aerospace, defense and government services third quarter 2013 · on september 16, the joint venture...

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Aerospace, Defense and Government Services Quarterly Industry Update

Third Quarter 2013

1

Third Quarter 2013

% Change

Q3 2013First Half

2013 YTDDefense Prime Index 15.1% 24.1% 42.8%Defense Systems Index 14.4% 13.3% 29.6%Diversified Government Services Index 13.3% 20.6% 36.7%Middle Market Government Services Index 14.7% 23.7% 41.9%Large Cap Aerospace Index 12.1% 20.7% 35.4%Mid Cap Aerospace Index 11.2% 21.0% 34.6%Small Cap Aerospace Index 12.2% 33.8% 50.1%International Aerospace Index 12.6% 26.5% 42.5%S&P 500 4.7% 12.6% 17.9%

Notable Quarterly M&A Activity Capital Markets

Rockwell Collins signed a definitive agreement to acquire ARINC from The Carlyle Group for $1.4 billion

SKF acquired Kaydon Corporation for $1.2 billion Michael Baker Corporation was acquired by Integrated

Mission Solutions, an affiliate of DC Capital Partners, for nearly $400.0 million

Northrop Grumman signed a definitive agreement to acquire Qantas Defence Services for $71.0 million

Industry News Quarterly Summary On Monday September 30, SAIC completed its split into two publicly traded companies with shares of Leidos Holdings and the “new”

Science Applications International Corp., respectively, trading on the NYSE for the first time.

After a decade of development and more than $3.9 billion spent, Bombardier’s new C-Series completed its maiden voyage on September 16, 2013.

EADS is rebranding itself under the Airbus moniker. The Company will be renamed Airbus Group as major changes in its corporate structure were also announced.

The National Security Agency (NSA) announced it will eliminate 90% of its system administrators to reduce the number of people having access to secret information.

AeroVironment developed a solar-powered version of its Puma AE UAV, a hand-launched UAV able fly for more than 9 hours.

Arlington Capital Partners announced the formation of Quantum Spatial. The product of two acquisitions by portfolio company AeroMetric, Quantum will be the largest provider of location-based tools, analytics and data focused on the North American market.

On September 16, the joint venture between Textron and AirLand Enterprises unveiled its self-funded Scorpion Light Attack, Recce Jet. The two-seat, twin-engine Scorpion is designed to handle low-end Air Force missions with greater cost efficiency.

Boeing delivered the final C-17 produced for the US Air Force, concluding the iconic 30 year program. The 1.1 million square foot production facility in Long Beach, CA is slated to close by 2015 following completion of remaining foreign orders.

Quarterly Industry Snapshot

Source: Public Filings; Capital IQ as of 09/30/13

2

Third Quarter 2013

2931

28

40

2832

29

Q3 2013Q2 2013Q1 2013Q4 2012Q3 2012Q2 2012Q1 2012

53 42 48 29

47 46 4530

4543 52

32

5951

74

2010 2011 2012 2013

Q1 Q2 Q3 Q4

Quarterly Aerospace Transaction Activity

M&A Analysis TMG tracked 32 announced Defense and Government Services sector transactions and 29 announced Aerospace sector transactions during Q3 2013. Transaction activity in the Defense and Government Services sector remains sluggish vs. prior years’ third quarters. While Q3 historically has been the quietest quarter based on transaction volume;, Q3 2013 proved to be 2013’s strongest three month period to date. Notable announced transaction activity in Q3 includes DC Capital’s acquisition of Michael Baker Corporation for $40.50 per share or approximately $392.0 million, Aurora Capital Group’s acquisition of National Technical Systems for $23.00 per share or approximately $269.0 million, and Alliant Techsystems acquisition of Bushnell for $985.0 million. DC Capital conducted its acquisition of Michael Baker through a newly-created portfolio company, Integrated Mission Solutions (IMS), which is composed of five other companies acquired by DC Capital between June 2008 and January 2013.

Aerospace transactions in Q3 2013 remained stable in comparison to prior quarters. Rockwell Collins grabbed headlines with its offer to purchase ARINC from The Carlyle Group for $1.4 billion. When completed, the acquisition will shift Rockwell’s business to approximately 54% commercial and 46% government. Swedish industrial giant SKF, also turned heads with its $1.2 billion acquisition of Kaydon Corporation. The Michigan-based industrial manufacturer expands SKF’s US presence while enhancing its engineering capabilities. Six divestitures were reported in Q3 with the most notable being Bombardier’s sale of fractional jet ownership division Flexjet to Directional Aviation Capital for $185 million. At completion, Directional will finance newly formed Flexjet, LLC’s purchase of up to 245 Bombardier business aircraft for $5.2 billion, Bombardier’s largest such order ever. Other notable Q3 transactions include Triumph Group’s addition of General Donlee Canada to its Aerospace Systems Group for $110.4 million and Precision Castparts’ acquisition of Exacta Aerospace, its fourth acquisition of 2013.

