Post on 26-May-2020
Spring 2013
1600 Tysons Boulevard Suite 375
McLean, Virginia 22102 703.442.1400
www.kippsdesanto.com
Aerospace / Defense and Government Services MarketView
(1) OUSD Comptroller / CFO, Fiscal Year 2014 Budget Request and FY2013 Update
(2) GFY13 Enacted and GFY14 Request exclude effects of sequestration . (3) DefenseNews, Hagel: ‘Everything on the Table’ 2
Aerospace / Defense and Government Services MarketView
Spring 2013
Operational / Funding Environment With the deadline having come and gone for Congress to reach an agreement that would have avoided sequestration, the focus has now shifted to managing or even reversing the cuts effected by the Budget Control Act (“BCA”) of 2011. Congress had its first opportunity in late March with the Continuing Resolution (“CR”) that funded the Federal government through the end of the government fiscal year (“GFY”) to September 30
th. While failing to make significant
changes to sequestration, the CR did provide flexibility in administering the cuts, allowing for a reallocation of funds and start of new projects previously prohibited. This change was particularly important for the Department of Defense (“DoD”) as previously enacted allocation amounts were no longer aligned with current needs, causing operational deficiencies and underfunding of specific accounts such as operations and maintenance. An immediate benefit from the added flexibility was the DoD’s delay of roughly 800,000 furlough notices it had planned to issue civilian employees. Following the passing of the CR, attention has turned to the President’s $3.778 trillion spending plan for GFY14, which includes $527 billion for the DoD base budget and $88 billion for overseas contingency operations. Despite balanced deficit reduction measures that would allow Congress to replace and repeal the enacted BCA cuts, the proposed DoD topline for GFY14 is still subject to $52 billion in cuts if there is no change to the current law. With that said, the DoD proposal is designed to implement and align programs towards new strategic guidance, including (i) a smaller and leaner force; (ii) enhanced presence in the Asia / Pacific region while maintaining a stabilizing presence in the Middle East; (iii) prioritizing key counter-terrorism, cyber, and intelligence, reconnaissance, and surveillance capabilities; (iv) building innovative, global security partnerships; and (v) deterring aggression, particularly on the Korean peninsula.
Looking to GFY15 and beyond, Defense Secretary Chuck Hagel has ordered a Strategic Choices and Management Review in order to develop a framework for strategy, posture, and investments. Secretary Hagel has stated that the focus will be on three primary cost drivers: acquisition, personnel, and overhead. The rising costs associated with these areas have crowded out other portions of the budget over the past decade and if left unaddressed, will cause the U.S. to be without needed defense capabilities in the future. To put these costs in perspective, the Office of the Secretary of Defense, Joint Chiefs of Staff, defense agencies, and combatant commands account for more than 240,000 people who consume ~$113 billion of the DoD budget annually. Additionally, if current DoD personnel costs grow at 2.6% (~2% below the current average) over the next decade, they will consume ~46% of the DoD budget by the year 2021. While these items are key to Secretary Hagel’s reform agenda, they will not be addressed until the 2015 budget proposal.
(3)
On domestic spending, there are two clear focus areas in the President’s GFY14 budget—deficit / debt reduction and health. The budget includes $1.8 trillion of additional deficit reduction over 10 years and calls for $400 billion in health savings that crack down on fraud and waste to strengthen Medicare. Additionally, $1.3 billion is proposed for development of the Military Health System (“MHS”) and $136 million for Veteran Affairs (“VA”) to implement its paperless claim system and improve claim processing. The VA has been insulated from sequestration and broader budget cuts not only because of the political sensitivity of its mission, but also because of the increasing demands placed on the agency, which have led to a large backlog of benefit claims for Veterans. The VA is increasingly turning to IT solutions to help remedy the situation, as evidenced by the 19.1% increase in the VA’s IT budget. Within the MHS, $143 million is directly slated for IT development. The somewhat stabilized fiscal environment is also beginning to allow contractors to look ahead for business opportunities. For example, the D/SIDDOMS III contracts (worth $2.4 billion over the last few years) are set to expire in 2013. MHS has stated follow-on contracts will not be put in place, so large and small contractors alike should prepare for replacement IT and concept development contracts to be freshly procured. In the current environment, where any budget growth should be viewed as an opportunity and total diversified Federal IT budgets provide only modest growth, we continue to see strong interest from buyers for businesses that are well-positioned in health IT and the VA.
2014 DoD Base Budget by Component(1)
2014 DoD Base Budget by Department(1)
Shifts in DoD Base Budget Request(1)(2)
($ in billions)
O&M40%
Personnel26%
RDT&E13%
Other2%
Navy30%
Air Force27%
Army25%
Defense-Wide18%
By Component
GFY13
Enacted
GFY14
Request %∆
O&M $210.1 $209.4 (0.3%)
Military Personnel 135.4 137.1 1.3%
Procurement 99.8 99.3 (0.5%)
RDT&E 69.4 67.5 (2.7%)
Other 12.8 13.3 3.9%
Total $527.5 $526.6 1.6%
By Department
GFY13
Enacted
GFY14
Request %∆
Navy $158.9 $155.8 (2.0%)
Air Force 139.8 144.4 3.3%
Army 131.9 129.7 (1.7%)
Defense-Wide 96.9 96.7 (0.2%)
Total $527.5 $526.6 (0.2%)
Procurement 19%
(1) Capital IQ, company filings, and KippsDeSanto research 3
Aerospace / Defense and Government Services MarketView
Spring 2013
Capital Markets and Public Market Valuation Trends
Aerospace and defense shares have benefited from the passage of the CR in March, which gave contractors long-awaited visibility into the DoD’s spending throughout the rest of GFY13. The enactment of sequestration, while potentially detrimental to certain contractors, did serve to further lift the uncertainty that shrouded the market throughout the first quarter of the year. Though relatively flat in the year-to-date period, aerospace shares have performed well, returning 14.0% over the last year, with aerospace suppliers benefiting from record backlogs and increased production rates at the major OEMs. As noted on page six, production rates at Airbus and Boeing have been increasing on many platforms, driving demand for components and subsystems from suppliers. B/E Aerospace, up 24.5% over the last year, and TransDigm, up 27.2% over the last year, have both cited increased build rates as drivers for their performance, particularly on widebody aircraft. However, if build rates begin to stabilize in the medium- to longer-term, OEM suppliers such as B/E Aerospace and TransDigm may see more moderate revenue growth. Aerospace aftermarket suppliers are facing a mixed outlook, with 2013 growth forecasted to be in low single digits. Growth in aftermarket avionics and mechanical components is expected to be in line with increases in airline traffic, while engine component suppliers expect modest growth in 2013, following 2012 declines such as those at United Technologies, whose Pratt & Whitney unit reported a 12.0% drop in spares orders from 2011. Aftermarket engine suppliers are susceptible to an increasing number of aircraft retirements, supported by airlines’ shift to more fuel-efficient aircraft and a low interest rate environment that facilitates new aircraft purchases. The retirements lead to a surplus of used engine parts available for maintenance shops, while the deployment of newer aircraft reduces the immediate demand for engine overhauls and spare parts. After a period of underperformance on account of budgetary uncertainty, defense shares have recently rebounded as the CR and enactment of sequestration provided some visibility in the short-term. As of May 1
st, defense primes had
returned 13.8% since sequestration went into effect on March 1st, outperforming the S&P 500’s return of 4.2%.
Nevertheless, companies with exposure to DoD spending continue to feel pressure, especially since the cuts were not avoided. For instance, AeroVironment, down 30.7% year-to-date, cited government order delays as the largest issue impacting its first quarter earnings decline that led to it missing analyst expectations.
