Fairmont Consulting Group (www.FairmontCG.com) provides a summary of the top 10 most interesting deals in aerospace, defense and government services during the fourth quarter of 2013. These deals have the greatest potential to make a significant impact in their respective markets. Transactions addressed in this update include:Beechcraft Acquired by Textron Dynamics Research Corporation Acquired By Engility LGS Innovations Acquired by MDP / CoVant Mustang Technologies Acquired by L-3 Boston Dynamics Acquired by Google Airborne Systems Acquired by TransDigm Anaren Acquired by Veritas TIMCO Acquired by HAECO Six3 Systems Acquired by CACI SeeByte Acquired by Bluefin Robotics
225 Franklin Street 26 th Floor Boston, MA 02110 Tel: +1-617-2401 www.FairmontCG.com The Ten Most Interesting Deals Of Q4 2013 Aerospace, Defense, Government Services, Cybersecurity Strategy And M&A Due Diligence Dedicated Professionals - Rigorous Analysis - Proven Experience Beechcraft Acquired by Textron Dynamics Research Corporation Acquired By Engility LGS Innovations Acquired by MDP / CoVant Mustang Technologies Acquired by L-3 Boston Dynamics Acquired by Google Airborne Systems Acquired by TransDigm Anaren Acquired by Veritas TIMCO Acquired by HAECO Six3 Systems Acquired by CACI SeeByte Acquired by Bluefin Robotics Announced 30 Dec 2013 $1,400M TEV 6.9x TEV:EBITDA 0.8x TEV:Rev $1,800M revenue 5,400 employees HQ: Wichita, KS Textron CEO Scott Donnelly has high hopes for Beechcraft, citing “an excellent strategic and operational fit.” This deal ends the long-running saga that began with Hawker Beechcraft’s Chapter 11 filing in 2012, following by the failed offer from Superior Aviation Beijing later that year. Beechcraft’s 2013 sales were comprised of Business & General Aviation, (53% of sales); Global Customer Support (31%) and T-6 Defense products and services (16%). The King Air line – bolstered by a $1.4B deal in 2013 with Wheels Up for 105 aircraft and maintenance services – complements Cessna’s Caravan and Citation aircraft, and brings a stable and predictable support business. Synergies should improve operations and margins, solidifying Textron’s position as a leading GA and business aviation player. The question now for Textron and its peers is whether the general aviation and light to mid-range business aviation markets – still well off their 2008 peak – will see a more robust recovery in 2014 and beyond. Announced 23 Dec 2013 $221M TEV 6.9x TEV:EBITDA 0.7x TEV:Rev $317M revenue 1,100 employees HQ: Andover, MA Engility CEO Tony Smeraglinolo was undoubtedly attracted to DRC’s broad portfolio of government services contract vehicles and associated customer relationships through the Federal civil and defense sectors. Of note, the DRC acquisition will provide Engility with expanded coverage among Air Force, Navy, DHS, VA, and Health & Human Services clients. DRC also brings unique expertise in the high performance computing and healthcare IT domains, gained through the company’s acquisition of HPTi in June 2011 for $143M. The challenge for Engility now is to leverage the DRC acquisition as the company continues to pursue its price disruptive business model, taking aggressive actions to effectively compete, win and grow in today’s budget constrained environment.
Textron CEO Scott Donnelly has high hopes for Beechcraft, citing “an excellent strategic and operational fit.” This deal ends the long-running saga that began with Hawker Beechcraft’s Chapter 11 filing in 2012, following by the failed offer from Superior Aviation Beijing later that year. Beechcraft’s 2013 sales were comprised of Business & General Aviation, (53% of sales); Global Customer Support (31%) and T-6 Defense products and services (16%). The King Air line – bolstered by a $1.4B deal in 2013 with Wheels Up for 105 aircraft and maintenance services – complements Cessna’s Caravan and Citation aircraft, and brings a stable and predictable support business. Synergies should improve operations and margins, solidifying Textron’s position as a leading GA and business aviation player.
The question now for Textron and its peers is whether the general aviation and light to mid-range business aviation markets – still well off their 2008 peak – will see a more robust recovery in 2014 and beyond.
Announced 23 Dec 2013
$221M TEV 6.9x TEV:EBITDA 0.7x TEV:Rev
$317M revenue 1,100 employees
HQ: Andover, MA
Engility CEO Tony Smeraglinolo was undoubtedly attracted to DRC’s broad portfolio of government services contract vehicles and associated customer relationships through the Federal civil and defense sectors. Of note, the DRC acquisition will provide Engility with expanded coverage among Air Force, Navy, DHS, VA, and Health & Human Services clients. DRC also brings unique expertise in the high performance computing and healthcare IT domains, gained through the company’s acquisition of HPTi in June 2011 for $143M.
The challenge for Engility now is to leverage the DRC acquisition as the company continues to pursue its price disruptive business model, taking aggressive actions to effectively compete, win and grow in today’s budget constrained environment.
Announced 20 Dec 2013 $200M TEV (est)
700 employees HQ: Herndon, VA
LGS was created in 2006 in response to CFIUS requirements imposed upon the Alcatel-Lucent merger – it became an independent subsidiary and the company’s sole channel to the Federal government customer. The business traces its heritage back more than 60 years to Bell Labs, and supports customers with secure communications and networking solutions, bolstered by advanced R&D in photonics, remote sensing, microtechnology and cybersecurity.