Defense and Government Services Transaction Activity

Source: InfoBase; Capital IQ as of 09/30/13

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3

Third Quarter 2013

LDOS Ticker SAIC

$33.75 Stock Price1 $45.52

$1.7 billion Market Cap1 $3.9 billion

$5.9 billion - $6.1 billion ‘14 Rev Est2 $3.9 billion - $4.1billion

$1.3 billion Debt1 $0.5 billion

National Security (68%) Engineering (17%)

Health (14%) Customers3 DOD (75%)

Federal/Local Civilian (25%)

Scientific R&D Advanced Engineering Capabilities

Enterprise IT Software Integration SETA

Industry Trends (Defense and Gov. Services)

4Bilmes, Linda J. "The Financial Legacy of Iraq and Afghanistan." HKS Faculty Research Working Paper Series, March 2013. Source: SAIC/LDOS investor day presentations; Industry Newswires and Capital IQ as of 09/30/13

“Tale of the Tape” On Monday September 30, SAIC completed its split into two publicly traded companies with shares of Leidos Holdings and the “new” Science Applications International Corp., respectively, trading on the NYSE for the first time. Announced on August 30, 2012, the split allows both entities to avoid government Organizational Conflicts of Interest (OCI) caused by Leidos’ products or development business and SAIC’s SETA business. Management estimates that eliminating OCIs increases SAIC's and Leidos’ addressable markets by approximately $25 billion and $37 billion, respectively. Leidos retained the science and technology solutions business, while SAIC held onto the technical services and IT business. The move is very similar to L-3’s spinoff its SETA, training and operational support services business, Engility, in July 2012. While SAIC historically was a very active buyer, completing 11 acquisitions in the last five years, the impact of the split on the two new Companies’ M&A appetites remains to be seen. In a September 11, 2013 investor briefing, Leidos CEO John Jumper stated that his company’s “threshold for acquisitions” will become “more stringent than it has been in the past” and will be “calibrated against other means of returning value to the shareholder.”

vs

1As of market close 9/30/13 2FY14 ending 1/31/14 3Estimates and based on 2014 revenue projections

Also during Q3, the Syrian conflict escalated with August 21’s confirmed chemical weapons attack on a Damascus suburb that killed hundreds of civilians. The Obama administration claimed it was willing to respond with a limited military strike on Syria, then delayed any such military action by seeking congressional approval while simultaneously pursuing a diplomatic course. On September 27, the UN Security Council unanimously approved a Russian proposal to secure and destroy Syria's chemical weapons stockpile. As a result, the Organization for the Prohibition of Chemical Weapons (OPCW) and the UN have had a team of 60 experts and support staff in Syria since October 1 but security concerns have slowed the team’s progress. The Obama administration’s approach to the Syrian conflict reflects its reluctance to use large scale military force when faced with international conflicts. After more than a decade of war in Iraq and Afghanistan – at an estimated cost of $4 trillion to $6 trillion4 – the Obama administration is more likely to pursue diplomacy or targeted special forces raids. The twin raids carried out by US special forces in Libya and Somalia on October 6th are a prime example. This shift in military tactics bodes well for small and mid-sized government contractors that provide specialized, niche capabilities to the special forces community.

4

Third Quarter 2013

0 1,000 2,000 3,000 4,000 5,000

AfricaCIS

Latin AmericaMiddle EastN. America

EuropeAsia-Pacific

2012 Traffic 2012-2032 Traffic Growth Forecast

17,7397,330 10,409 18,817

0 10,000 20,000 30,000 40,000

Jan 2013

2032 Estimates

Aircraft in Service Aircraft to be Replaced Additional New Aircraft

Industry Trends (Aerospace)

Source: Public Filings; Industry Newswires and Capital IQ as of 09/30/13; Airbus “Global Market Forecast 2013-2032”

09/30/13 A320 Family A330/A340/A350 A380 5,299

4,176 975 148

Company as of Unfilled Orders by Aircraft Model Totals

09/30/13 737 747 767 777 787 4,787 3,467 51 51 328 890

Airbus parent EADS announced it will change the Company’s name to Airbus Group, leveraging the brand’s global recognition. Asia-Pacific continues to receive special attention as the region’s growing middle class is expected to drive increased air traffic at a 6.3% annual rate. The region’s share of global RPK traffic is projected to grow from 29% to 34% by 2032. Boeing forecasts that Asia-Pacific airlines will need nearly triple the existing aircraft to meet demand in 2032, an increase of 12,820 new airplanes valued at $1.9 trillion.

Airbus made major strides in the Asia-Pacific market during Q3. At the China Air Show, Airbus announced deals for 160 aircraft valued at $15.0 billion, thereby boosting its Q3 backlog by 120 planes. Just after the close of Q3, Airbus announced a landmark $9.5 billion order from Japan Airlines for 31 A350s and options on 25 additional aircraft, breaking Boeing’s virtual exclusivity and drawing attention to its 777X program. Airbus has 1,062 net orders year-to-date, already surpassing its 1,000 passenger jet goal. Boeing has lagged comparatively, having booked 890 new orders year-to-date and adding only 30 planes to its commercial backlog during Q3. Also in Q3, Bombardier’s CSeries took its 1st flight on September 16, becoming Canada’s first extended range commercial airliner able to seat more than 100 passengers.

