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CONTRIBUTORS

Ted Polk Managing Director 312-674-4531tpolk@capstoneheadwaters.com

Lisa TolliverDirector312-674-4532ltolliver@capstoneheadwaters.com

Parker DwyerAssociate312-674-4533pdwyer@capstoneheadwaters.com

January 2018www.capstoneheadwaters.com

Source: Capital IQ and Capstone Headwaters Research

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Capstone Headwaters

MERGER & ACQUISTION OVERVIEW

Amidst blockbuster M&A activity in the Aerospace and Defense (A&D) industry,such as Northrop Grumman’s $9.4 billion acquisition of Orbital ATK and UnitedTechnologies’ $30.3 billion acquisition of Rockwell Collins, the avionicsmarketplace experienced robust deal activity in 2017. While middle market,frequently private, transaction multiples are often not disclosed, the volume ofactivity and the prevalence of premium valuations throughout the Aerospacesector indicate the seller’s market persists.

Two simultaneous trends support continued strength in the avionics segment:the continued strength in commercial aircraft build rates backed by historicproduction backlog, and the cumulative impact of a decade of underinvestmentin modernization by the Department of Defense (DoD), resulting in pent updemand for mission critical system upgrades. A recent assessment of the USmilitary’s strength by the Heritage Foundation found that while an aircrafttypically has a programmed life span of between 20 and 30 years, the averageaircraft in the US Air Force is now 27-years-old, necessitating ongoinginvestments in electronics and avionics upgrades to ensure missioneffectiveness.1 The new administration has promised to increase the defensebudget and, in his first State of the Union Address, President Trump also urgedlawmakers to “end the dangerous defense sequester and fully fund our greatmilitary.”2 If successful, US defense spending increases will be a major driver ofactivity within the industry.

TABLE OF CONTENTS

M&A Overview Key Trends & Drivers Notable Transactions Case Study Select Transactions Firm Track Record

AVIONICSQ1 2018

M&A Activity: US Aerospace & Defense

123157

167 166 155174 179

149 146

0

50

100

150

200

2009 2010 2011 2012 2013 2014 2015 2016 2017

SEGMENT HIGHLIGHT: TECHNOLOGY UPGRADES

2

(upgrades comprising multi-year modernization programs). This past November 2017, Boeing was awarded $23.8 millionfor 10 full-rate production network combat communication technology upgrade kits for the B-52.

2. CRIIS. Rockwell Collins is completing a $21.0 million contract to deliver the Common Range IntegratedInstrumentation System (CRIIS), a joint program focused on enhancing the training and testing for multiple aircraftplatforms. “With multi-level security and data link capabilities, the F-35 and other fighter aircraft will be able to performseveral missions in a single day by transferring connectivity to multiple ranges versus a traditional test mission whichconsists of an exclusive base-to- aircraft data link. CRIIS provides much needed technology to modernize our US militaryranges,”4 stated Troy Brunk, Vice President and General Manager, Communication, Navigation and Electronic WarfareSolutions for Rockwell Collins.

3. E-3 Sentry. Likewise, Boeing is upgrading the cockpit navigation system for the venerable E-3 Sentry under a $46.3million contract awarded in December 2017. Work is to be performed at Tinker Air Force Base in Oklahoma and entailsreplacing the heritage analog radar systems with digital avionics, allowing interoperability with current air traffic controlsystems, among other enhancements.

Recent contract activity underscores the strength of the market for avionics inthe US defense sector. While new aircraft programs are ambitious in size andscope, they are often slow to develop and increasingly face budgetarychallenges. Cockpit upgrades, on the other hand, represent stablemodernization programs that ensure combat readiness and without the riskand time associated with entirely new platform development.

Three programs in particular illustrate this dynamic, with contract awards overthe past 90 days aggregating close to $100.0 million:

1. B-52 Bomber. Throughout the 1950s, the US Air Force bought more than740 B-52s for $8.0 million an aircraft.3 Today, the B-52 bomber is the longestserving aircraft in the military and continues to undergo layers of upgrades

Avionics | Q1 2018

Wade, can we get a picture of a B-52?