Under MDP/CoVant’s ownership, LGS will now be free to pursue customers outside the Federal government; it will be interesting to see how CEO Kevin Kelly and his team leverage the strengths and networks of their new investors to capture opportunities with state and local governments, foreign governments, and commercial enterprises.
Announced 2 Dec 2013 $250M TEV 1.6x TEV:Rev
$160M revenue 350 employees HQ: Pennsauken, NJ
Migrating from its core commercial aerospace focus into defense TransDigm nonetheless remained true to form with the acquisition of Airborne Systems, the world leader in military personnel parachutes, guided aerial cargo and payload delivery systems. The company’s proprietary product lines and strong recurring revenue streams for upgrade and replacement are, in the words of CEO Nick Howley, “well aligned with the TransDigm value creation model”.
With the acquisition of Airborne Systems, TransDigm gains a well-respected, long-standing global player in parachutes and airborne delivery systems; the question now is how well the business weathers the ongoing challenges in defense spending.
Announced 16 Dec 2013
72 employees (est) HQ: Waltham, MA
If you are not familiar with Boston Dynamics, spend a few minutes perusing the many videos online which document the company’s remarkable success in developing life-like robots with extraordinary mobility, agility, dexterity and speed. Largely funded through DARPA research programs, Boston Dynamics has now been acquired by Google – the *eighth* robotics-focused acquisition by Google in 2013. The company clearly has designs on something larger, the question is to what end?
Boston Dynamics’ friends throughout the military research community are now left to wonder whether they will continue to benefit from the company’s extraordinary capabilities – Google has asserted that “it is not interested in defense contracts.”
Announced 19 Dec 2013
$36M revenue 115 employees HQ: Allen, TX
The demand for C4ISR, electronic warfare systems, precision munitions, and unmanned platforms is unlikely to abate even in a challenging defense budget environment. L-3’s acquisition of Mustang Technology plays to this trend, given the company’s leading edge capabilities in software-defined radar and RF sensors and systems, with proprietary capabilities in radar-based seeker, proximity fuzes, hostile fire indicators and ISR (intelligence, surveillance and reconnaissance) sensor applications.
The critical question now - can L-3 maintain the fundamental traits which have made Mustang a success – a technology-driven culture, with deep respect for people, team, and family, grounded in deep industry expertise and a commitment to innovation. and customer focus.
Announced 4 Nov 2013 $381M TEV 13.9x TEV:EBITDA 2.4x TEV:Rev
$158M revenue 880 employees HQ: Syracuse, NY
Veritas acquired Anaren (NasdaqGS:ANEN) at a price of $28 per share following an earlier unsolicited offer from Vintage Capital Management in May for $23 per share. Anaren is a global provider of integrated microwave components, assemblies and subsystems for wireless communications, satellite communications and defense electronics. Veritas already knows the defense/aerospace/wireless components sector well through investments in Aeroflex, Excelitas, and CPI International.
Although the acquisition price of ~14X TEV/EBITDA represents a healthy premium to the broader market of defense electronics peers, Veritas knows this space well and is a shrewd buyer – the intriguing question now is what comes next for Anaren? Are there opportunities for synergy across the Veritas electronics portfolio, and if so, how will competitors respond?
Announced 7 Oct 2013 Transaction details not disclosed
$7.3M USD revenue $2.3M USD op profit ~50 employees HQ: Edinburgh, Scotland & San Diego, CA
Bluefin Robotics, a leading provider of Autonomous Underwater Vehicles (AUVs) and a subsidiary of Battelle Memorial Institute, acquired SeeByte Ltd, maker of software that enhances the user experience and the capabilities of underwater sensors, vehicles and systems. The companies had partnered together for more than five years in the development and deployment of underwater systems for military and commercial markets.
Autonomous Underwater Systems have not yet gained the same near-ubiquitous presence as their airborne cousins, but with the “Pivot To The Pacific” and increasing emphasis on maritime force projection, this combination seems very logical.
Announced 9 Oct 2013 $820M TEV 13.4x TEV:EBITDA 1.9x TEV:Rev
$437M revenue 1,600 employees HQ: McLean, VA
CACI paid almost twice the price of the Federal IT services index (13x TEV/EBITDA, vs 6.5x for public comps) when it acquired Six3 Systems – a price provides CACI with access to Six3’s portfolio of C4ISR, intel, and cybersecurity customers, contracts and capabilities. The Six3 collection of companies – Harding Security Associates, BIT Systems, Novii Design, and Ticom Geomatics – were assembled by Bob Coleman (former ManTech CEO) and private equity firm GTCR over a four-year period.
CACI acquired Six3 for a price that many in the sector felt was very high – but since that time, CACI’s market value has increased by 16%, versus 8% for the S&P 500, 10% for peer ManTech, and 0% (flat performance) for Booz Allen Hamilton.
Hong Kong Aircraft Engineering Company Limited (HAECO) chose to expand its global reach in October 2013 with the acquisition of TIMCO, an independent provider of fully integrated aviation maintenance, repair and overhaul services, including aircraft heavy maintenance, component repair and overhaul and leasing, for major commercial airlines and maintenance and repair facilities. The company was sold by investors Owl Creek Management and LJH Ltd who took TIMCO private in 2006.
HAECO reported ~$760M (US) revenue in 2012, and with the acquisition of TIMCO the company now exceeds a billion dollars in aviation MRO and related services; the company also owns a majority (55%) stake in TAECO and a minority (45%) stake in HAESL (engine services), making it one of the largest aviation MRO providers in the world.