However, the aircraft up-cycle has caused some supplier challenges. In September, Triumph Group became the third major supplier to suffer setbacks, announcing additional costs of $68 million to its Boeing 747-8 program. Triumph’s work for the 747-8 program began when it acquired troubled supplier Vought Aircraft Industries in 2010. Triumph’s losses followed Spirit Aerosystems’ August $448 million loss announcement, bringing the Company’s total losses for the last year to more than $1.0 billion. Spirit is exploring strategic options for two Oklahoma manufacturing sites responsible for much of the damage. In an effort to sure up its supply chain and reduce costs, Boeing launched a cost reduction program, Partnering For Success (PFS), earlier this year. PFS aims to create more open-book relationships with suppliers and enable productivity improvement sharing across the supply chain.

Commercial Aerospace Outlook

World Fleet forecast 2012 2032 Growth Revenue Passenger Kilometers (RPK) 5.5 trillion 13.9 trillion 151%

Global Commercial Aircraft Fleet 17,739 36,556 106%

RPK Traffic by Airline Domicile (billions)

Global Aircraft Fleet Growth Forecast

Major Commercial Aircraft Backlog

29,226 New Aircraft

5

Third Quarter 2013

Defense Prime IndexDefense Systems IndexDiversified Government Services IndexMiddle Market Government Services Index

GD

Raytheon

Lockheed

Teledyne

L-3

Booz

CACIEngility

FLIR

DRCO

ManTechICF

Exelis

Cubic

VSE Boeing

ATK

-30.0%

30.0%

-8.0% 8.0%

EPS

Revenue

Company Quarter Ending Revenue EPS

6/30/2013 4.5% 8.5%

6/30/2013 2.5% 11.0%

6/30/2013 2.5% 20.5%

6/30/2013 10.6% 20.6%

6/30/2013 5.2% 15.4%

6/29/2013 5.2% 18.5%

6/29/2013 -1.8% 16.9%

6/30/2013 1.5% 10.8%

6/30/2013 6.7% -2.8%

6/30/2013 3.6% -41.4%

7/26/2013 4.5% 4.6%

7/31/2013 4.5% 6.6%

6/30/2013 1.2% 29.7%

6/29/2013 -1.3% -3.1%

6/27/2013 2.9% -5.1%

6/30/2013 -4.5% 3.6%

5/31/2013 -0.2% -8.3%

7/27/2013 1.9% 2.0%

6/29/2013 -2.3% 50.0%

6/30/2013 1.6% 100.0%

5/31/2013 5.5% 55.6%

6/30/2013 -5.3% 8.5%

Most Recent Quarterly Financial Results (Defense and Gov. Services)

Most Recent Quarterly Earnings Suprise1


Most Recent Quarterly Earnings Suprise1

1Earnings Surprise is calculated as the difference of a Company’s most recent quarterly financial results from Capital IQ analyst consensus estimates

Kratos

Northrop

KEYW NCIT

6

Third Quarter 2013

PCP

Boeing

Hexcel

Spirit AeroSystems

B/E

Triumph

Astronics

LMI

Rockwell

HEICO

Wesco

UTC

Ametek

Esterline

Curtis-Wright

Orbital

Textron

Moog

-30.0%

30.0%

-10.0% 10.0%

EPS

Revenue

Company Quarter Ending Revenue EPS

6/30/2013 -1.5% 0.0%

6/30/2013 4.5% 8.5%

6/30/2013 0.8% 4.7%

6/30/2013 -0.7% 3.4%

6/30/2013 -6.1% 1.7%

6/29/2013 -5.7% 0.0%

6/29/2013 0.3% -58.0%

6/30/2013 -2.4% 8.3%

6/30/2013 2.4% 4.5%

6/30/2013 2.6% 30.4%

7/26/2013 -5.5% -20.1%

7/31/2013 5.5% 14.9%

6/30/2013 -0.4% 2.1%

6/29/2013 2.0% 9.8%

6/27/2013 1.7% 28.6%

6/30/2013 -2.3% 4.2%

5/31/2013 6.9% -97.8%

7/27/2013 0.2% 540.0%

6/29/2013 -5.8% -22.7%

6/30/2013 1.0% -600.0%

5/31/2013 NA NA

6/30/2013 -6.5% -8.3%

6/30/2013 -7.1% 17.4%

6/30/2013 1.6% -9.7%

Most Recent Quarterly Financial Results (US Aerospace)

Most Recent Quarterly Earnings Suprise1 Most Recent Quarterly Earnings Suprise1

1Earnings Surprise is calculated as the difference of a Company’s most recent quarterly financial results from Capital IQ analyst consensus estimates


Large Cap Aerospace IndexMid Cap Aerospace IndexSmall Cap Aerospace Index

7

Third Quarter 2013

48.4%

36.1%35.5%

40.5%

16.7%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Aug 2013 Sep 2013

Defense Prime Index Defense Systems Index Diversified Government Services IndexMiddle Market Index S&P 500

Defense Prime Index 98% 97% 97% 96% 95%

Capital Markets: Overview (Defense and Gov. Services)