For the first quarter of FY13, much of the budget uncertainty and sequestration fears facing government services providers seems to be priced into the public markets (our Government Services index has returned 11.6% over the last three months, compared to 4.2% for the S&P 500). Companies are using the economic trough as an opportunity to evaluate their current positioning, and actively re-adjust strategies for the future. Despite disappointing 3Q13 earnings (missed revenue and EPS estimates by $32.8 million and $0.03, respectively), CACI stock saw minimal change. In an effort to improve future performance; however, CACI’s new CEO continues to focus more aggressively on contract wins, though there is concern that such a strategy could lead to pricing and margin pressure. Similarly, SAIC reported 4Q13 EPS of $0.54, 5.9% ahead of the Street, but FY14 revenue guidance (including sequester) of $10.0 – $10.7 billion was below estimates of $10.8 billion. Although analysts remain skeptical, SAIC’s split is projected to produce more savings than previously expected. On the other hand, with the threat of cyber-attacks becoming increasingly visible in the market, KEYW continues to be viewed as a strong cyber play. As one of the purer-plays for government cyber services and products, the Company is expected to benefit from expanding cybersecurity budgets that are less likely to be affected long-term by impending funding declines, as well as its move to expand into commercial markets via the Company’s Project G. KEYW has already set targets for 2015, with revenue exceeding $500 million and EBITDA margins between 17 – 19% (assuming Project G can generate revenue of $75 million with gross margins of 75%).
Relative Stock Price Performance(1)
12 Months Ended May 1, 2013
Relative Stock Price Performance Post-Sequestration(1)
March 1, 2013 – May 1, 2013
75
80
85
90
95
100
105
110
115
120
125
May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13
Defense Primes Aerospace Government Services S&P 500
95
97
99
101
103
105
107
109
111
113
115
1-Mar 8-Mar 15-Mar 22-Mar 29-Mar 5-Apr 12-Apr 19-Apr 26-Apr
Defense Primes Aerospace Government Services S&P 500
17.3%
14.9%
12.6%
14.0%
11.6%
13.8%
4.2%
3.7%
(1) Capital IQ, company filings, and KippsDeSanto research 4
Aerospace / Defense and Government Services MarketView
Spring 2013
M&A Trends and Activity While M&A volume was relatively flat overall in the first quarter of 2013, with 56 aerospace, defense, and government services transactions, compared with 58 transactions in the same period last year, the mix changed materially. The aerospace sector continued to see growing M&A activity, with 27 transactions in 1Q13 versus 20 in 1Q12. The sector is bolstered by sustained performance in the commercial aircraft market, with OEMs handling record backlogs, fueling demand for components, subsystems, and structures. Defense transactions continued to remain flat in the wake of sequestration, numbering 16 in 1Q13 compared with 14 transactions in 1Q12.
There has been increased private equity involvement in the aerospace and defense sectors, with 48% of deals in 1Q13 having financial sponsor involvement. Aerospace components, subsystems, composites, and aerostructures represented over 65% of private equity acquisitions in the space, as sponsors sought to capitalize on the positive trends in the commercial aerospace market. Notably, in March, Greenbriar Equity Group announced that it had agreed to acquire Edac Technologies Corporation, a producer of fixtures, molds, and jet engine components, for $17.75 a share, implying an EV / EBITDA multiple of 10.3x. MidOcean Partners countered Greenbriar’s bid for the component manufacturer with an offer of $18.25 a share, though that offer was subsequently withdrawn.
MRO and aerospace service transactions continue to be well-represented, with eight such transactions in 1Q13, compared with nine in 1Q12. While many of these deals have been smaller in size and focused on expanding the buyer’s geographic footprint of repair stations, a number of acquisitions have demonstrated a shift by OEMs to include maintenance and support services as part of their portfolios. For instance, Lockheed Martin acquired MRO assets from Aveos Fleet Performance, expanding its service capabilities in CF34 and CFM56 engines. Textron, through its Cessna subsidiary, acquired the Dusseldorf and Zurich MRO operations of Jet Aviation Management, expanding its presence in Europe and bolstering its support service offerings for Cessna aircraft. The heavy rush to market witnessed in 2012—driven by sequestration worries and increasing tax implications—brought 107 announced government services transactions by year end, significantly above the five year average annual deal count of 93 transactions. As expected, in the wake of the increased 2012 activity, only 15 transactions have been announced year-to-date, compared to 34 during the same period last year. However, deal activity is anticipated to increase during the remainder of 2013 as the budget picture becomes more clear and buyers continue to reposition into growing markets, refocus on core services, and reshape their portfolios in an effort to unlock additional value. Divestitures, from both large and small companies, are expected to continue to be a key driver of M&A activity during 2013, fueled by ongoing leadership changes among government services and defense companies and the persistent challenge to deliver organic growth. 2013 has already seen six divestitures (Salient Federal Solutions / Fannie Mae Division; LexisNexis Risk Solutions / Employment and Resident Screening Business Unit; OGSystems / TASER Business Unit; Luna Innovations / Secure Computing and Communications Group; System Planning Corporation / GlobalTrak Division; and Viecore / Federal Systems Division). Other notable deals this year include ManTech’s acquisition of ALTA Systems, expanding its offerings in the healthcare market; Parsons’ acquisition of First Support Services, aimed at enhancing operations and maintenance offerings; and TrueNorth Logistics acquisition of RAMTECH Support Services, which will allow TrueNorth to pursue additional opportunities in defense depots and military base operations.
M&A Transaction Volume(1)
e
1924
1116
21 2518
2721 17 16 18 14
2617 21
16
1415
1311
1512 22
18
1515
2932
20
37
2023
27
9
20
2226
2517
3126
18 28
2222
24
24
24
35
1342
59
46
53
61
54
71 71
54
60
6772
58
87
61
79
56
0
10
20
30
40
50
60
70
80
90
100
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
Defense Aerospace Government Services
2009200 deals announced
2010257 deals announced 2011
253 deals announced
2012285 deals announced
(1) Capital IQ, company filings, and KippsDeSanto research
(2) Council on Foreign Relations 5
Aerospace / Defense and Government Services MarketView
Spring 2013
Defense Update
Defense Earnings Update(1)
In first quarter earnings calls, General Dynamics, Northrop Grumman, Raytheon, and Lockheed Martin all provided full-year guidance which incorporates assessments of sequestration effects. L-3 did not provide 2013 guidance incorporating impacts from sequestration, however did note that the cuts could reduce 2013 guidance by up to $500 million for net sales and $0.65 for diluted EPS. Generally, defense contractors expect top-line revenue to decline for the year, however strong margins are expected to offset these effects in several cases, driving higher earnings guidance for the year. For instance, Raytheon forecasts a ~1.7% decline in revenue for 2013, however due to strong margins in 1Q13, has raised its full-year EPS guidance by ~2.0%.
2014 Presidential Budget Highlights by Select Program
Though the Presidential 2014 budget request may be nothing more than a “political document,” the proposal provides an indication of programmatic priorities that may ultimately carry-over into the final budget. Specific programs mentioned in the request reemphasize the strategic interests of the administration while others demonstrate cost-saving initiatives. For instance, the proposal includes $8.4 billion to continue the F-35 Joint Stike Fighter program, a program thought to be in danger due to sequestration effects. Some cost efficiencies are mentioned outright, such as the plan to terminate further procurement of Block 30 Global Hawks resulting in savings of roughly $324 million. Other savings are buried amongst “modernization” efforts. For instance the DoD will modify avionics systems in old C-130 Hercules transport planes instead of sticking with its original plan of procuring new airlifters such as the C-27.
