transaction were not disclosed.
Desser Holding Company LLC, a portfolio company of Graham Partners, has acquired AOG Aviation Spares, LLC and Seinus, LLC, providers of component repair, overhaul services, and replacement PMA parts to airline operators. The terms of the transaction were not disclosed.
Kaiser Aluminum Corp. has acquired Imperial Machine & Tool Co., a provider of multi-material additive manufacturing and machining technologies for aerospace and defense, automotive, high-tech, and general industrial applications. The terms of the transaction were not disclosed.
Modern Aviation, a portfolio company of Tiger Infrastructure Partners, has acquired the Centennial Airport assets of Xjet Holdings, LLC, an FBO with more than 50,000 square feet of climate-controlled hangar accommodation. The terms of the transaction were not disclosed.
NewSpring Holdings LLC, the holding company of NewSpring, has acquired The Sentinel Company, a provider of mission-focused consulting and technology-enabled solutions to customers within national security domains. Terms of the deal were not disclosed.
Planned Systems International has acquired KINEX, Inc., a provider of mission-critical technology, modeling and simulation, software development, cybersecurity and data solutions to the Department of Defense (“DoD”) and Intelligence Communities. The terms of the transaction were not disclosed.
Snow Phipps Group has acquired Blackhawk Industrial Distribution, Inc., a provider of cutting tools, abrasives and industrial MRO products used in manufacturing, aerospace & defense, energy, and many other diverse markets. The terms of the transaction were not disclosed.
System One has acquired TPGS, a provider of software engineering and IT consulting for the Department of Defense and intelligence agencies. The terms of the transaction were not disclosed.
Timken Co. has acquired Rollon Group, a provider of the design and manufacture of engineered linear guides, telescopic rails, and linear actuators used in a wide range of industries including the aerospace industry. The terms of the transaction were not disclosed.
Vision Technologies Aerospace, Inc. has acquired MRA Systems, LLC, a provider of the design, development, production, and sale of nacelle systems and their thrust reversers for both narrow-body and widebody aircraft. The deal is worth an estimated $630 million.