Last 52 Weeks Custom Index Performance

Defense Systems Index 94% 99% 97% 93% 99% 98% 98%

Middle Market Index 99% 98% 82% 90% 78% 94%

Index Constituents and Stock Price as a % of 52 Week High


Diversified Government

Services Index 87% 99% 90% 99% 95% 94%

8

Third Quarter 2013

45.1%38.9%

46.2%

16.7%

59.3%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Aug 2013 Sep 2013

Large Cap Aerospace Index Mid Cap Aerospace Index Small Cap Aerospace Index S&P 500 Index International Aerospace Index

Capital Markets: Overview (Aerospace)

Last 52 Weeks Custom Index Performance

Large Cap Aerospace

Index 96% 97% 98% 84% 90% 88% 84% 96%

Mid Cap Aerospace

Index 97% 92% 94% 97% 98% 98% 91% 82%

Small Cap Aerospace

Index 91% 94% 97% 90% 79% 58% 98% 99%

Index Constituents and Stock Price as a % of 52 Week High


International Aerospace

Index 92% 99% 82% 86% 95% 89% 99% 98%

9

Third Quarter 2013

Defense Prime Index Defense Systems Index Diversified Government Services Index

Middle Market Government Services Index S&P 500 Index

1.5%

4.7%8.9%

9.8%10.1%10.2%

11.2%11.6%11.6%11.7%12.4%

13.9%14.3%14.7%15.0%

16.4%16.6%

17.6%18.5%

20.4%27.8%

36.0%36.4%

0% 10% 20% 30% 40%

KEYWS&P 500

CACITeledyneManTech

L-3Booz

CubicEngility

General DynamicsICF

ExelisVSE

BoeingNorthrop Grumman

FlirRaytheon

Lockheed MartinAlliant Techsystems

HarrisKratos

NCIDynamics Research

Third Quarter 2013

(17.3%)7.0%7.3%10.6%

16.4%16.5%19.8%

28.8%29.8%31.9%32.7%

36.5%38.7%39.6%39.6%41.0%

49.5%56.4%

66.7%67.8%

74.9%87.8%

91.6%

(40%) (20%) 0% 20% 40% 60% 80% 100%

NCICubic

KEYWDynamics Research

S&P 500Harris

ManTechL-3

General DynamicsCACI

TeledyneLockheed Martin

RaytheonBooz

KratosNorthrop Grumman

ExelisFlir

EngilityBoeing

ICFAlliant Techsystems

VSE

Last 52 Weeks

Capital Markets: Stock Performance (Defense and Gov. Services)


10

Third Quarter 2013

(28.7%)(12.0%)(11.5%)(11.5%)(11.3%)

(1.9%)(1.4%)

0.5%2.0%2.4%

4.7%6.0%6.1%7.0%8.8%10.5%

12.7%12.8%13.3%13.5%13.9%14.0%14.5%14.7%14.7%14.9%16.0%17.0%

21.6%21.9%

24.3%26.7%

34.5%

(40%)(30%)(20%)(10%) 0% 10% 20% 30% 40%

LMI AerospaceEmbraer

GilatTransDigm

TriumphRolls-Royce

GenCorpPrecision Castparts

DigitalGlobeBombardier

S&P 500TextronMeggitt

Rockwell CollinsAmetek

EsterlineWesco Aircraft Holdings

Spirit AeroSystemsThalesSafranMoog

HexcelAeroVironment

EADSBoeing

FinmeccanicaUTC

B/E AerospaceAstronics

Orbital SciencesAAR

Curtis-WrightHEICO

Third Quarter 2013

(34.3%)(3.5%)(2.1%)

4.3%8.3%12.0%13.7%16.4%19.6%22.1%25.1%27.7%28.9%32.5%

37.0%37.4%37.6%37.8%

42.7%43.8%

49.9%52.2%52.3%53.3%

60.9%61.4%62.3%63.3%63.4%

67.8%75.3%75.9%

89.0%

(60%)(40%)(20%) 0% 20% 40% 60% 80% 100%

LMI AerospaceAeroVironment

TransDigmTextron

Spirit AeroSystemsTriumph

FinmeccanicaS&P 500Embraer

GilatRockwell Collins

BombardierRolls-Royce

AmetekEsterlineMeggitt

UTCPrecision Castparts

Curtis-WrightOrbital Sciences

ThalesDigitalGlobe

Wesco Aircraft HoldingsMoog

HexcelAstronics

SafranAAR

GenCorpBoeingHEICO

B/E AerospaceEADS

Last 52 Weeks

Capital Markets: Stock Performance (Aerospace)


Large Cap Aerospace Mid Cap Aerospace Small Cap Aerospace S&P 500 International Aerospace

11

Third Quarter 2013

2.2%2.3%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Sep 2013

Defense and Government Services Aerospace

Short Interest (US Aerospace, Defense and Gov. Services)