North Korean Potential Missile Ranges(2)
Estimated Ranges
Tensions on the Korean peninsula have continued to escalate after North Korea made aggressive statements regarding attacks on U.S. bases in the Pacific. North Korea is believed to have more than 1,000 missiles of varying capabilities, including long-range missiles which could, over time, advance enough to strike U.S. territory. Recently, an unclassified DIA assessment mentioned that, with “moderate confidence,” the agency believes North Korea has nuclear weapons capable of delivery by ballistic missiles, but the reliability of those weapons is very low. Meanwhile, some political leaders such as former Prime Minister of Australia Kevin Rudd argue that we are in danger of overanalyzing the situation and we instead need to focus attention on keeping positive relationships with China. In the meantime, President Obama continues to budget for strategic priorities and a “renewed commitment” to the nation’s historical role in the Asia-Pacific region, including revitalizing Guam’s position as a strategic hub. However, North Korea is likely years away from developing long-range nuclear missile capabilities.
EPS (Latest Quarter Releases) Qtr. EPS
Defense Estimated Actual Release Date Prior Year
$1.50 $1.62 24-Apr-2013 $1.57
1.93 2.11 25-Apr-2013 2.01
2.04 2.33 23-Apr-2013 2.03
1.71 2.03 24-Apr-2013 1.96
1.28 1.49 25-Apr-2013 1.32
0.97 1.07 24-Apr-2013 0.96
PROGRAMPRESIDENTIAL
BUDGET FAVORSELECT FIRMS IMPACTED
F-35
C-130
Global Hawk
Block 30
Budget
Priority
Program
Cancellations
Modernization /
Cost Savings
North Korea
China
Russia
Iran
Alaska,
U.S.
Canada
Guam
1 2 3 4
1
2
3
4
Nodong – 1,000km
Operational
Missile – Range
Taepodong 1 – 2,200km
Musudan – 4,000km
Taepodong 2 – 6,000km
1Q13 DEFENSE EARNINGS: PLANNING FOR SEQUESTRATION
PRESIDENTIAL PROGRAMS: PRIORITIES AND
LOSERS IN THE 2014 BUDGET REQUEST
NORTH KOREA: FAR FROM HOME AND FAR FROM CAPABLE
(1) Capital IQ, company filings, and KippsDeSanto research 6
Aerospace / Defense and Government Services MarketView
Spring 2013
Aerospace Update
Aerospace Earnings Update(1)
Generally, the aerospace sector reported earnings at or above consensus estimates. Boeing’s first quarter core EPS increased 24% over 1Q12 EPS to $1.73 driven by solid performance across business units, notably, strong backlog in the Commercial Airplanes division and increased operating margins in the Defense, Space & Security division. B/E Aerospace CEO Amin Khoury mentioned that revenue growth continues to be driven primarily by the robust new aircraft delivery cycle, increasing 1Q13 EPS by 29.9% over the same period last year. United Technologies beat consensus estimates after including $0.11 of net benefit for restructuring and one-time adjustments. Furthermore, the integration of Goodrich and IAE provided $0.21 of EPS.
Boeing and Airbus Monthly Production Rates(1)
For Years Ended and Ending 2011 – 2014P
(in number of aircraft per month)
Headlines from Boeing and Airbus have noted that strong demand for commercial airplanes and healthy backlog are driving increased production rates. Both companies have determined the need to increase production rates as airlines continue to replace older, less fuel-efficient airplanes and global passenger traffic grows faster than capacity. Certainly Boeing’s 777 will face pressure from the entry of Airbus’ A350, which will likely influence decisions to increase rates further. Boeing specifically noted that a third production line is in development at the company’s Renton plant, which should allow for an increased 737 production rate of 42 per month by 2014 and even higher thereafter. Meanwhile, Airbus has decided to maintain the A320 production rate at 42 per month instead of the previously planned 44, noting the difficulty in stabilizing the supply chain as suppliers are unable to increase production. Given these supply chain constraints, it is unclear whether there is much room to increase production rates further, implying that OEM growth could be slowing down in the intermediate term.
Total Mainline and Regional Fleet(1)
As of December 31, 2012
In February of this year, American Airlines and US Airways announced intentions to merge and form a single airline. More recently, a U.S. Bankruptcy Judge approved the merger, however declined to authorize a proposed severance package for Thomas Horton, CEO of American Airlines’ parent company AMR Corporation, worth nearly $20 million. The merger still needs approval from creditors and antitrust regulators. The combined company would have the world’s largest mainline and regional fleet, made up of US Airways’ 622 and American’s 889 aircraft. Together, the companies have 271 Boeing and 336 Airbus aircraft on order, which both companies affirmed they will uphold post-merger. Moreover, American Airlines has an option for an additional 523 aircraft. The all-stock potential merger is valued at roughly $11 billion and the companies are targeting a consummated transaction by October 14
th of this year.
31.5
3538
42
3840
42 42
7 7 8.3 8.38 9 10 11
0
5
10
15
20
25
30
35
40
45
2011 2012 2013E 2014P
Boeing 737 Airbus A320 Boeing 777 Airbus A330
SOUTHWEST 692
UNITED 1,239
DELTA 1,289
AMERICAN / US AIRWAYS 1,511
US AIRWAYS 622 AMERICAN 889
1Q13 AEROSPACE EARNINGS MAINTAIN ALTITUDE
COMMERCIAL AIRLINE PRODUCTION RATES
INCREASE TO MEET DEMAND
US AIRWAYS / AMERICAN AIRLINES POTENTIAL MERGER
EPS (Latest Quarter Releases) Qtr. EPS
Aerospace Estimated Actual Release Date Prior Year
$0.80 $0.87 22-Apr-2013 $0.67
1.47 1.73 24-Apr-2013 1.22
0.42 0.43 22-Apr-2013 0.39
0.82 0.80 26-Apr-2013 0.77
1.17 1.17 19-Apr-2013 1.09
1.30 1.39 23-Apr-2013 1.31
(1) Capital IQ, company filings, and KippsDeSanto research
(2) “Federal Information Technology: FY 2013 Budget Priorities,” Steven VanRoekel, U.S. Chief Information Officer . (3) Bloomberg, IDC Research, PWC Money Tree, and CB Insights 7
Aerospace / Defense and Government Services MarketView
Spring 2013
Government Services Update
YTD Government Services Performance Review(1)
Much of the pessimism surrounding sequestration has already been priced into the markets, with many government services companies reporting earnings in the first quarter of the calendar year that were either in line with or close to consensus estimates. Up to this point, the effect of sequestration has varied across the sector. NCI made a strong cost-cutting drive last year and said it was relatively unscathed by sequestration. The company reported a 16.1% year-over-year increase in operating income despite a 7.6% year-over-year decrease in revenue. On the other hand, CACI reported a significant impact from sequestration cuts, reporting a second straight quarter of disappointing results with operating income down 5.7% year-over-year.
Projected 2014 IT Budgets for Select Agencies
(2)
($ in millions)
The Federal IT budget has been relatively insulated from government budget cuts. The 2014 budget calls for $82 billion in Federal IT spending, a 1.8% increase over 2013 CR funding levels. While this continues a slowdown in Federal IT spending growth in recent years (Federal IT spending grew at a CAGR of 7.1% from 2001 to 2009, but has only grown at a CAGR of 0.8% since 2009), this slow growth rate does not necessarily mean that there are fewer opportunities for contractors. Instead, Federal IT spending is shifting within the government, with a greater focus on cost savings, healthcare, and cybersecurity applications. In the 2014 budget, IT spending for the VA and Department of Homeland Security is expected to increase 19.1% and 7.0%, respectively, while the Department of Agriculture, Department of Interior, and Department of Justice are all expected to experience slight decreases in their IT budgets.
