MAY DEFENSE TECHNOLOGY & GOVERNMENT SERVICES MARKET UPDATE

Transcription

1 MAY DEFENSE TECHNOLOGY & GOVERNMENT SERVICES MARKET UPDATE Aronson Capital Partners, LLC 805 King Farm Boulevard, Suite 300 Rockville, Maryland Tel: (301) Fax: (301) Larry A. Davis Partner Tel: (301) Philip J. McMann Partner Tel: (301) John H. Saunders Partner Tel: (301) Frantz E. Casseus Associate Tel: (301) Timothy P. Schmitt Associate Tel: (301)

2 SELECTED M&A TRANSACTIONS CGI Group announces the acquisition of Logica plc for $3.1B CGI Group Inc. (NYSE: GIB) announced on May 31, 2012 that it has agreed to acquire Logica plc (LSE: LOG) for total consideration of $3.1 billion. Headquartered in the UK, Logica provides business consulting, systems integration, and outsourcing services to various companies in Europe and internationally. Michael E. Roach, President and CEO of CGI, commented, We believe Logica is the right acquisition, at the right price and at the right time to create one of the very few independent global end-to-end technology service providers. As a result of the acquisition, CGI s U.S. business will drop from 48% to 20% of total revenue, with government sales shrinking from 40% to 34% of the company s total. The combined company is expected to have 72,000 employees in 43 countries with annual revenue of approximately $10 billion. The transaction implies an EV/EBITDA multiple of 7.6x for the 12 months ended December 31, The transaction is expected to close by the end of September. The Jordan Company announces the acquisition of VT Services, Inc. for $99M On May 14, 2012, The Resolute Fund II, L.P., an affiliate of The Jordan Company, announced that it will acquire VT Services, Inc. from Babcock International Group plc for $98.8 million. VT is a provider of engineering and logistics services primarily in support of mission critical systems, logistics and operational readiness, and platform sustainment initiatives for U.S. DoD customers. We look forward to partnering with the VT leadership team to continue building this company organically and through acquisitions within the government services market, commented Jonathan F. Boucher, Managing Principal of The Jordan Company. The purchase price represents a multiple of 0.3x LTM revenue. Kratos Defense & Security Solutions announces the acquisition of Composite Engineering, Inc. for $155M On May 8, 2012, Kratos Defense & Security Solutions, Inc. (NasdaqGS: KTOS) entered into a definitive stock purchase agreement to acquire Composite Engineering, Inc. for $155 million in cash and stock. Composite Engineering is a vertically integrated manufacturer and developer of unmanned aerial target systems and composite structures used for National Security programs. With CEI, we continue to execute our strategy to be a leading high technology products based National Security business, focused predominately on the mission critical areas of unmanned systems, cyber security, electronic warfare, satellite communications, and C5ISR, stated Eric DeMarco, Kratos President and CEO. The purchase consideration represents an EV/LTM EBITDA multiple of 9.7x and an EV/LTM Revenue multiple of 1.6x. The transaction is expected to close by the end of June. INDUSTRY UPDATES Q1 Results / Revised 2012 Estimates Provoke Investor Worry: Weak CYQ1 results and revised 2012 estimates from public defense contractors diminished confidence from investors amid the current budgetary environment. Mid-Tier contractors such as CACI, ManTech and NCI were particularly impacted as this group s stock price has fallen by an average of more than 13% for the month of May. In contrast, Tier-1 contractors such as General Dynamics, Boeing, and Northrop Grumman suffered roughly half as much as the Mid-Tiers as stock prices for the group dropped by 7.5% on average. Below are the companies that suffered the greatest reduction in market capitalization: CACI (NYSE: CACI) exceeded CYQ1 profit expectations but missed revenue expectations by over 7% while at the same time revising FY2012 revenue estimates downward by approximately 3-5%, resulting in a 16% drop in share price the following day. ManTech (NasdaqGS: MANT) revised CY2012 estimates downward as well, with net income estimates of $113M versus prior analyst expectations of $129M. Shares dropped 14% on the day of the announcement. Other Industry News: On May 4, 2012, GeoEye Inc. (NasdaqGS: GEOY), a provider of geospatial information and insight to government and commercial clients, submitted an unsolicited takeover bid to acquire its chief competitor DigitalGlobe Inc. (NYSE: DGI) for $792M. DigitalGlobe rejected the takeover offer, saying the hostile bid undervalued the company. According to Reuters, Leonard Green & Partners L.P., a private equity firm, could be looking to sell Scitor Corp., a consulting company serving corporate and defense customers with an estimated value range of $600M to $800M. IBM s (NYSE: IBM) CFO stated at a JPMorgan investment conference that the company has no interest in pursuing large acquisitions but instead prefers targets worth $200M to $1.5B. In the past the company has said it expects to spend $20B on acquisitions between 2010 and 2015 with a focus on data analytics, security and e-commerce.