Last 52 Week Median Short Interest


Defense and Government Services

1.2% 1.1% 2.3% 2.9% 2.1% 1.5% 22.6% 5.8%

8.4% 9.3% 0.0% 0.2% 2.2% 17.4% 6.5% 0.2%

1.2% 3.1% 2.6% 0.7% 1.7% 1.6% 3.7% 1.4%

Aerospace

0.3% 5.4% 1.2% 0.8% 4.1% 2.3% 2.6% 0.7%

3.0% 5.1% 1.2% 3.6% 1.7% 1.7% 0.6% 1.2%

3.0% 9.5% 2.3% 0.0% 31.9% 7.5% 2.3% 1.6%

Short Interest as of September 30, 2013

12

Third Quarter 2013

Middle Market Defense & Government Services Index

3x LTM EBITDA $1,701.5 $412.7 $2,043.0 $1,131.9 $3,316.5 $4,689.0 $1,056.3 Less LT Debt 1,263.2 102.9 649.0 394.8 1,735.1 3,650.0 628.1 Plus Cash 99.3 212.5 259.0 492.4 321.0 328.0 70.1

Dry Powder $537.6 $522.3 $1,653.0 $1,229.6 $1,902.4 $1,367.0 $498.3


3x LTM EBITDA $83.8 $267.2 $76.0 $309.6 $54.8 $212.3 Less LT Debt 88.9 75.0 90.1 645.9 10.0 145.9 Plus Cash 0.7 5.5 2.8 49.7 1.0 0.3

Dry Powder ($4.4) $197.6 ($11.3) ($286.6) $45.8 $66.7

Defense Prime Index

3x LTM EBITDA $23,949.0 $11,067.0 $15,390.0 $10,851.0 $10,083.0 Less LT Debt 9,578.0 3,907.0 6,140.0 5,933.0 4,732.0 Plus Cash 8,694.0 3,757.0 2,845.0 4,904.0 2,467.0

Dry Powder $23,065.0 $10,917.0 $12,095.0 $9,822.0 $7,818.0

Dry Powder Calculations (Defense and Gov. Services)

($ millions)



3x LTM EBITDA $1,644.0 $967.1 $352.9 $2,466.0 $559.9 $876.0 Less LT Debt 1,704.0 598.1 322.4 1,335.0 200.0 3.0 Plus Cash 385.4 64.3 47.2 462.0 193.6 2.0

Dry Powder $325.4 $433.4 $77.7 $1,593.0 $553.5 $875.0

13

Third Quarter 2013

Mid Cap Aerospace Index

3x LTM EBITDA $890.5 $617.1 $1,056.4 $620.5 $903.6 $1,056.9 -$713.1 $2,051.1 Less LT Debt 984.6 1,145.1 754.5 319.5 314.0 784.8 1,175.3 1,413.8 Plus Cash 143.0 241.4 199.2 12.8 56.7 161.7 317.0 18.5

Dry Powder $48.9 ($286.6) $501.1 $313.7 $646.3 $433.8 ($1,571.4) $655.9

Small Cap Aerospace Index

3x LTM EBITDA $556.5 $27.4 $149.5 $232.8 $62.4 $144.3 $470.4 $576.5 Less LT Debt 702.2 0.0 198.8 705.1 39.4 296.3 145.1 570.6 Plus Cash 90.9 64.3 68.2 181.9 53.9 1.6 241.3 78.7

Dry Powder ($54.8) $91.8 $18.9 ($290.4) $76.9 ($150.4) $566.6 $84.7

Dry Powder Calculations (US Aerospace)

Large Cap Aerospace Index

3x LTM EBITDA $2,670.3 $2,074.2 $23,949.0 $7,618.5 $3,201.0 $3,825.0 $2,431.9 $31,899.0 Less LT Debt 1,243.7 1,959.8 9,578.0 3,385.0 1,165.0 3,615.0 4,346.7 21,656.0 Plus Cash 207.6 572.4 8,694.0 293.0 354.0 459.0 269.2 4,909.0

Dry Powder $1,634.2 $686.8 $23,065.0 $4,526.5 $2,390.0 $669.0 ($1,645.6) $15,152.0

($ millions)


14

Third Quarter 2013 Announced M&A Transactions

Source: Capital IQ and InfoBase as of 09/30/13

Closed Closed Closed

July 1, 2013 July 1, 2013 July 2, 2013

Notes Notes Notes Oasis Systems acquired PeakPoint Technologies, a provider of skilled IT professionals for staff augmentation in small private companies and large public corporations across diverse industries such as financial services, health care and high technology. The acquisition will complement Oasis’ Defense business and leverage the firm’s mission-critical leading-edge technology capability to commercial markets that offer high growth opportunities.

Air Industries Group acquired Long Island, NY-based Decimal Industries, an aerospace components manufacturer specializing in aero structure products, including welded and brazed chassis structures housing aircraft electronics, radars and avionics. The acquisition creates significant strategic benefits for Air Industries’ Welding Metallurgy subsidiary.

Cubic Defense Applications, a Defense Systems business unit of Cubic Corporation, acquired certain assets and foreign subsidiaries of Advanced Interactive Systems. AIS supplies live fire specialized range facilities, virtual simulation products, and engineering design and project management services. The acquisition diversifies Cubic’s product offerings and capitalizes on its existing international marketing channels.

acquired acquired acquired parts of

15


Closed Closed Announced

July 2, 2013 July 5, 2013 July 5, 2013

Notes Notes Notes Caltius Partners purchased SM&A from Odyssey Investment Partners. SM&A provides competition and program management services to such companies as Boeing, Raytheon and General Dynamics. Caltius aims to build on SM&A's strong reputation as a business development strategist while establishing the firm as the premier provider of business contract services.