Big Data VC Funding
For the Years 2010 and 2012
Big Data has seen a surge in venture capital (“VC”) activity over the past two years, increasing from ~$0.7 billion of investment in 2010 to $1.4 billion in 2012, as Big Data technologies are increasingly used to develop competitive advantages and situational awareness. The proportion of total VC funding devoted to Big Data also experienced a significant uptick, increasing from 2.9% in 2010 to 5.3% in 2012. Even as the Big Data market becomes more crowded, home run investment potential continues to draw new investors, with the most recent attraction being the speculation of a buyout of Splunk. Some estimates value a potential Splunk transaction at ~25x revenue, that would make it one of the priciest software deals of the last five years, as the company benefits from first-mover status in a Big Data market expected to grow at a 32% CAGR between 2012 and 2016.
EPS (Latest Quarter Releases) Qtr. EPS
Estimated Actual Earnings Release Prior Year
$0.38 $0.41 30-Jan-2013 $0.40
1.65 1.62 1-May-2013 1.45
0.14 0.12 1-May-2013 0.17
0.55 0.77 12-Mar-2013 NA
0.46 0.51 3-May-2013 0.45
(0.03) (0.06) 30-Apr-2013 0.01
0.58 0.54 1-May-2013 0.69
0.08 0.15 1-May-2013 0.12
0.51 0.54 26-Mar-2013 (0.49)
$2,510
$2,657
$3,128
$3,890
$3,746
$6,072
$7,288
$2,526
$2,687
$3,146
$3,267
$3,706
$5,674
$7,416
$2,000 $4,000 $6,000 $8,000
USDA
Justice
DoT
VA
Treasury
DHS
HHS
GFY13 GFY14
7.0%
Growth (1.7%)
1.1%
19.1%
(0.6%)
(1.1%)
(0.6%)
Other VC Funding
2.9%
Big Data VC Funding
Other VC Funding
5.3%
Big Data VC Funding
Total VC Funding:
$23.3 billion
Total VC Funding:
$26.5 billion
2010 2012
GOVERNMENT SERVICES PROVIDERS STABILIZE IN
FACE OF SEQUESTRATION CUTS
IT BUDGETS EXPECTED TO SHIFT ACROSS
FEDERAL AGENCIES
BIG DATA TAKES A BIGGER SLICE OF VC PIE(3)
(1) Company filings, Capital IQ, and KippsDeSanto research 8
Aerospace / Defense and Government Services MarketView
Spring 2013
Public Company Trading Analysis(1) ($ in millions, except per share amounts)
Stock Price % of 52 Market Enterprise CY 2013E CY 2014P EV / CY 2013E EV / CY 2014P
Defense Primes 05/03/13 Week High Cap Value Rev. EBITDA Margin Rev. EBITDA Margin Rev. EBITDA Rev. EBITDA
The Boeing Company $93.74 99.8% $71,118.8 $68,580.8 $84,206.7 $8,178.2 9.7% $92,054.5 $9,206.2 10.0% 0.81x 8.4x 0.75x 7.4x
Lockheed Martin Corporation 102.01 99.9% 32,500.9 35,739.9 45,231.3 5,344.3 11.8% 44,412.4 5,402.1 12.2% 0.79x 6.7x 0.80x 6.6x
General Dynamics Corp. 75.24 99.8% 26,573.8 26,737.8 31,658.3 4,164.1 13.2% 31,594.1 4,279.4 13.5% 0.84x 6.4x 0.85x 6.2x
Raytheon Co. 63.04 99.7% 20,463.7 21,352.7 23,853.2 3,165.3 13.3% 23,422.8 3,180.9 13.6% 0.90x 6.7x 0.91x 6.7x
BAE Systems plc 5.84 93.8% 18,896.0 18,384.0 28,678.0 3,611.5 12.6% 28,710.6 3,551.2 12.4% 0.64x 5.1x 0.64x 5.2x
Northrop Grumman Corporation 76.84 99.8% 18,070.4 18,829.4 24,024.8 3,201.7 13.3% 23,411.3 3,153.7 13.5% 0.78x 5.9x 0.80x 6.0x
Median 99.8% $23,518.7 $24,045.2 $30,168.2 $3,887.8 12.9% $30,152.4 $3,915.3 12.9% 0.80x 6.6x 0.80x 6.4x
Stock Price % of 52 Market Enterprise CY 2013E CY 2014P EV / CY 2013E EV / CY 2014PDefense Systems 05/03/13 Week High Cap Value Rev. EBITDA Margin Rev. EBITDA Margin Rev. EBITDA Rev. EBITDA
Rockwell Collins Inc. $64.41 99.9% $8,738.6 $9,561.6 $4,685.4 $1,111.6 23.7% $4,860.2 $1,151.8 23.7% 2.04x 8.6x 1.97x 8.3x
L-3 Communications Holdings Inc. 83.42 99.3% 7,524.8 10,952.8 12,572.0 1,494.4 11.9% 12,289.3 1,459.0 11.9% 0.87x 7.3x 0.89x 7.5x
Cobham plc 3.97 97.1% 4,278.0 4,864.0 2,639.3 587.2 22.2% 2,663.7 606.1 22.8% 1.84x 8.3x 1.83x 8.0x
FLIR Systems, Inc. 24.45 90.0% 3,536.6 3,539.0 1,524.3 394.4 25.9% 1,597.5 423.6 26.5% 2.32x 9.0x 2.22x 8.4x
Huntington Ingalls Industries, Inc. 53.34 98.4% 2,646.8 3,419.8 6,649.9 597.3 9.0% 6,614.9 665.4 10.1% 0.51x 5.7x 0.52x 5.1x
Alliant Techsystems Inc. 72.97 97.3% 2,358.2 3,025.2 4,219.5 541.4 12.8% 4,126.7 497.1 12.0% 0.72x 5.6x 0.73x 6.1x
Kongsberg Gruppen ASA 19.33 82.7% 2,311.9 2,101.2 2,960.7 402.0 13.6% 3,210.4 438.5 13.7% 0.71x 5.2x 0.65x 4.8x
Exelis, Inc. 11.25 91.3% 2,116.5 2,580.5 5,028.7 593.2 11.8% 4,970.2 640.0 12.9% 0.51x 4.4x 0.52x 4.0x
Cubic Corporation 45.59 86.8% 1,218.9 1,148.4 1,358.3 123.1 9.1% 1,376.0 135.0 9.8% 0.85x 9.3x 0.83x 8.5x
AeroVironment, Inc. 19.88 71.5% 435.7 301.9 361.0 57.7 16.0% 357.2 59.1 16.5% 0.84x 5.2x 0.85x 5.1x
Median 94.2% $2,502.5 $3,222.5 $3,590.1 $564.3 13.2% $3,668.6 $551.6 13.3% 0.84x 6.5x 0.84x 6.8x
Stock Price % of 52 Market Enterprise CY 2013E CY 2014P EV / CY 2013E EV / CY 2014PDefense Electronics / Comm. 05/03/13 Week High Cap Value Rev. EBITDA Margin Rev. EBITDA Margin Rev. EBITDA Rev. EBITDA
Harris Corporation $46.47 89.0% $5,092.3 $6,558.3 $5,303.1 $1,184.5 22.3% $5,269.9 $1,163.7 22.1% 1.24x 5.5x 1.24x 5.6x
Teledyne Technologies Inc. 76.34 96.8% 2,848.6 3,498.3 2,295.7 339.8 14.8% 2,420.9 380.4 15.7% 1.52x 10.3x 1.45x 9.2x
ViaSat Inc. 49.39 96.5% 2,217.9 2,696.0 1,179.9 220.4 18.7% 1,387.9 332.2 23.9% 2.28x 12.2x 1.94x 8.1x
Ultra Electronics Holdings plc 26.21 96.2% 1,816.0 1,883.0 1,189.9 216.3 18.2% 1,219.5 215.3 17.7% 1.58x 8.7x 1.54x 8.7x
Orbital Sciences Corp. 18.15 98.5% 1,088.8 1,038.3 1,484.1 151.4 10.2% 1,572.8 166.9 10.6% 0.70x 6.9x 0.66x 6.2x
