Industry Week in Review – February 16, 2018
Aerospace & Defense Update
On Monday, President Trump released his GFY2019 fiscal budget, which included $686 billion for the base defense budget, $69 billion for overseas contingency operations, as well as additional funding for the Department of Energy’s nuclear weapons programs. Overall, the budget included a total of $716 billion for national security spending, which represents a $74 billion increase in DoD funding relative to the current amount set by the continuing resolution levels with the goal of increasing troop levels, the number of combat aircraft, and rebuilding the Navy’s fleet. The budget request also lays out key initiatives such as the modernization of nuclear capabilities and increasing research and development efforts for cyber, electronic warfare, artificial intelligence, and space.
The Chairman of the Federal Communications Commission (“FCC”) recommended the approval of SpaceX’s plan to provide wireless broadband internet service through large arrays of satellites in low Earth orbit. FCC approval is an important milestone for SpaceX’s project, which has ultimate plans of launching roughly 5,000 satellites by 2025 in order to create a constellation of satellites capable of beaming internet service to approximately 50 million subscribers. The satellites are expected to be deployed by SpaceX’s Falcon Heavy rocket, which was successfully launched in its first test flight last week.
Government Technology Solutions
On Monday, President Trump unveiled his government fiscal 2019 budget, which seeks $45.8 billion for civilian IT funding, which includes $210 million for the Technology Modernization Fund (“TMF”). The TMF will be a central fund for all agency IT upgrades, managed by the General Services Administration (“GSA”). While the $210 million budget request is down from the $228 million requested in government fiscal 2018, the TMF is expected to be self-sustaining well beyond its initial cash infusion. Agencies will be required to repay the TMF for any amounts transferred out, ensuring the TMF can continue to fund priority modernization projects. An estimated $167 million is expected to go toward equipment procurement, with the rest of the funding going toward advisory services and acquiring other federal services. The Trump administration plans for the TMF to not only help make agencies more secure, but also save money.
The Pyeongchang 2018 Winter Olympic Games were off to a chilly start, as Olympic officials recently confirmed a cyberattack infiltrated their systems. Hackers armed with destructive malware compromised Atos, the main IT service provider for the Winter Olympics Games, several months ago and used this data to penetrate the Winter Olympics’ computers during the opening ceremony. The official Winter Olympics website went down for several hours, causing disruption to online ticket sales and downloads. Known as the Olympic Destroyer, the malware was programmed to act like a computer worm, scanning for and stealing user credentials to dive deeper into the infected machines. The Olympic Destroyer used employee credentials previously taken from Atos to destroy files within the Olympics’ computers. If the Olympic Destroyer had not been stopped sooner, there could have been significant disruptions to the games.
Big Movers
CSRA (up 31.6%) – Share prices were up this week after General Dynamics said it plans to acquire CSRA in a deal valued at $9.6 billion.
Bombardier (up 19.9%) – Share prices were up this week after the International Trade Commission voted against imposing duties on sales of Bombardier’s new jetliner.
Transactions
General Dynamics Corp. has entered into a definitive agreement to acquire CSRA, Inc, a provider of a wide variety of services to the federal government. The deal is worth an estimated $9.6 billion.
Veritas Capital has signed a definitive agreement to acquire the U.S. public sector business of PricewaterhouseCoopers LLP, a provider of a professional services to the federal government. Terms of the deal were not disclosed.
Arlington Capital Partners has invested in Integrity Applications Inc. (IAI), a provider of systems engineering, integrated solutions, technical analysis, and subject matter expertise to customers in the intelligence and defense communities. Arlington Capital Partners plans to combine IAI with fellow federal market portfolio company Xebec. Terms of the deal were not disclosed.
Clavis Capital Partners’ portfolio company Solair Group, LLC has acquired JetMac, a provider of ground support equipment products, services, and solutions. Terms of the deal were not disclosed.
General Dynamics Corp. has acquired GPS Source, Inc., a provider of precise timing distribution, GPS, and GNSS solutions for both commercial and military markets. The deal is worth an estimated $35 million.
Granicus Inc. has acquired Vision Internet, a provider of website development services. Terms of the deal were not disclosed.
Magal Security Systems, Ltd. has agreed to acquire a 55% controlling interest in ESC BAZ Ltd., a provider of military-grade smart security video observation and surveillance systems. Terms of the deal were not disclosed.
SemiConductor Devices, owned by Rafael Advanced Defense Systems and Elbit Systems, has acquired Quantum Imaging, Inc., a provider of camera solutions for high-performance imaging applications for a range of military, industrial, and scientific industries. Terms of the deal were not disclosed