Data Device Corporation acquired API Technologies’ National Hybrid data bus product line. The data bus product line includes National Hybrid-brand products and UK-made MIL- STD-1553 and MIL-STD-1760 products. The transaction broadens DDC's product offering, its access to strategic markets, and strengthens the firm’s market position as a supplier of high reliability data networking electronics for the US Department of Defense.

AMTEC Corp., a subsidiary of National Presto Industries, Inc. entered into an agreement to acquire substantially all of the assets of privately held DSE, a manufacturer and seller of 40mm ammunition used in grenade launchers. The closing of the transaction is contingent on an agreement that AMTEC will assume DSE's commitments under previous contracts.

acquired acquired parts of will acquire


16



July 10, 2013 July 11, 2013 July 15, 2013

Notes Notes Notes Hancock Park Associates and Next Point Capital acquired Sheffield Manufacturing, a provider of precision machining, sheet metal and welding products for commercial and military aircraft. Sheffield’s customers include Boeing, Lockheed Martin and Northrop Grumman.

Acorn Growth Companies and The Edgewater Funds have partnered to acquire UK-based Tods Aerospace & Defense through portfolio company AGC Aerospace & Defense. Tods is a specialist in the engineering, design and manufacture of advanced materials technology for aerospace and naval acoustic structures. The transaction expands AGC’s Composites and Aerostructures’ design, engineering and manufacturing capabilities.

Colt Defense LLC, a manufacturer of rifles and carbines for the military, law enforcement and sporting markets, acquired New Colt Holding Corp., the parent company of Colt’s manufacturing company. The acquisition means that for the first time since their separation in 2003, a single company will now develop, manufacture and sell firearms under the Colt name for all markets.

acquired acquired acquired

&

New Colt Holding Corp


17

Third Quarter 2013


July 15, 2013 July 15, 2013 July 23, 2013

Notes Notes Notes Deltek acquired Acumen, a provider of project planning and scheduling, analytics and risk management solutions aimed at helping companies develop profitable and achievable project schedules. The acquisition is in line with Deltek’s aims to offer the broadest and deepest set of project management solutions – from project setup to project delivery, in the consulting and contracting industries.

Salient Stills, a specialist in video forensics and image enhancement, was acquired by Digital Audio Corporation (DAC), a supplier of forensic audio clarification tools. The transaction allows DAC to more seamlessly meet the unique video and audio forensics challenges of its customer base in the law enforcement, homeland security, and defense sectors.

SIFCO Industries acquired MW General, an aerospace component supplier specializing in precision aluminum forgings. The acquisition increases SIFCO's presence in the aluminum forging market, expands its capacity and broadens its customer base. The acquisition also continues SIFCO's focus on growing its presence in the commercial aerospace market. SIFCO will operate the business under a newly created entity, General Aluminum Forgings, LLC.

Announced M&A Transactions


MW General, Inc.


18

Third Quarter 2013

Announced* Closed Closed

July 29, 2013 July 29, 2013 July 30, 2013

Notes Notes Notes

Integrated Mission Solutions (IMS), a portfolio company of DC Capital Partners, will acquire Michael Baker for $40.50 per share. Baker, which provides engineering, design, planning, and construction services to the defense industry, will expand IMS’s offering of mission critical services. The per share offer price represents a 55% premium to Baker’s 90-day average share price. *Closed October 8, 2013.

Smartronix acquired Wyle’s Telemetry and Data Systems business unit, a provider of aerospace engineering and IT services to the government. The acquisition will help Smartronix break into the expanding aerospace industry, a major goal of the company’s diversification strategy. Telemetry and Data Systems’ facilities will be integrated with the Smartronix Products Engineering business unit.

National Response Corporation, a portfolio company of JF Lehman & Company, acquired OP-TECH Environmental Services, a provider of specialty environmental remediation and industrial services in the Northeast and Mid-Atlantic. The acquisition will complement NRC’s existing West Coast customer base and expand its environmental emergency response services.

Announced M&A Transactions

will acquire acquired acquired

Telemetry and Data Systems


19


Closed Closed Announced

August 1, 2013 Aug 9, 2013 Aug 11, 2013

Notes Notes Notes Penton has agreed to acquire Aviation Week, the leading brand in global aviation information, including its events, data, digital and media products from McGraw Hill Financial. The acquisition of Aviation Week, together with Penton’s Aviation Group, will create a targeted marketing platform for companies and executives in the dynamic and growing global aviation industry. The transaction is anticipated to close shortly, subject to customary closing conditions.

RGS acquired the employment agreements, contracts, and partnerships of GRA. GRA is a provider of human capital management services providing a wide variety of consulting services as well as off-the-shelf and customized training services. RGS will integrate the employees, offerings and customers of GRA with its current portfolio of services and customers to provide an increasingly comprehensive set of solutions.