Comtech Telecommunications Corp. 25.20 81.2% 423.9 271.0 369.0 70.5 19.1% 364.1 61.9 17.0% 0.73x 3.8x 0.74x 4.4x
Mercury Systems, Inc. 9.23 69.0% 298.0 262.9 230.5 15.7 6.8% 215.0 28.1 13.1% 1.14x 16.7x 1.22x 9.4x
Median 96.2% $1,816.0 $1,883.0 $1,189.9 $216.3 18.2% $1,387.9 $215.3 17.0% 1.24x 8.7x 1.24x 8.1x
Stock Price % of 52 Market Enterprise CY 2013E CY 2014P EV / CY 2013E EV / CY 2014PHomeland Security 05/03/13 Week High Cap Value Rev. EBITDA Margin Rev. EBITDA Margin Rev. EBITDA Rev. EBITDA
Smiths Group plc $19.54 93.5% $7,691.1 $9,057.1 $4,818.5 $1,024.5 21.3% $5,032.3 $1,083.2 21.5% 1.88x 8.8x 1.80x 8.4x
Mine Safety Appliances Co. 48.96 95.9% 1,818.5 2,038.6 1,223.8 189.1 15.5% 1,309.0 222.8 17.0% 1.67x 10.8x 1.56x 9.1x
OSI Systems, Inc. 57.86 71.2% 1,160.3 1,180.5 906.0 165.9 18.3% NA NA NA 1.30x 7.1x NA NA
Analogic Corporation 78.16 92.3% 956.8 781.6 602.9 93.8 15.6% NA NA NA 1.30x 8.3x NA NA
Smith & Wesson Holding Corporation 8.74 77.7% 560.8 548.6 565.9 130.2 23.0% NA NA NA 0.97x 4.2x NA NA
Federal Signal Corp. 8.07 93.5% 503.6 631.7 817.2 72.6 8.9% 832.0 NA NA 0.77x 8.7x 0.76x NA
Airboss of America Corp. 4.91 95.9% 110.7 118.8 253.6 19.6 7.7% 262.6 21.2 8.1% 0.47x 6.1x 0.45x 5.6x
Median 93.5% $956.8 $781.6 $817.2 $130.2 15.6% $1,070.5 $222.8 17.0% 1.30x 8.3x 1.16x 8.4x
(1) Company filings, Capital IQ, and KippsDeSanto research 9
Aerospace / Defense and Government Services MarketView
Spring 2013
Public Company Trading Analysis, cont.(1) ($ in millions, except per share amounts)
Stock Price % of 52 Market Enterprise CY 2013E CY 2014P EV / CY 2013E EV / CY 2014P
Aerospace Systems 05/03/13 Week High Cap Value Rev. EBITDA Margin Rev. EBITDA Margin Rev. EBITDA Rev. EBITDA
TransDigm Group Incorporated $149.50 96.3% $7,481.0 $11,255.5 $1,913.5 $894.6 46.8% $2,060.1 $975.6 47.4% 5.88x 12.6x 5.46x 11.5x
Zodiac Aerospace 126.44 99.3% 6,839.5 8,231.0 5,083.2 851.9 16.8% 5,427.2 923.1 17.0% 1.62x 9.7x 1.52x 8.9x
B/E Aerospace Inc. 63.64 98.6% 6,665.1 8,310.9 3,382.7 707.4 20.9% 3,778.7 831.1 22.0% 2.46x 11.7x 2.20x 10.0x
Meggitt PLC 7.54 97.5% 5,931.8 6,976.4 2,545.6 758.3 29.8% 2,692.6 810.4 30.1% 2.74x 9.2x 2.59x 8.6x
Triumph Group, Inc. 71.39 87.3% 3,578.3 4,876.1 3,870.9 710.8 18.4% 4,166.0 805.4 19.3% 1.26x 6.9x 1.17x 6.1x
Esterline Technologies Corp. 75.14 96.5% 2,328.5 2,950.2 2,089.1 390.6 18.7% 2,198.9 406.5 18.5% 1.41x 7.6x 1.34x 7.3x
HEICO Corporation 43.79 91.9% 2,057.1 2,450.0 984.0 217.8 22.1% 1,074.2 242.0 22.5% 2.49x 11.3x 2.28x 10.1x
AAR Corp. 18.57 90.9% 718.6 1,333.6 2,109.1 228.6 10.8% 2,264.2 250.0 11.0% 0.63x 5.8x 0.59x 5.3x
Astronics Corporation 28.78 89.8% 415.0 437.8 299.6 49.3 16.5% 329.6 58.4 17.7% 1.46x 8.9x 1.33x 7.5x
Median 96.3% $3,578.3 $4,876.1 $2,109.1 $707.4 18.7% $2,264.2 $805.4 19.3% 1.62x 9.2x 1.52x 8.6x
Stock Price % of 52 Market Enterprise CY 2013E CY 2014P EV / CY 2013E EV / CY 2014PAerospace Structures 05/03/13 Week High Cap Value Rev. EBITDA Margin Rev. EBITDA Margin Rev. EBITDA Rev. EBITDA
Precision Castparts Corp. $189.90 96.9% $27,811.4 $31,544.8 $10,157.2 $2,845.8 28.0% $11,208.6 $3,253.7 29.0% 3.11x 11.1x 2.81x 9.7x
Hexcel Corp. 31.25 99.0% 3,132.9 3,388.5 1,694.4 340.0 20.1% 1,847.0 377.5 20.4% 2.00x 10.0x 1.83x 9.0x
Spirit AeroSystems Holdings, Inc. 20.50 79.2% 2,891.2 3,753.3 5,984.5 676.1 11.3% 6,595.9 765.1 11.6% 0.63x 5.6x 0.57x 4.9x
Senior plc 3.96 98.6% 1,641.0 1,756.3 1,187.9 190.6 16.0% 1,263.8 204.7 16.2% 1.48x 9.2x 1.39x 8.6x
LMI Aerospace Inc. 20.89 90.0% 262.6 518.9 479.5 75.6 15.8% 526.5 85.2 16.2% 1.08x 6.9x 0.99x 6.1x
Median 96.9% $2,891.2 $3,388.5 $1,694.4 $340.0 16.0% $1,847.0 $377.5 16.2% 1.48x 9.2x 1.39x 8.6x
Stock Price % of 52 Market Enterprise CY 2013E CY 2014P EV / CY 2013E EV / CY 2014PGovernment Services 05/03/13 Week High Cap Value Rev. EBITDA Margin Rev. EBITDA Margin Rev. EBITDA Rev. EBITDA
SAIC, Inc. $14.91 99.5% $5,100.9 $5,662.9 $10,831.2 $883.8 8.2% $10,522.1 $843.8 8.0% 0.52x 6.4x 0.54x 6.7x
Booz Allen Hamilton 15.47 80.4% 2,140.0 3,548.8 5,776.3 508.8 8.8% 5,727.3 497.1 8.7% 0.61x 7.0x 0.62x 7.1x
QinetiQ Group Plc 2.97 89.0% 1,926.9 1,900.1 2,029.2 263.4 13.0% 2,024.1 254.2 12.6% 0.94x 7.2x 0.94x 7.5x
CACI International Inc. 61.26 99.1% 1,409.7 2,037.9 3,720.4 332.7 8.9% 3,706.1 326.9 8.8% 0.55x 6.1x 0.55x 6.2x
ManTech International Corporation 28.11 99.5% 1,042.4 1,070.1 2,532.2 190.2 7.5% 2,417.2 183.7 7.6% 0.42x 5.6x 0.44x 5.8x
ICF International Inc. 27.27 98.0% 537.7 620.0 946.5 94.1 9.9% 989.1 98.0 9.9% 0.66x 6.6x 0.63x 6.3x
The KEYW Holding Corporation 13.60 82.7% 497.7 591.0 347.5 46.5 13.4% 396.3 57.3 14.5% 1.70x 12.7x 1.49x 10.3x
Engility Holdings, Inc. 24.39 97.2% 418.1 739.1 1,468.2 119.6 8.1% 1,422.1 100.9 7.1% 0.50x 6.2x 0.52x 7.3x
Kratos Defense & Security Solutions 5.26 85.0% 298.0 899.6 1,018.6 124.0 12.2% 1,058.2 138.9 13.1% 0.88x 7.3x 0.85x 6.5x
NCI, Inc. 4.64 58.0% 60.0 85.1 305.9 15.7 5.1% 307.3 13.7 4.5% 0.28x 5.4x 0.28x 6.2x
Dynamics Research Corporation 5.59 76.6% 57.9 154.5 290.7 26.1 9.0% 284.8 24.2 8.5% 0.53x 5.9x 0.54x 6.4x
Median 89.0% $537.7 $899.6 $1,468.2 $124.0 8.9% $1,422.1 $138.9 8.7% 0.55x 6.4x 0.55x 6.5x
Stock Price % of 52 Market Enterprise CY 2013E CY 2014P EV / CY 2013E EV / CY 2014PEngineering & Construction 05/03/13 Week High Cap Value Rev. EBITDA Margin Rev. EBITDA Margin Rev. EBITDA Rev. EBITDA