3 Enterprise Value/LTM EBITDA Indexed Performance GOVERNMENT SERVICES INDUSTRY PERFORMANCE 110 LTM 5/31/2012 Returns S&P: (0.3%) Mid-Tier: (18.8%) Tier-1: (3.0%) Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 S&P Mid-Tier Tier-1 May x 9.0x 5/31/2012 EV/LTM EBITDA Mid-Tier: 5.5x Tier-1: 5.5x 8.0x 7.0x 6.0x 5.0x 4.0x Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 May-12 Sources: FactSet and CapIQ Mid-Tier Index: BAH, CACI, CUB, DRCO, ICFI, KEYW, MANT, MRCY, NCIT, SAI Tier-1 Index: BA, GD, HRS, LLL, LMT, NOC, RTN

4 PUBLIC COMPANY COMPARABLES (Dollars in Millions, excluding share prices) EV as a Multiple of Price Equity Market Enterprise LTM LTM LTM NTM EBITDA Margin Revenue Growth Company 5/31/2012 Value Value Revenue EBITDA Revenue EBITDA Revenue EBITDA CY12P CY13P CY12P CY13P Government Service Providers - Mid Tier SAIC Inc. $11.04 $3,773 $3,926 $10,587 $ x 5.3x 0.4x 4.1x 8.8% 8.8% (2.9%) (1.6%) Booz Allen & Hamilton Inc ,047 2,834 5, % 8.8% 15.1% 1.3% CACI International Inc ,145 1,734 3, % 9.1% 20.2% 1.6% ManTech International Corp , % 8.2% 1.8% (2.2%) Cubic Corp , , % 11.0% 11.8% 2.6% ICF International Inc % 10.3% 19.7% 6.2% KEYW Holding Corp % 13.6% 21.6% 10.9% Dynamics Research Corp % 9.5% 3.8% (0.2%) NCI Inc % 4.6% (36.2%) (5.8%) Mercury Computer Systems Inc % 18.2% 24.2% 17.1% Mean 0.6x 5.8x 0.6x 5.8x 10.2% 10.2% 7.9% 3.0% Median 0.5x 5.5x 0.5x 5.6x 9.5% 9.3% 13.4% 1.4% Government Service Providers - Tier 1 Boeing Co. $69.92 $52,374 $54,312 $73,208 $7, x 6.8x 0.7x 6.7x 9.6% 10.3% 15.7% 8.4% Lockheed Martin Corp ,037 30,321 47,159 5, % 11.0% (1.8%) (1.2%) General Dynamics Corp ,205 24,401 32,458 4, % 13.9% (0.4%) 0.8% Northrop Grumman Corp ,869 16,507 25,876 3, % 13.4% (5.2%) (2.1%) Raytheon Co ,884 18,385 24,734 3, % 13.7% (1.1%) (1.0%) L-3 Communications Holdings Inc ,675 10,584 15,169 1, % 11.9% (4.7%) (3.5%) Harris Corp ,558 6,439 6,040 1, % 22.3% 5.4% 0.2% Mean 0.8x 5.6x 0.8x 5.8x 13.6% 13.8% 1.1% 0.2% Median 0.7x 5.5x 0.7x 5.6x 13.1% 13.4% (1.1% ) (1.0% ) Selected publicly traded companies - Foreign EADS $33.47 $27,600 $22,380 $69,789 $4, x 5.4x 0.3x 3.9x 8.1% 9.3% 8.3% 6.3% BAE Systems PLC ,639 15,818 28,487 3, % 12.2% 11.0% 1.4% Finmeccanica S.p.A ,923 9,504 23, % 10.2% (1.5%) 1.5% Serco Group PLC ,026 5,006 7, % 7.9% 7.2% 6.2% Cobham PLC ,710 4,217 2, % 24.0% (7.3%) 1.9% QinetiQ Group PLC ,558 1,749 2, % 11.9% (16.2%) 2.0% Ultra Electronics ,771 1,837 1, % 17.9% 11.2% 4.6% Mean 0.8x 8.4x 0.8x 6.0x 13.0% 13.3% 1.8% 3.4% Median 0.7x 6.9x 0.6x 6.4x 12.1% 11.9% 7.2% 2.0% Selected publicly traded companies - Commercial IT IBM Corp $ $225,325 $248,147 $106,982 $25, x 9.6x 2.3x 8.8x 25.1% 29.5% 1.1% 3.4% Accenture PLC ,921 36,725 29,227 4, % 15.9% 21.7% 7.3% Dell Inc ,755 17,263 62,257 5, % 8.6% (2.2%) 2.1% Xerox Corp ,760 18,506 22,664 3, % 15.2% 1.2% 2.4% Computer Sciences Corp ,158 5,800 15, % 11.9% (2.0%) 0.2% Unisys Corp , % 12.5% (0.8%) 0.2% Navigant Consulting Inc % 15.3% (4.7%) 5.6% Kforce Inc , % 6.6% 0.8% 8.7% Source: FactSet Mean 0.8x 7.2x 0.8x 5.4x 13.4% 14.4% 1.9% 3.7% EV: Enterprise Value Median 0.6x 6.9x 0.6x 5.9x 13.5% 13.9% 0.0% 2.9% LTM: Last Twelve Months NTM: Next Twelve Months Note: LTM EBITDA metrics for SAIC and KEYW include pro forma adjustments for the impact of the nonrecurring CityTime charge and the impact of material acquisitions, respectively.