NOTABLE TRANSACTIONS

HEICO Corporation - HEICO Corporation (NYSE:HEI) is a leadingtechnology-driven company in the A&D market. Headquartered inHollywood, Florida, the company has experienced steady growth sincebeing founded in 1957. According to the company’s year end report, itsaw a net sales increase of 11.0% to a record $1.5 billion in fiscal year2017.6 HEICO has made four acquisitions in 2017 for a total of 13 in theprevious five years. Two of its recent deals were in the avionics industryand are outlined below:

Interface Displays & Controls(November 2017, undisclosed)

HEICO recently acquired Interface Displays & Controls (IDC) in an all cash transaction.IDC provides customized electronic control and display solutions including smartcockpit displays, electronic warfare computing systems and data transfer and displayunits. HEICO subsidiary Radiant completed the acquisition to expand its productofferings and to better address the market’s evolving needs.

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Avionics | Q1 2018

AeroAntenna Technology(August 2017, $336.5 million)

In its largest acquisition to date, HEICO acquired AeroAntenna Technology (AAT)through its Electronic Technologies subsidiary. The deal closed in September for an allcash purchase price of $316.5 million with an additional $20.0 million earnout if AATmeets its earning targets. Founded in 1991, AAT designs and manufactures GPSsurvey, marine and airborne antennas and has become a recognized brand for itsinnovation and unique product offerings. HEICO expects AAT to be accreditive towithin the first year following the purchase.

CLIENT CASE STUDY: DiSTI

NOTABLE TRANSACTIONS (CONTINUED)

has partnered with

It was an honor to represent DiSTI, a companythat truly offers best-in-class products andservices. The business is well positioned to enjoyconsiderable growth with its new investmentpartners.

- Ted Polk Capstone Headwaters Managing Director

”“

Capstone Headwaters successfully advised The DiSTI Corporation (DiSTI) on itspartnership with Dos Rios Partners (Dos Rios) and Akoya Capital (Akoya). Terms of thedeal were not disclosed.

DiSTI is a leading provider of graphical user interface software and customized 3-Dtraining solutions. Display developers utilize the company’s software to create cockpitinstruments, dashboard displays, controls and full immersive cockpit environments.Both 2D and 3D high fidelity and feature rich user interfaces are available and utilizedin a wide variety of embedded systems. DiSTI has also pioneered the development andcommercialization of virtual maintenance training (VMT) solutions. DiSTI’s VMTproducts are utilized to help teach complex technical activities, such as maintenance onairplanes, rotary wing and other combat vehicles, and on various engines.

The three founding partners of DiSTI maintained their executive roles as part of a newlyformed Board of Directors. In addition to the DiSTI founding partners and severalmembers from Dos Rios, John Regazzi, a Managing Director at Akoya, serves asChairman of the Board. John has over 40 years of experience in prominent roles atelectronic information services companies including Engineering Village, Science Direct,Scirus, Scopus and most recently Elsevier Inc. (NYSE:ENL), where he served as CEO.

Enterprise EV / LTMDate Target Acquirer Target Business Description Value (mm) Revenue EBITDA

11/08/17 Anodyne Electronics

Structural Monitoring Manufactures electronics for the Aerospace industry. $7.9 - -

11/06/17 Interface Displays & Controls TTRadiant Power Provides customized electronic control and display

solutions - - -

11/02/17 MesoScribe Technologies CVD Materials Manufactures heaters, antennas, wiring and sensors. - - -

11/02/17 ACE AC&A Provides aviation maintenance, repair and overhaul services. - - -

09/18/17 Orbital ATK Northrop Grumman

Produces aerospace, defense and aviation-related products. $9,355.0 2.1x 15.4x

09/09/17 Advanced Defense Technologies

WenStar Jets International

Develops systems and technologies for military defense and homeland security industry.