Jacobs Engineering Group Inc. $50.63 89.6% $6,622.3 $5,946.7 $12,212.2 $799.8 6.5% $12,906.5 $848.5 6.6% 0.49x 7.4x 0.46x 7.0x
Babcock International Group plc 16.69 96.3% 6,037.3 7,046.3 5,145.0 609.1 11.8% 5,508.1 651.7 11.8% 1.37x 11.6x 1.28x 10.8x
URS Corporation 45.54 95.9% 3,461.9 5,353.6 11,951.5 946.9 7.9% 12,519.0 980.8 7.8% 0.45x 5.7x 0.43x 5.5x
AECOM Technology Corporation 29.84 90.2% 3,125.7 3,828.3 8,524.3 538.1 6.3% 9,034.6 682.9 7.6% 0.45x 7.1x 0.42x 5.6x
Tetra Tech Inc. 26.85 85.3% 1,743.3 1,742.4 2,313.1 264.5 11.4% 2,323.1 254.0 10.9% 0.75x 6.6x 0.75x 6.9x
Median 90.2% $3,461.9 $5,353.6 $8,524.3 $609.1 7.9% $9,034.6 $682.9 7.8% 0.49x 7.1x 0.46x 6.9x
(1) Company filings, Capital IQ, and KippsDeSanto research 10
Aerospace / Defense and Government Services MarketView
Spring 2013
Select Recent Aerospace / Defense M&A(1) ($ in millions)
Announce EBITDA EV / LTM
Date Buyer / Investor Target Target Description EV Revenue EBITDA Margin Revenue EBITDA
05/06/13 HEICO Corp. Reinhold Holdings Produces advanced custom composite components and complex
composite assemblies for commercial aviation, defense, and space
applications
NA NA NA NA NA NA
04/23/13 Honeywell
International, Inc.
RAE Systems Inc. Manufactures multi-sensor chemical and radiation detection monitors
and networks for hazardous material management, industrial safety, and
environmental remediation applications
$340.0 $107.0 $26.2 24.4% 3.18x 13.0x
04/23/13 Safran SA Rolls-Royce RTM322
Program (50% stake)
Develops, manufactures, and markets two-shaft turbofan aircraft engine 380.5 NA NA NA NA NA
04/22/13 TransDigm Group
Incorporated
Aerosonic Corp. Provides aircraft instrumentation including digital altimeters, airspeed
indicators, air data test sets, and other flight instruments
37.5 31.0 4.8 15.4% 1.21x 7.9x
04/18/13 Diversified Aero
Services Inc.
Aero Inventory (UK) Ltd A fully functional online sales platform, offering one of the world’s
largest inventories of aircraft parts, with over 200,000 SKUs (part lines)
supporting all major commercial aircraft and engines
NA NA NA NA NA NA
04/17/13 Measurement
Specialties, Inc.
Spectrum Sensors and
Controls, Inc.
A leader in the design and manufacture of custom temperature probes,
high reliability encoders, and inertial sensors
51.4 26.0 8.0 30.8% 1.98x 6.4x
04/17/13 Bohemia Interactive
Simulations
TerraSim, Inc. Provides automated terrain generation software for use in interactive
simulation systems for defense, emergency, and mission-critical
customers
NA NA NA NA NA NA
04/16/13 Merex Incorporated ALCO Services, Inc.
(Aircraft Logistic-
support Company)
Provides MRO services for auxiliary power units and engine driven
compressors, as well as a variety of other critical components for
hydraulic, pneumatic, fuel, and electrical systems
NA NA NA NA NA NA
04/16/13 Prospect Partners Velocity Aerospace
Group
Provides MRO services for commercial, corporate, regional, and
helicopter airline carriers through repair stations in Florida and
California
NA NA NA NA NA NA
04/08/13 Altran Technologies
SA
AirCaD SAS Provides engineering, modification, mechanical completion, and
simulation and structural analysis for aircraft interiors, cabins, avionics,
and other components
NA NA NA NA NA NA
04/04/13 Turkish Airlines
(THY)
MNG Technic Offers base maintenance services, such as scheduled or non-
scheduled periodic maintenance, light and heavy overhauls on
airframes, and component accomplishment
NA NA NA NA NA NA
04/03/13 Horst Engineering
& Manufacturing
Co.
Sterling Machine
Company
Manufactures jet engine components, specializing in close tolerance,
high precision components from high strength metals and polymers
NA NA NA NA NA NA
04/03/13 MidOcean Partners Noranco, Inc. Manufactures complex machined and sheet metal components, kits, and
assemblies for landing gear, aerostructures, and aero engine
applications
NA NA NA NA NA NA
04/02/13 Elgin Fastener
Group
Vegas Fastener
Manufacturing
Manufactures hot-forged bolts, nuts, and specialized parts for military
shipbuilding, power generation, and industrial applications
NA NA NA NA NA NA
03/29/13 Cornerstone
Capital Holdings
UTC Long Beach, CA
Operations (Keystone
Engineering)
Manufactures satellite propellant and pressure storage tanks, spun
domes, and ancillary space products
NA NA NA NA NA NA
03/27/13 Overall Capital
Partners
Honeycomb Company
of America
Provides bonded and composite assemblies for U.S. military aircraft
platforms
NA NA NA NA NA NA
03/25/13 The Safariland
Group
Mustang Survival Corp. Manufactures lifesaving equipment for recreational, military, law
enforcement, and industrial users in marine and aviation environments
NA NA NA NA NA NA
03/22/13 Nammo AS Pocal Industries Manufactures mortar training ammunition, non-lethal and practice
ammunition, ignition cartridges, and other training munitions systems
NA NA NA NA NA NA
03/20/13 Resilience Capital
Partners LLC
Aerospace Products
International
Distributes aircraft parts and accessories, and provides supply chain
solutions such as demand forecasting and inventory planning
NA NA NA NA NA NA
03/19/13 Erickson Air-Crane
Inc.