Rockwell Collins announced it has reached a definitive agreement to acquire ARINC from The Carlyle Group for $1.4 billion. ARINC provides communications and information processing solutions for the commercial aviation industry with expected 2013 revenues in excess of $600 million. When completed, the acquisition will shift Rockwell Collins’ business to approximately 54% commercial and 46% government.

acquired acquired will acquire


20


Announced* Closed Announced

Aug 15, 2013 August 16, 2013 August 16, 2013

Notes Notes Notes Triumph Group announced the signing of a definitive agreement to acquire General Donlee Canada Inc (GDC) for $110 million cash. Based in Toronto, GDC is a leading manufacturer of critical, complex machined components; primary product lines include engine shafts, thrust links, rotorcraft masts, and landing gear applications. GDC will be included in the Triumph’s Aerospace Systems Group and is expected to add $60million in annual revenue. *Closed October 4, 2013.

RBC Bearings acquired Climax Metal Products Company (CMP) for approximately $13.6 million. Located in Ohio, CMP is a manufacturer of precision shaft collars, rigid couplings, keyless locking devices, and bearings for the industrial markets. CMP’s net sales for the last calendar year were approximately $14.1 million. The acquisition will expand RBC’s existing product portfolio, customer base, and distribution channels.

National Technical Systems, a leading provider of testing and engineering services, announced that the Company has entered into an Agreement and Plan of Merger to be acquired by an affiliate of Aurora Capital Group for $267.0 million. The acquisition represents Aurora’s first investment in the aerospace, defense, and government services industry.

will acquire acquired will acquire


21



Aug 20, 2013 Aug 21, 2013 August 23, 2013

Notes Notes Notes Saker Aviation Services, an aviation services company specializing in ground-based services to the general aviation marketplace, acquired Phoenix Rising Aviation in a $2.4 million, 100% stock purchase. Phoenix is an Oklahoma based maintenance, repair, and overhaul firm specializing on Dassault Falcon jets.

Bel Fuse acquired Array Connector Corp, a Florida based manufacturer of aerospace and mil-spec connector products. Array Connector’s 2012 revenues were approximately $10 million. The acquisition is Bel’s fifth in the past 15 months, and the third specifically targeted to support the growth of its Cinch Connector division.

Precision Castparts acquired Exacta Aerospace. Based in Wichita, Kansas, Exacta specializes in production of machined parts, kits and assemblies for the aerospace industry. Last year, Exacta grew to an roughly 240 total employees. Further details of the purchase have yet to be disclosed.



22


Closed Announced Announced

August 26, 2013 August 28, 2013 August 30, 2013

Notes Notes Notes System Development Integration (SDI), a portfolio company of LLR Partners and Monument Capital Group, acquired Orion Systems Group. Based in Washington, DC, Orion is a systems integrator providing comprehensive security management systems. The acquisition, SDI’s second this year, establishes SDI as a $70 million systems integrator and expands its abilities to meet technical requirements of critical infrastructure-intensive environments.

Northrop Grumman signed a definitive agreement to acquire Australia-based Qantas Defence Services Pty Limited (QDS). QDS provides integrated logistics, sustainment and modernization support to Australian government and military customers. The acquisition – Northrop’s second Australia acquisition in two years – is expected to close in 2014.

Rockwell Collins will divest subsidiary Kaiser Optical Systems, Inc. to Endress + Hauser. Michigan-based Kaiser specializes in spectrographic instrumentation and applied holographic technology. Kaiser became a Rockwell Collins company in 2000 as part of the company’s purchase of K Systems, Inc. The transaction will strengthen Endress + Hauser’s optical technology and manufacturing competencies.

acquired will acquire will acquire


23



September 4, 2013 September 4, 2013 September 5, 2013

Notes Notes Notes Securadyne Systems acquired Advanced Control Concepts (ACC), a leading Florida-based security systems integrator. ACC specializes in access control, video surveillance, intrusion detection, security communications and fire/life safety solutions. ACC’s third acquisition since its 2011 founding in partnership with Pamlico Capital improves Securadyne’s high-end, integrated solutions offerings in the Southeast and with Federal customers.

Arlington Capital portfolio group Aero-Metric announced that it will acquire two leading geospatial services and solutions providers: Photo Science, Inc. and Watershed Sciences (WSI) to form Quantum Spatial. WSI specializes in uses applied airborne remote sensing data capture and analysis to develop a variety of assessment, visualization and software solutions. Photo Science is a geospatial solutions provider specializing in aerial acquisition, data collection/processing.

The Carlyle Group announced that portfolio company Dynamic Precision Group will acquire eight aerospace component fabrication and machining facilities located in the US, Canada and the UK from GE Aviation subsidiary Unison Engine Components. The acquired facilities collectively have 825 employees and provide precision manufacturing capabilities for commercial, military and gas turbine engine components to a worldwide customer base.


& Fabrication & Machining Facilities


24




Notes Notes Notes By acquiring a majority ownership interest in The Mariner Group, LLC, ARES Security strengthens its position serving the global security market by providing end-to-end physical and logical security solutions. Meanwhile, the deal enables Mariner to continue its rapid expansion. Mariner will operate as a separate division under its own name.