- - -

08/18/17 Aeroantenna Technology

Electronic Technologies

Manufactures GPS survey, marine and airborne antennas. $336.5 - -

08/07/17 Mechtronic Solutions Sierra Peaks Offers aerospace test systems, automated test

systems and software integration. - - -

07/28/17 2MoROSolutions Sarl Sopra Steria Group Develops software for aviation companies. - - -

06/05/17 Berriehill Research

Applied Research Associates

Develops antennas, computational electromagnetic and RF measurements. - - -

06/01/17 Aerospace Product 3 Add-on Lines

TransDigm Group Incorporated

Manufactures engineered aerospace controls and communication electronics. $100.0 3.1x -

05/04/17 BEI Precision Systems & Space

J.F. Lehman & Company

Designs testing optical encoders, encoder and application based motion control components - - -

04/18/17 Manufacturing Support Industries

Craig Technologies Manufactures military avionics. - - -

03/28/17 BVR Technologies Kaney Aerospace Manufactures motion control and avionics products. - - -

03/20/17 Zephyr Photonics Inneos Provides optoelectronic technology solutions. - - -

01/09/17 FluxData Halma Develops multispectral and polarimetric imaging systems. $27.5 5.3x -

01/02/17 Integral Aerospace

Admiralty Partners

Manufactures flight subsystems and components for military and commercial aircraft. - - -

12/07/16 Teletronics Technology

Curtiss-Wright Controls Defense

Provides data acquisition instrumentation for aircraft, missiles, aerospace, underwater and land vehicles. $233.0 3.6x -

11/21/16 4DSP Abaco SystemsDesigns electronics and field programmable gate arrays for defense and aerospace organizations.

- - -

11/21/16 Vantage Vertical

The Falcon Group

Offers aerial surveying and volumetric, agricultural mapping and 3D mapping services. - - -

11/03/16 CorActive High-Tech

Han's Laser Technology

Develops specialty optical fiber products for high-power amplifier and laser applications. $30.6 - -

10/23/16 B/E Aerospace Rockwell Collins

Designs cabin interior products for commercial aircraft and business jets. $8,228.5 2.9x 13.6x

10/21/16 Butler America Aerospace HCL Provides engineering, IT, application development and

fleet services for aerospace and defense markets. $85.0 1.0x -

Source: Capital IQ, Pitchbook and Capstone Headwaters Research

SELECT TRANSACTIONS

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Avionics | Q1 2018

PUBLIC COMPANY TRADING & OPERATING DATA

Price % 52 Wk Market Enterprise LTM EV / LTMCompany 02/06/18 High Cap Value Revenue EBITDA Margin Revenue EBITDAAstronics Corporation $39.85 80.6% $1,119.0 $1,281.0 $607.2 $79.5 13.1% 2.1x 16.1x

The Boeing Company $328.88 91.0% $194,253.0 $195,435.0 $93,392.0 $12,122.0 13.0% 2.1x 16.1x

Curtiss-Wright Corporation $121.35 90.3% $5,355.1 $5,887.7 $2,224.7 $435.6 19.6% 2.6x 13.5x

Esterline Technologies Corporation $69.70 67.9% $2,071.6 $2,516.4 $2,026.8 $295.0 14.6% 1.2x 8.5x

HEICO Corporation $75.49 88.3% $7,156.9 $7,997.1 $1,524.8 $372.6 24.4% NM 21.5x

L3 Technologies, Inc. $199.39 91.2% $15,580.8 $18,316.8 $9,573.0 $1,304.0 13.6% 1.9x 14.0x

Lockheed Martin Corporation $336.46 93.0% $95,554.6 $107,030.6 $51,048.0 $7,116.0 13.9% 2.1x 15.0x

Northrop Grumman Corporation $322.37 92.3% $56,120.6 $60,161.6 $25,803.0 $3,774.0 14.6% 2.3x 15.9x

Rockwell Collins, Inc. $134.25 96.1% $22,009.3 $28,809.3 $7,640.0 $1,638.0 21.4% 3.8x 17.6x

United Technologies Corporation $127.24 91.4% $101,610.0 $122,052.0 $59,837.0 $10,812.0 18.1% 2.0x 11.3x

Mean 16.6% 2.2x 15.0x

Median 14.6% 2.1x 15.5x

Harmonic Mean 15.9% 2.1x 14.2x

EV = enterprise value; LTM = last twelve months$ in millions, except per share dataNM = Not Meaningful

