aerospace & defense · 2017-09-18 · aerospace & defense 2 ... coordinating the “ramping...

1 AEROSPACE & DEFENSE

M A R K E T M O N I T O R

F A L L 2 0 1 4

Aerospace & Defense


12,000+ Commercial Jets on Backlog in September

Sources: Aviation Market News, S&P, Moss Adams Capital Analysis, CapitalIQ.

Record orders in July boost overall “big jet” backlog to 12,096 … a new record

• Total of 791 new orders in July is one month record.

• At current production rates this means eight years of work in hand.

Boeing’s long-term forecast calls for deliveries of 36,000+ jets in next 20 years

Few industries enjoy this level of future predictability.

• Tier 2 and Tier 3 suppliers are experiencing predictable, long-term demand.

• Entire supply chain must “ramp up” to meet Boeing and Airbus production goals.

Prolonged “Super-cycle” is attracting investors ... Both strategic and private equity

• Tier I suppliers are consolidating to gain more control over source and quality.

• Private equity buyers are building “platforms” that are evolving into strategic buyers.

Valuations are up across the entire aerospace supply chain.

• Public company valuations at 10 -13x EBITDA, ahead of S&P, after some settling in August.

• Private company M&A valuations at 8 -10x EBITDA, ahead of broader market valuations.

Owners and CEOs in the aerospace segment are receiving multiple unsolicited offers.


• Delivery slots for most aircraft are sold out years ahead.

• Forecast production rate of 1,500 per year means 8 years of work ahead.

• Production rates at both Boeing and Airbus are rising.

• Capacity of the entire supply chain must grow as a result.

• Supply chain companies in the Pacific Northwest are feeling the momentum.

• Boeing and Airbus focused on keeping the supply chain coordinated and functioning.

Sources: Aviation Market News, S&P, Moss Adams Capital Analysis, CapitalIQ.

The Prolonged Up-Cycle started in 2012


Growth from B737 and A320 with “New Engine Orders” (neo) The largest year-to-date increase in orders is attributable to demand for new fuel efficient single-aisle aircraft, specifically the B737-Max and A320neo. Production Rates keep rising in response Boeing and Airbus are slowly raising the production rates and are coordinating the “ramping up” of the supply chain.

Airbus and Boeing dominate Both prime contractors rely on outsourcing for large portions of their aircraft. Everything is global now Supplying either prime contractor now requires international, rather than local, capabilities. Suppliers seek “greater share of aircraft” Tier I suppliers are acquiring and consolidating to become more integrated into the Primes’ supply chain. Sources: Aviation Market News, S&P, Moss Adams Capital Analysis, CapitalIQ.

Single Aisle Aircraft represent 75%+ of the backlog


Valuation Premiums for Mid-Cap Aerospace Suppliers

Small / Mid Cap Aerospace vs. S&P Public Market Valuations

Small and Mid-Cap aerospace suppliers continue to outperform constituents of the S&P and at and accelerated pace.

Over a 3 year period, equity investments in small and mid-Cap aerospace companies have achieved an impressive 109% return versus 74% for the S&P 500 index.

Trading multiples for small and mid-Cap aerospace companies have dipped slightly over the last 2 months due to a broad market sell-off of aerospace & defense stocks.

Market analysts believe orders could be at the peak of the cycle, and the run-up in valuations during the past 12 months reflected this peak. Nonetheless, aerospace segment trades at a significant premium to the overall market.

Note: Small and Mid-Cap Aerospace companies are composed of the public companies included on slide 7. Source: Capital IQ.

Small / Mid Cap

Aerospace

109%

S&P 500

74%

-25%

0%

25%

50%

75%

100%

125%

Ma

rke

t P

erf

orm

an

ce

Small / Mid Cap

Aerospace

12.7x

S&P 500

10.3x

6.0x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

13.0x

14.0x

15.0x

16.0x

EV

/ E

BIT

DA


Note: Not meaningful (NM) if EV/Sales is greater than 10x, or EV/EBITDA is greater than 20x. NA if denominator is 0, for percentages and multiples, or if estimates are not available. NTM figures are based on the median estimate of Wall St. analysts. Source: Capital IQ.