Evergreen Helicopters,
Inc.
Provides air transportation, avionics MRO, FBO, and logistics services 250.0 196.0 56.2 28.7% 1.28x 4.4x
03/18/13 Greenbriar Equity
Group LLC
Edac Technologies
Corp
Produces tooling, fixtures, molds, and jet engine components 140.9 106.5 13.7 12.9% 1.32x 10.3x
03/18/13 Arlington Capital
Partners
MB Aerospace Holdings Manufactures airframe components and assemblies, aero engine
components and assemblies, and ground support equipment
NA 81.0 NA NA NA NA
03/14/13 Precision Castparts
Corp.
AB SKF, Metallic Rods
Business
Manufactures metallic rods used in aerospace applications including
mechanism actuation, structures, and equipment suspensions
52.0 59.8 NA NA 0.87x NA
03/07/13 Saab AB Protaurius AB's Soft
Armour Assets
Manufactures ceramic material that provides ballistic protection for
personnel and military assets, including aircraft, ammunition storage,
and command centers
NA NA NA NA NA NA
(1) Company filings, Capital IQ, and KippsDeSanto research 11
Aerospace / Defense and Government Services MarketView
Spring 2013
Select Recent Aerospace / Defense M&A, cont.(1) ($ in millions)
Announce EBITDA EV / LTM
Date Buyer / Investor Target Target Description EV Revenue EBITDA Margin Revenue EBITDA
03/06/13 Sverica
International
Dexmet Corporation Manufactures highly engineered expanded foils and polymers for a
range of applications such as lightning strike protection for major
composite aircraft manufacturers
NA NA NA NA NA NA
03/04/13 Breidon, Inc.
(Ridge
Engineering)
The Bechdon Company Manufactures precision machined products for aerospace, defense,
and intelligence community customers
NA NA NA NA NA NA
03/04/13 PAI Partners ADB Solutions Manufactures airfield ground lighting products for large and small
airports, military bases, and heliports
NA $211.0 NA NA NA NA
03/04/13 RBC Bearings, Inc. Western Precision Aero Manufactures components and assemblies for aerospace, military, and
defense industries
$2.6 5.0 NA NA 0.52x NA
03/01/13 Turbine Controls,
Inc.
World Aircraft
Accessories, Inc.
Provides MRO, engineering, and leasing services, and manufactures
pneumatic, hydraulic, and mechanical tools for narrow body aircraft
NA NA NA NA NA NA
03/01/13 W.H. Smith
Hardware
Company
Certain LaBarge Hose
and System Assets
Manufactures fluid distributions systems, storage systems, specialty
vehicles, platforms, and components for military applications
NA NA NA NA NA NA
02/28/13 Exchange Income
Corp.
Regional One, Inc. Provides sale, leasing, lease-back, and maintenance management
services for engines, engine parts, avionics, fuel systems, and other
aircraft components
80.0 NA NA NA NA NA
02/27/13 Mission Ready
Equipment
Grey Group Training Provides training equipment and services for military and law
enforcement agencies
NA NA NA NA NA NA
02/25/13 Senior Aerospace
BWT
Atlas Composites
Limited
Designs and manufactures composite structures for military, civil, and
commercial markets, including UAV composites, satellite components,
and other aircraft components
3.8 NA NA NA NA NA
02/23/13 Boeing Company CPU Technology, Inc.,
Acalis Business
Acalis microprocessors contain unique hardware and software that can
guard mission-critical onboard systems in Boeing platforms
NA NA NA NA NA NA
02/22/13 Tactical Air
Defense Services,
Inc.
Air 1 Flight Support, Inc. Provides customer service for aircraft maintenance NA NA NA NA NA NA
02/18/13 Groupe Valliere
Aviation
Latecoere Aeroservices
SAS
Provides line and base maintenance, aircraft storage, aircraft painting,
modifications, structural repairs, and landing gear change services
NA NA NA NA NA NA
02/15/13 A Plus Finance SA Vision Systems Offers cockpit door modules, sunvisors, video controls, new-tech
composite doors, integrated modular systems for IFE, and cabin
management products
NA NA NA NA NA NA
02/07/13 Astrex Electronics,
Inc.
TIM-CO/CAL-RF Distributes electronic components focused on the commercial aviation,
space, oil and gas, industrial, and military markets
NA NA NA NA NA NA
01/31/13 Dynamic Precision
Group, Inc.
Paradigm Precision
Holdings
Manufactures precision machined aerospace engine components 129.0 NA NA NA NA NA
01/29/13 Teledyne
Technologies
Reson A/S Manufactures high-resolution marine acoustic imaging and
measurement solutions, including multi-beam sonar systems, single-
beam echo sounders, transducers, and hydrophones
69.2 NA NA NA NA NA
01/29/13 TriMas Corporation Martinic Engineering Manufactures precision machined parts for auxiliary power units and
electrical, hydraulic, and pneumatic systems
19.0 13.0 NA NA 1.46x NA
01/29/13 Goldner Hawn
Johnson &
Morrison, Inc.
Universal Turbine Parts,
Inc.
Provides turboprop aircraft engine products and related services to
MRO facilities, fleet operators, and engine parts dealers
NA NA NA NA NA NA
01/24/13 Kidd & Company /
Centerfield Capital
Partners
Imaginetics, Inc. Manufactures precision metal components and assemblies for the
aerospace industry
NA NA NA NA NA NA
01/17/13 Triumph Group Goodrich Pump &
Engine Control Systems
Manufactures fuel pumps and controls for commercial and military
aircraft OEM engine manufacturers
200.0 195.0 $25.4 13.0% 1.03x 7.9x
01/17/13 The Atlas Group Brenner Aerostructures Specializes in bonding of metals, anodizing of phosphoric acids, and
stretch-forming for the aerospace industry
NA NA NA NA NA NA
01/17/13 Tinicum L.P. Aerofit, Inc. Manufactures high and low pressure fluid fittings and fitting systems for
aerospace applications
NA NA NA NA NA NA
01/16/13 Cubic Corporation
(Cubic Defense
Australia)
PS Management
Consultants Pty Ltd
Provides specialist engineering and project management services for
Australian Defense Forces training, simulation, communications, and
range safety programs
NA NA NA NA NA NA
01/15/13 Ontic Engineering
& Manufacturing
(BBA Aviation)
Zodiac Oxygen
Systems, certain assets
Manufactures tail wheel assemblies, brake valves, temperature and
pressure gauges, and first aid kits for aerospace applications
NA NA NA NA NA NA
(1) Company filings, Capital IQ, and KippsDeSanto research 12
Aerospace / Defense and Government Services MarketView
Spring 2013
Select Recent Government Services M&A(1) ($ in millions)
Announce EBITDA EV / LTM
Date Buyer / Investor Target Target Description EV Revenue EBITDA Margin Revenue EBITDA
04/22/13 Birch Hill Equity
Partners
Management Inc.