23.3%18.6%

35.5% 33.3%37.7%

11.3% 10.9%

23.1%27.8% 26.5%

13.1% 13.0%

19.6%14.6%

24.4%

13.6% 13.9% 14.6%

21.4%18.1%

0%5%

10%15%20%25%30%35%40%

Astronics Boeing Curtiss-Wright EsterlineTechnologies

HEICO L3Technologies

LockheedMartin

NorthropGrumman

RockwellCollins

UnitedTechnologies

Gross Margin % EBITDA Margin %

Last Twelve Month Margin Performance

Last Twelve Month 1-Year Revenue Growth

-4.6% -1.2%

4.3% 0.9%

10.8%

-8.9%

8.0% 5.3%

44.6%

4.5%

-20%

-10%

0%

10%

20%

30%

40%

50%

Astronics Boeing Curtiss-Wright EsterlineTechnologies

HEICO L3Technologies

LockheedMartin

NorthropGrumman

RockwellCollins

UnitedTechnologies

Source: Capital IQ as of February 6, 2018

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Avionics | Q1 2018

FIRM TRACK RECORD

Capstone Headwaters has represented numerous companies that serve the needs of federal, state and local or foreigngovernments, as well as the needs of civilian and defense-related agencies. We understand the nuances associated with sole-sourced, multi-year or subcontracted awards, the value of partnerships, GWACs, IDIQs and GSA schedules. We havecompleted transactions requiring complex CIFIUS filings, ITAR registrations and contract negotiations, and those involvingclassified information.

has partnered with has been acquired byhas been acquired by

has been acquired by has been acquired by

has been acquired by has been acquired by has been acquired by

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Avionics | Q1 2018

has been acquired by

has been acquired by has been acquired by

controlling interest has been acquired by

L-1 InvestmentPartners, LLC

CITATIONS

1. The Heritage Foundation, “2018 Index of US Military Strength,” https://www.heritage.org/sites/default/files/2017-10/2018_IndexOfUSMilitaryStrength-2.pdf, accessed January 31, 2018.

2. The White House, “Remarks by President Trump in the State of the Union Address,” https://www.whitehouse.gov/briefings-statements/remarks-president-trump-state-union-address/, accessed January 31, 2018.

3. The New York Times, “After 60 Years, B-52s Still Dominate U.S. Fleet,” https://www.nytimes.com/2015/12/06/us/b-52s-us-air-force-bombers.html, accessed February 1, 2018.

4. Rockwell Collins, “Rockwell Collins Awarded $21 Million Contract to Modernize Air Force, Navy and Army Test Ranges,” https://www.rockwellcollins.com/Data/News/2017-Cal-Yr/GS/FY17GSNR36-LOT2.aspx, accessed February 1, 2018.

5. Military & Aerospace Electronics, “Boeing Moves Forward with Project to Install Digital Electronics in E-3 Sentry Cockpit Avionics,” http://www.militaryaerospace.com/articles/2017/12/avionics-digital-electronics-e-3-sentry.html, accessed January 25, 2018.

6. HEICO, “HEICO Corporation Reports Record Net Sales, Operating Income and Net Income for the Fourth Quarter and Full Year of Fiscal 2017; Targets Continued Growth in Fiscal 2018,” https://www.businesswire.com/news/home/ 20171218006149/en/, accessed February 1, 2018.

Disclosure: This newsletter is a periodic compilation of certain economic and corporate information, as well as completed and announced merger andacquisi- tion activity. Information contained in this newsletter should not be construed as a recommendation to sell or buy any security. Any reference to oromission of any reference to any company in this newsletter should not be construed as a recommendation to buy, sell or take any other action with respectto any security of any such company. We are not soliciting any action with respect to any security or company based on this newsletter. The newsletter ispublished solely for the general information of clients and friends of Capstone Headwaters. It does not take into account the particular investmentobjectives, financial situation or needs of individual recipients. Certain transactions, including those involving early-stage companies, give rise to substantialrisk and are not suitable for all investors. This newsletter is based upon information that we consider reliable, but we do not represent that it is accurate orcomplete, and it should not be relied upon as such. Prediction of future events is inherently subject to both known and unknown risks and other factors thatmay cause actual results to vary materially. We are under no obligation to update the information contained in this newsletter. Opinions expressed are ourpresent opinions only and are subject to change without notice. Additional information is available upon request. The companies mentioned in thisnewsletter may be clients of Capstone Headwaters. The decisions to include any company in this newsletter is unrelated in all respects to any service thatCapstone Headwaters may provide to such company. This newsletter may not be copied or reproduced in any form, or redistributed without the prior writtenconsent of Capstone Headwaters. The information contained herein should not be construed as legal advice.