Small/Mid-Cap Aerospace Firms: Valuations ($US in millions, except where noted and per share amounts)

9/25/14 TTM Data NTM Est. Growth EV Multiple

Company Name

Share

Price 52 week High/Low

Market

Cap

Enterprise

Value Sales EBITDA

EBITDA

Margin Sales EBITDA

TTM

Sales

TTM

EBITDA

NTM

Sales

NTM

EBITDA

Small/Mid Cap Aerospace

B/E Aerospace Inc. $92.49 $101.13 / $62.30 $9,735 $11,309 $3,892 $835 21.4% 9.6% 8.6% 2.9x 13.6x 2.7x 12.5x

TransDigm Group Incorporated 167.26 198.29 / 134.48 8,852 14,117 2,270 1,004 44.2% 9.8% 10.8% 6.2x 14.1x 5.7x 12.7x

Spirit AeroSystems Holdings, Inc. 33.70 35.89 / 21.53 4,676 5,528 6,530 280 4.3% 2.9% 224.5% 0.8x 19.8x 0.8x 6.1x

Hexcel Corp. 40.90 46.46 / 33.67 4,000 4,304 1,771 358 20.2% 7.2% 16.6% 2.4x 12.0x 2.3x 10.3x

Esterline Technologies Corp. 115.12 122.52 / 72.69 3,680 4,152 2,100 375 17.9% 3.9% 5.3% 2.0x 11.1x 1.9x 10.5x

Teledyne Technologies Inc. 97.17 102.40 / 76.26 3,646 4,178 2,339 347 14.8% 3.9% 12.8% 1.8x 12.0x 1.7x 10.7x

Triumph Group, Inc. 69.82 85.50 / 61.41 3,641 5,163 3,716 575 15.5% 3.4% 18.6% 1.4x 9.0x 1.3x 7.6x

Moog Inc. 72.89 75.00 / 50.38 3,242 3,753 2,653 365 13.8% (0.2%) 9.7% 1.4x 10.3x 1.4x 9.4x

Curtiss-Wright Corporation 65.56 70.33 / 36.46 3,159 4,040 2,622 397 15.1% 4.4% 6.6% 1.5x 10.2x 1.5x 9.6x

HEICO Corporation 51.94 65.04 / 40.20 3,004 3,532 1,128 243 21.6% 8.6% 15.0% 3.1x 14.5x 2.9x 12.6x

GenCorp Inc. 19.10 19.77 / 14.81 1,114 1,664 1,586 120 7.6% 6.9% 85.1% 1.0x 13.9x 1.0x 7.5x

AAR Corp. 27.56 31.55 / 22.03 1,091 1,644 1,990 217 10.9% 4.2% 7.8% 0.8x 7.6x 0.8x 7.0x

Astronics Corporation 56.45 72.99 / 36.50 1,019 1,258 511 102 20.0% 30.9% 6.0% 2.5x 12.3x 1.9x 11.6x

AeroVironment, Inc. 31.80 41.67 / 19.61 707 540 259 24 9.4% (3.2%) (3.8%) 2.1x 22.1x 2.1x 23.0x

Ducommun Inc. 26.13 31.35 / 20.40 284 579 736 81 11.0% (0.6%) 1.3% 0.8x 7.1x 0.8x 7.1x

LMI Aerospace Inc. 13.08 20.90 / 10.81 166 450 403 42 10.4% 2.5% 24.3% 1.1x 10.7x 1.1x 8.6x

Median $3,897 $2,045 $313 15.0% 4.0% 10.2% 1.7x 12.0x 1.6x 9.9x

as of September 25, 2014 Average $4,138 $2,157 $335 16.1% 5.9% 28.1% 2.0x 12.7x 1.9x 10.4x

1)

1) Spirit AeroSystems’ 2013 operational results were significantly reduced due to one-time forward loss charges, which is the cause for significant NTM Est. EBITDA Growth above.


Source: Capital IQ.

Next 12 Months: Estimated Growth Aerospace & Defense M&A*

Strong Growth Expected over the next 12 months

The outlook for the companies in the Small and Mid-Cap Aerospace companies are positive, with sales projected to grow 5.3%, and EBITDA projected to grow 15.6%, over the next 12 months.

Expectations for the sector are significantly stronger than for the S&P 500 as a whole, which is expected to grow revenue and EBITDA at 4.2% and 9.3%, respectively.