Softchoice Corporation Provides IT infrastructure solutions to enterprise, government, and small
business customers in the U.S. and Canada
$334.8 $1,066 $52.6 4.9% 0.31x 6.4x
04/02/13 EOIR
Technologies, Inc.
Viecore Federal
Systems Division, Inc.
Provides decision support technologies and data management systems
for the U.S. military and homeland security communities
NA NA NA NA NA NA
03/27/13 True North
Logistics
RAMTECH Support
Services, Inc.
Provides operations and maintenance, systems engineering, and
technical assistance, primarily to the Department of Defense and other
federal agencies
NA NA NA NA NA NA
03/14/13 ORBCOMM Inc. System Planning
Corporation
GlobalTrakDivision
Provides real-time situational awareness and intelligence for military,
government, and commercial customers
NA NA NA NA NA NA
03/08/13 The Parsons
Corporation
First Support Services,
Inc.
Provides operations and maintenance services, primarily facility
support, for the U.S. government, Department of Defense, state and
local government agencies, and commercial businesses
NA 50.0 NA NA NA NA
03/04/13 MacAulay-Brown,
Inc.
Luna Innovations,
Secure Computing and
Comm. Group
Provides technical services for electronic components and methods with
a focus on critical U.S. military and national security applications
6.7 NA NA NA NA NA
02/15/13 Ball Aerospace &
Technologies Corp.
OGSystems TASER
Business Unit
Provides high-end mission analysis, systems and software engineering,
integration, and IT services for the National Geospatial-Intelligence
Agency
NA NA NA NA NA NA
01/30/13 DC Capital
Partners, LLC
Computer Security
Solutions, Inc.
Provides technology solutions for the intelligence community NA NA NA NA NA NA
01/23/13 Network Designs,
Inc.
BitSec Global Forensics Provides digital forensics, electronic discovery, data breach
investigations, and training for federal and state investigative agencies,
law firms, and corporations
NA NA NA NA NA NA
01/22/13 Projility, Inc. SharkPro Software
Corporation
Provides integrated work management solutions for commercial and
government customers by building complementary tools for Microsoft
Project Server
NA NA NA NA NA NA
01/09/13 Kavaliro Staffing
Services
Salient Federal
Solutions, Inc. Fannie
Mae Division
Provides Fannie Mae with additional support employees to implement IT
and engineering solutions
NA 10.0 NA NA NA NA
01/09/13 ManTech
International
Corporation
ALTA Systems, Inc. Provides a broad range of IT support to government and private industry
clients with a particular focus on the healthcare sector
NA NA NA NA NA NA
01/07/13 Vistronix, Inc. Technology Associates
International
Corporation
Provides IT, business, and management consulting services to
government and commercial clients
NA NA NA NA NA NA
12/31/12 CACI International
Inc.
IDL Solutions Inc. Provides IT professional services, including application development,
business process management, web design and marketing, and
enterprise network and infrastructure management
NA 18.5 NA NA NA NA
12/31/12 Booz Allen Hamilton
Holding
Corporation
SDI Corporation Provides advanced, multi-disciplinary engineering capabilities for
customers in both the government and commercial sectors
NA NA NA NA NA NA
12/28/12 CRGT, Inc. Guident Technologies,
Inc.
Provides business intelligence and systems engineering services,
including business analytics, Big Data, strategy and planning, data
warehousing and management, and financial analytics solutions
NA NA NA NA NA NA
12/21/12 Altamont Capital
Partners
OMNIPLEX World
Services Corporation
Provides professional intelligence support, investigative, and physical
security services to corporations and government agencies
NA NA NA NA NA NA
12/20/12 Mind Over
Machines, Inc.
The Seva Group, Inc. Provides IT consulting services in the Mid-Atlantic region to customers
in financial services, publishing, healthcare, non-profit, and the public
sector markets
NA NA NA NA NA NA
12/17/12 Camber
Corporation
Novonics Corporation Provides high-quality program management, architecture definition,
systems engineering, and software development services for
government customers
NA NA NA NA NA NA
12/17/12 Cubic Corporation NEK Special Programs
Group, LLC
Provides advanced and specialized courses for the U.S. Special
Operations Command
NA NA NA NA NA NA
12/14/12 GAITS, Inc. Project Performance
Corporation
Provides management and IT consulting services with a focus on the
environmental and energy sectors
NA NA NA NA NA NA
12/12/12 Research Triangle
Institute
MPR Associates, Inc. Provides research and data tools, as well as consulting services for
educators, policymakers, and the public
NA NA NA NA NA NA
12/05/12 SRA International,
Inc.
MorganFranklin National
Security Solutions
Business Unit
Provides tactical C4ISR, cybersecurity, intelligence analysis, continuity
of operations, emergency planning, information assurance, and project
management office support
34.2 NA 8.2 NA NA 4.2x
12/04/12 Hyland Software,
Inc.
SIRE Technologies, Inc. Provides content management, agenda and workflow automation,
application integration, streaming video, and electronic plan review
specifically tailored to the needs of state and local government
NA NA NA NA NA NA
13
Aerospace / Defense and Government Services MarketView
Spring 2013
Select Recent KippsDeSanto & Co. Advised Transactions
has been acquired by
a portfolio company of
March 2012
has been acquired by
July 2012
has been acquired by
July 2012
has been acquired by
a portfolio company of
October 2012
has been acquired by
December 2012
has been acquired by
November 2012
a portfolio company of
has merged with
February 2012
has been acquired by
November 2011
sale of its Special
Programs Group to
December 2012
has been acquired by
December 2012
has been acquired by
December 2012
has been acquired by
March 2012
Recognized in Washington Technology’s “Who Made 2012’s Biggest Deals?” Report
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About KippsDeSanto & Co.
KippsDeSanto is an investment banking firm focused on delivering M&A and financing expertise. Our solutions are focused on the technology sectors we know – Aerospace / Defense and Government Services. We are recognized for our depth of industry experience, knowledge of sector-specific transaction drivers, and long-standing relationships with industry participants.
We welcome the opportunity to have a more detailed discussion of developments in our focus industries. For more information, please contact us:
Robert D. Kipps Managing Director bkipps@kippsdesanto.com Marc B. Marlin Director mmarlin@kippsdesanto.com Karl M. Schmidt Director kschmidt@kippsdesanto.com K. Packard Fancher Director
pfancher@kippsdesanto.com
Aaron M. Sharp Vice President
asharp@kippsdesanto.com
Christos G. Tsentas Associate ctsentas@kippsdesanto.com
Kevin P. DeSanto Managing Director kdesanto@kippsdesanto.com Michael J. Misantone Director mmisantone@kippsdesanto.com
Jon Yim Director jyim@kippsdesanto.com
Toby Albright Vice President
talbright@kippsdesanto.com Robert G. Dowling Associate
rdowling@kippsdesanto.com Brian T. Tunney Associate btunney@kippsdesanto.com
Connect with KippsDeSanto:
The information and opinions in this newsletter were prepared by KippsDeSanto & Co. and the information herein is believed to be reliable and has been obtained from and based upon public sources believed to be reliable. KippsDeSanto & Co. makes no representation as to the accuracy or completeness of such information. Opinions, estimates, and analyses in this newsletter constitute the current judgment of the author as of the date of this newsletter. They do not necessarily reflect the opinions of KippsDeSanto & Co. and are subject to change without notice. This newsletter is meant to impart general knowledge about a sector or industry and is not expected to provide reasonably sufficient information upon which to make any investment decisions. KippsDeSanto & Co. is not affiliated with any of the companies identified in this newsletter. Unless otherwise described, the companies identified are also not affiliated with one another.
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