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Avionics | Q1 2018

Lisa TolliverDirectorltolliver@capstoneheadwaters.com | 312-674-4532

Lisa has over 18 years of experience in the investment banking industry, primarily focused on advisingmiddle market private business owners in liquidity related transactions. As a Director based inCapstone’s Chicago office, she works closely with clients to advise and execute domestic and cross-border M&A transactions, recapitalizations and capital raises.

Prior to Capstone, Lisa worked in the Capital Strategies Group at Morgan Stanley Smith Barney andalso spent 10 years working for the middle market investment banking arm of Citigroup, where she wasinvolved in the evaluation, marketing and closing of numerous transactions involving privatebusinesses and corporate divestitures. Over her career, Lisa has developed M&A expertise in severalindustry sectors including government & defense, infrastructure, technology-enabled business services,consumer products and ecommerce. Lisa received her BA on academic scholarship from Illinois StateUniversity and is a Series 7 and 63 Registered Securities Representative.

Parker DwyerAssociatepdwyer@capstoneheadwaters.com | 312-674-4533

Parker is an Associate in Capstone’s Chicago office, working closely with private business owners toexecute and optimize corporate finance transactions. Prior to joining Capstone, Parker was an Associatein Deloitte’s Business Valuation practice, specializing in enterprise, equity and intangible asset valuationsacross multiple industries including consumer, industrials, manufacturing and healthcare. Parker receivedhis BA in Finance from the University of Notre Dame and is a Series 79 and 63 Registered InvestmentBanking Representative.

Ted PolkManaging Director tpolk@capstoneheadwaters.com | 312-674-4531

Ted is a Managing Director at Capstone Headwaters, based out of Chicago. Previously, Ted was also aManaging Director in Morgan Stanley’s Capital Strategies Group and with Citi Capital Strategies. Hehas over 20 years of transactional experience in categories such as C4ISR and Mapping, Modeling andSimulation. Transactions he has led have been the recipient of multiple industry awards includingCross-Border Middle-Market Deal of the Year, Middle-Market M&A Financing Deal of the Year, Middle-Market Deal of the Year, Professional Services Deal of the Year and Corporate M&A Deal of the Year.Previously, Mr. Polk worked at Valuemetrics, Inc. and in the Corporate Banking Group at The Bank ofNew York. Ted received his BSBA degree from Georgetown University and MBA from the University ofChicago. He is a Chartered Financial Analyst (CFA), a Series 7 and 63 Registered SecuritiesRepresentative, and a Series 24 Registered Securities Principal.

AVIONICS REPORT CONTRIBUTORS

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Avionics | Q1 2018

Report Title | Q4 2017

Ian Cookson Managing Director 617-470-9338icookson@capstoneheadwaters.com

David Brinkley Managing Director 917-817-0375dbrinkley@capstoneheadwaters.com

EXTENDED AEROSPACE & DEFENSE TEAM

Tess Oxenstierna Managing Director 203-524-0888toxenstierna@capstoneheadwaters.com

US MIDDLE MARKET INVESTMENTBANKOF

THE YEAR

2017

BOUTIQUE RESTRUCTURINGINVESTMENT BANK OF

THE YEAR

2017

MIDDLE MARKET INVESTMENTBANKOF

THE YEAR

2017

TOP 10 MOST REFERRED INVESTMENTBANKS

2016

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Tom McConnellManaging Director 303.951.7125tmcconnell@capstoneheadwaters.com

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www.capstoneheadwaters.com

Capstone Headwaters is an elite investment banking firm dedicated to serving the corporate finance needs of middle marketbusiness owners, investors and creditors. Capstone Headwaters provides merger & acquisition, private placement, corporaterestructuring and financial advisory services across 16 industry verticals to meet the lifecycle needs of emerging enterprises.Headquartered in Boston, MA and Denver, CO, Capstone Headwaters has 20 offices in the US, UK and Brazil with a globalreach that includes over 300 professionals in 34 countries.

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