The U.S. Aerospace & Defense sector continues to experience steady deal flow with 106 announced M&A transactions in 2013. YTD September, 2014 activity in the sector is up slightly over an already strong year-over-year period.

Chart below reflects U.S. companies disclosed values less $500 million and below.


Recent Aerospace Transactions with Disclosed Value

Source: Capital IQ.

$ in millions

Transaction

Announced Acquirer/Investor Target Target Description Value Metric

09/22/14 TriMas UK Aerospace Holdings Limited ALLFAST Fastening Systems, Inc. Manfuactures bolts, rivets, and installation tooling for the aerospace industry. $357.0 6.49x Rev

08/22/14 MWAGUSI, LLC Star Dynamics Corporation Manfufactures and sells radar products. $5.0

05/28/14 Diversis Capital, LLC ArmorWorks, Inc. Manufactures armor and survivability products to the military. $3.0

07/14/14 World Fuel Services Corp. Colt International, Inc. Provides fuel and aviation services. $63.0 0.16x Rev

06/05/14 Air Industries Group Eur-Pac Corporation Develops hydraulic, mechanical, and electrical assemblies. $1.8

05/29/14 Lockheed Martin Corporation Astrotech Space Operations, Inc. Provides satellite launch processing services. $61.0

05/28/14 Diversis Capital, LLC ArmorWorks, Inc. Develops and manufactures armor and survivability products. $3.0

05/13/14 TCFI IG LLC ISR Group, Inc. Provides unmanned services and support, and mission essential services. $18.6

05/06/14 Ultra Electronics Holdings plc Ultra Electronics ICE, Inc. Designs, manufactures and tests aerospace electronics. $11.6

04/22/14 The SI Organization, Inc. QinetiQ North America, Inc. Develops technology solutions for aerospace and defense. $215.0

04/11/14 RFE Investment Partners SPX Precision Components, LLC Manufactures and supplies aerospace parts, components and assemblies. $62.0

04/02/14 Welding Metallurgy, Inc. Woodbine Products, Inc. Manufactures aerospace components to adjust electronics in aircrafts. $2.7

03/20/14 Precision Castparts Corp. Aerospace Dynamics International, Inc. Manufactures and supplies machined parts and assemblies. $625.0

03/11/14 Global Digital Solutions Inc. Remington Outdoor Company, Inc. Operates as a firearms, ammunition, and related products company. $1,689.2 1.2x Rev; 11.8x EBITDA

02/19/14 Ultra Electronics Holdings plc 3Phoenix, Inc. Provides technology products and services to the Department of Defense. $87.0


Source: Capital IQ.

Recent Aerospace & Defense Transactions (continued) $ in millions

Transaction

Announced Acquirer/Investor Target Target Description Value Metric

01/29/14 Private Investor Triumph Aerospace Systems-Wichita, Inc. Designs, manufactures, installs and repairs aerospace parts and assemblies. $23.0

12/26/13 Textron Inc. Beechcraft Corporation Builds,and supports aircraft for militaries, governments, and individuals. $1,386.5

12/22/13 Private Investor TAC Air, Inc. Provides repairs and phased inspections for aircrafts. $12.4

12/12/13 Atlantic Aviation Corporation Galaxy Aviation, Inc. Chain of fixed base operators in Florida. $195.0

12/12/13 Prophet Equity LLC Keywell L.L.C. A recycling company focused on aerospace metals and specialty steels. $15.8

12/02/13 TransDigm Group Incorporated Airborne Systems Inc. Ddesigns, develops, and manufactures parachutes. $250.0 1.6x Rev

11/06/13 Willis Lease Finance Corp. JT Power, LLC Engages in the supply and lease of aircraft and jet engines, and parts. $5.9

10/28/13 TriMas Corporation Mac Fasteners, Inc. Manufactures stainless steel aerospace fasteners. $40.0 2.3x Rev

10/23/13 Hong Kong Aircraft Eng. Co. TIMCO Aviation Services, Inc. Provides aircraft MRO services to commercial, government, and military. $392.8 1.1x Rev; 13.4x EBITDA

10/09/13 CACI International Inc. Six3 Systems Inc. Develops intelligence, defense and civilian solutions. $1,052.7 2.3x Rev; 17.0x EBITDA


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aerospace & defense · 2017-09-18 · aerospace & defense 2 ... coordinating the “ramping...

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