5 RECENT INDUSTRY M&A TRANSACTIONS Industry M&A Transactions Date Buyer Target Target Business Description EV($M) EV/LTM Revenue Multiple EV/LTM EBITDA Multiple Pending CGI Group Inc. Logica plc Business and technology services company providing business consulting, systems integration, and outsourcing services worldwide $3, x 0.5 x Pending Pending The Resolute Fund II, L.P. (affiliate of The Jordan Company) Kratos Defense & Security Solutions, Inc. VT Services, Inc. Composite Engineering, Inc. Provider of engineering and logistics services in support of DoD mission critical systems, logistics and operational readiness, and platform sustainment initiatives Manufacturer and developer of unmanned aerial target systems and compostie structures for use in National Security programs x N/A x 9.7 x Pending Veritas Capital Thomson Reuters' Healthcare Business Provider of data, analytics and performance benchmarking solutions and services to hospitals, health systems, employers, health plans, government agencies, and healthcare professionals MAXIMUS Policy Studies Inc. Government health and services provider supporting government clients in the administration of public programs 1,250.0 N/A N/A x N/A Six3 Systems (porfolio company of GTCR) Ticom Geomatics, Inc. Industry leaer in interoperable, mission-ready, precision Geolocation and ISR systems and services Noblis, Inc. ElanTech Systems, Inc. Provder of systems engineering & technical assistance (SETA), acquisition management support, and software engineering services. XL, Inc. (portfolio company of The Halifax Group) ALON, Inc. ITT Exelis Applied Kilovolts Group Holdings, Limited Program management, strategic acquisition planning, and financial management services business serving federal customers Provider of precision high voltage power supplies for medical, scientific, pharmaceutical, and food safety instruments Acentia (portfolio company of Snow Phipps) Salient Federal Solutions (portfolio co. of Frontenac) ManTech International Corp Company, LLC Federal IT solutions provider specializing in custom system maintenance, systems development and integration, technology infrastructure support, and a variety of business services ATS Corp. HBGary, Inc. Mar-12 Aveshka, Inc. Civitas Group, LLC [Homeland Security and Private Sector Preparedness business] Mar-12 White Oak Technologies FGM, Inc. (portfolio company of Arlington Capital) Provider of software & systems development, systems integration, infrastructure management & outsourcing, information sharing, and consulting to DoD and federal civilian agencies Provides a comprehensive suite of software products to detect, analyze, and diagnose Advanced Persistent Threats (APT) and targeted malware Advisory and consulting services for private industry and government clients around the world Provider of software engineering services, specializing in data analytics and information sharing for the Intelligence Community x 6.1 x Feb-12 The SI Organization PhaseOne Communications, Inc. Offers full service support in communications research and planning, development and evaluation. Feb-12 Feb-12 Jan-12 Lake Capital (NetStar-1) Logistics Management Institute (LMI) CRGT, Inc. (portfolio company of Veritas Capital) Whitney, Bradley and Brown, Inc. Belzon, Inc. CIBER, Inc. (Federal Division) Jan-12 LLR Partners Paragon Technology Group, Inc. Leading provider of CONOPs, requirements, organizational development, acquisition, and technical consulting services to agencies including the DOD, DHS, and VA Provider of project management services in life cycle logistics planning, readiness management, business case analyses, program management support, IT, and engineering services. Supports U.S. Federal Government with enterprise architecture, application development, systems implementation and integration, operations support and security services Provides extensive specialized information technology consultation and services to federal clients 40.0 N/A N/A Source: Company Press Releases; FactSet; Infobase EV: Enterprise Value LTM: Last Twelve Months

6 REPRESENTATIVE ACP TRANSACTIONS on their sale to on its acquisition of WHO IS ARONSON CAPITAL PARTNERS? Aronson Capital Partners is a leading financial advisor to government services and technology firms. We exercise our special domain expertise in the Defense, Intelligence, and Federal Civilian markets to achieve exceptional results for our clients. In addition to completing more than 100 transactions in the federal sector, our principals have decades of executive level, hands-on experience in the industry a key differentiator that leads to success. M ERGERS & ACQUI SI T I ONS: Sell-Side M&A Buy-Side M&A Private Equity Platform Acquisitions Management & Leveraged Buyouts Divestitures Asset Sales ESOP CORPORATE FI NANCE: Recapitalizations & Restructurings Common & Preferred Equity Senior Debt Subordinated Debt Convertible Debt Private Equity Investments Minority Equity Investments F I NANCI AL ADVI SORY: Internal Capital Transaction Advisory Independent Corporate Valuations Fairness Opinions Strategic Alternatives Assessments