Alliant Techsystems (ATK) will acquire Bushnell Group Holdings for $985 million cash. Bushnell is a leading global designer, marketer and distributor of branded sports optics, outdoor accessories and performance eyewear. The Bushnell acquisition will expand ATK's product offerings into key growth areas and comprehensive product offerings in commercial and security ammunition, sporting arms and accessories.

Directional Aviation Capital announced that it will acquire Bombardier’s fractional jet ownership division, Flexjet for $185 million. Texas-based Flexjet entered the fractional jet ownership market in 1995 and now offers whole aircraft ownership and management, fractional jet ownership, jet cards and charter brokerage services. The transaction is expected to close by year-end.



25


Closed Announced Closed


Notes Notes Notes Erickson Air-Crane signed a definitive purchase agreement to acquire Air Amazonia Serviços Aeronauticos Ltda., the aviation services division of HRT Participações em Petróleo S.A., as well as a fleet of six aircraft and ground facilities. The transaction will produce adjusted EBITDA margins in line with Erickson’s core business, and is a significant step in the firm’s strategy to continue expanding into the South American oil and gas market.

Aeroflex Holdings announced the sale of its Aeroflex Test Equipment Services (ATES) business to Trescal Limited for approximately $18.7 million. ATES provides calibration and repair services of non-Aeroflex test and measurement equipment in the UK as a subsidiary of Aeroflex Limited. ATES’s sale will allow Aeroflex Limited to increase focus on growing its core wireless test and measurement equipment business.

Lockheed Martin acquired Amor Group, a UK based company specializing in information technology solutions for the energy, transport and public services sectors. Headquartered in Glasgow, Scotland, Amor Group has 500 employees across seven UK facilities and a presence in 15 additional countries. The company’s products help oil and gas operators protect production assets. Amor also owns unique systems that ensure effective airport operation.

acquired will acquire acquired

Air Amazonia Serviços Aeronauticos Ltda.

Test Equipment Services


26


Closed Announced* Closed


Notes Notes Notes Secure Communication Systems, a Vance Street Capital portfolio company, has acquired Lark Engineering, a leading designer and manufacturer of RF Filters serving the commercial, industrial, and military sectors. Lark Engineering is the second add-on acquisition for Secure Communication Systems, a designer and manufacturer of rugged computer and information assurance systems that Vance Street acquired in October 2009.

HEICO announced it will acquire Lucix Corporation for an for an undisclosed cash payment and earnout. Based in California, Lucix designs and manufacturers high performance, high reliability microwave modules, units, and integrated sub-systems for commercial and military satellites. Lucix's products include converters, receivers, transmitters, amplifiers, frequency sources and related sub-systems that address all major satellite frequencies. *Closed October 2, 2013.

Riverside Partners acquired a majority equity interest in AMCAD, a leading enterprise software company providing software solutions and services to state, county and local governments, among other public sector clients. The Company’s current offerings include an integrated justice platform, a government records and document management platform, and various data access technologies.

acquired will acquire acquired


27




Notes Notes Notes Accenture will acquire ASM Research, a provider of advanced information solutions and services to US defense and federal health clients. The deal will improve Accenture’s access to opportunities with the Department of Defense and Department of Veterans Affairs, particularly in the military health industry. ASM also has extensive experience in data warehousing, data analytics, and software development.

The Safariland Group acquired the explosive ordnance disposal (EOD) and crew survivability (CS) businesses of Allen-Vanguard Corporation (AVC). The businesses acquired include the Med-Eng brand of EOD bomb suits and remotely operated vehicles and the CS products include customized blast attenuation seats and thermal management systems. AVC will now focus on solutions for global counter-terrorism through its Electronic Systems and Counter-Threat Solutions business units.

Tangible Software acquired N2 Net Security, a managed security services provider, specializing in penetration testing, secure product development, SIEM implementation, and PCI compliance. The two firms will merge their expertise and resources to deliver a broader portfolio of cyber security solutions to Federal and commercial markets.


Explosive Ordnance Disposal and Crew Survivability Business


28

Third Quarter 2013 Recent ADG Advisory Experience

29

Third Quarter 2013

Disclaimer: The McLean Group does not provide accounting, tax or legal advice. The contents of this document are believed to be reliable, however The McLean Group, LLC makes no representation as to the accuracy or completeness of this information.

Aerospace, Defense and Government Services Team

The McLean Group 7900 Westpark Drive, Suite A320 McLean, VA 22102 Main: 703.827.0200 Fax: 703.827.0175

Contact Information

Joe Golden Principal [email protected]

Cameron Hamilton Principal [email protected]

Mitch Martin Principal [email protected]

Andy Smith Principal, Valuation [email protected]

Greg Woodford Senior Managing Director [email protected]

Greg Nossaman Managing Director [email protected]

Greg Boucher Managing Director [email protected]

Kathleen Crow Managing Director [email protected]

Michael Langman Managing Director [email protected]

John Stack Managing Director [email protected]

Harry Ward Director [email protected]

Brent Lorenz Vice President [email protected]

aerospace, defense and government services third quarter 2013 · on september 16, the joint venture...

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