Aerospace, Defense and Government Services Quarterly Industry Update 1 st Quarter 2014

Transcription

1 Aerospace, Defense and Government Services Quarterly Industry Update 1 st Quarter 2014 The McLean Group 7900 Westpark Drive A320 McLean, VA

2 Quarterly Industry Snapshot Industry News Quarterly Summary A Malaysia Airlines 777 jet carrying 239 people from Kuala Lumpur to Beijing vanished on March 8. Although the exact cause of the crash is still undetermined, investigators were able to track the plane to a region some 2,000 miles west of Perth Australia where the search for wreckage is still underway. Following Russia s annexation of Crimea, tensions continue to escalate in several Eastern Ukrainian cities with multiple violent clashes between pro-government and anti-government protestors. Boeing introduced the Boeing Black, a specialized smartphone designed for use by government agencies and contractors with high communication and data security requirements. The Army announced that it is canceling existing procurement plans for the Ground Combat Vehicle (GCV) in favor of redirecting funds toward developing a next-generation platform. Finmeccanica announced plans for a new organizational and operating model. The reforms are similar to those undertaken by Airbus Group and will focus the Company on aerospace, defense and space sectors in a bid to restore profitability. Sikorsky signed agreements with the Turkish government and key Turkish aerospace contractors as part of a $3.5 billion program to produce up to 600 aircraft for both Turkish indigenous use and export over the next 30 years. The US National Telecommunications and Information Administration (NTIA) announced that it intends to transition key Internet domain name functions to a global multi-stakeholder community. Notable Quarterly M&A Activity L-3 acquired Data Tactics Lockheed Martin agreed to acquire Industrial Defender Precision Castparts acquired Aerospace Dynamics International from The Marvin Group for $625 million Thales acquired LiveTV, LLC from JetBlue Airways Corporation for $400 million Ultra Electronics acquired 3 Phoenix for $87 million Wesco Aircraft acquired Haas Group International from The Jordan Company for $550 million Capital Markets Four Weeks % Change Q Weeks Defense Prime Index (0.8%) 2.4% 57.8% Defense Systems Index 0.4% 8.9% 50.5% Diversified Government Services Index (6.0%) (0.8%) 24.7% Middle Market Government Services Index 0.4% 18.4% 47.0% Large Cap Aerospace Index (0.9%) (2.0%) 32.5% Mid Cap Aerospace Index (1.7%) (7.6%) 34.5% Small Cap Aerospace Index (0.0%) 9.0% 54.6% International Aerospace Index 2.2% (5.8%) 29.4% S&P % 1.3% 19.3% Source: Public Filings; Capital IQ as of 03/31/14 1

3 M&A Analysis The McLean Group tracked 35 announced Defense and Government Services sector transactions during Q Transaction activity in the sector rebounded considerably after a slow While Q1 historically has been the quietest quarter based on transaction volume, Q volume exceeded every quarter of last year, with the exception of Q4. Perhaps the most encouraging Q1 trend was increased activity by public buyers. Publicly traded buyers accounted for 17 announced transactions, or 49% of total volume. This is a substantial increase from Q1 2013, when publicly traded companies made only seven acquisitions and from 2013 cumulative volume, when public buyers accounted for 29% of all activity. Notable publicly traded companies that announced transaction during Q include ManTech, Ultra Electronics, Cubic, L-3, Lockheed Martin, and ICF International. Meanwhile, financial buyers accounted for 20% of Q1 acquisitions compared to 42% of total 2013 transactions, indicating that increased strategic activity may be hampering private equity deal flow. Defense and Government Services Transaction Activity ? YTD Q1 Q2 Q3 Q4 Aerospace transactions took off in Q1 with 43 total transactions announced. Precision Castparts continued its acquisition streak with three announced transactions, which included a $625 million purchase of Aerospace Dynamics International from The Marvin Group. Both Safran and Thales grew their positions in the US. Safran purchased Eaton s Aerospace Power Distribution Management Solutions and Integrated Cockpit Solutions Businesses for $270 million and Thales paid $400 million to acquire LiveTV, LLC from JetBlue Airways Corporation. Wesco Aircraft acquired Haas Group, a primary provider of chemical supply chain management solutions to aerospace customers, from the Jordan Company for $550 million. Also of note was Lockheed Martin s continued expansion into the commercial sector with its purchase of Beontra AG and TransDigm s acquisition of yet another dynamic system provider, Elektro- Metall Export. Overall, Q1 transaction activity was heavily dominated by strategic buyers with private equity acquisitions representing only 14% of Q1 announced transactions, down from 20% in Q Quarterly Aerospace Transaction Activity 32 Q Q Q Q Q Q Q Q Source: InfoBase; Capital IQ as of 03/31/14 2

4 Industry Trends (Defense and Gov. Services) Recent international events in the Ukraine, Middle East, and North Korea have highlighted the need for an agile and responsive military force and have accelerated the repositioning of US military assets. The US shifting military focus can be seen not only in the media headlines but also in government generated raw data. For example, US Defense Secretary Chuck Hagel announced that two Navy destroyers equipped with missile defense systems will be deployed to Japan by 2017 in response to provocations from North Korea and an increasingly assertive China. The announcement followed other steps taken by the Pentagon to bolster its military position in Japan, including an October decision to position a second X-band missile defense radar there. Additionally, President Obama recently announced a 10-year agreement to give US warships, planes, and troops greater access to Philippines military bases. Meanwhile, the US is simultaneously reducing the number of active duty military personnel and repositioning its forces internationally. Over the one year period ending 12/31/13, military personnel declined 16% internationally and a 1% domestically. According to data published by the Defense Manpower Data Center (DMDC), there was a 28% YOY decline of military personnel in the Middle East and South Asia, which balanced troop levels internationally as displayed in the chart on the left below. The balancing act is further complicated by declining discretionary budgets and the evaporating OCO funds. As a result of this budgetary and logistic balancing act, DoD contractors that provide innovative technologies, services, and logistics processes will be in high demand during both government acquisition processes and M&A auctions. The essence of an agile military force is the logistics processes, resources, and systems involved in generating, transporting, sustaining, and redeploying or reallocating material and personnel. Contractors provide the full spectrum of the military s logistics, acquisition, and technical services and logistics requirements remain a high priority in both times of peace and war. As America s military efforts continue to shift away from large-scale conflict in Iraq and Afghanistan towards more small-scale, special operations, contractors that are nimble and able to quickly adapt to the military s needs will see demand for their services dramatically increase. Year End Active Duty Military Personnel By Location Year End Active Duty Military Personnel Head Count 36% 35% 27% 3% 1.44 M M % 31% 23% 3% 1.38 M 0% 20% 40% 60% 80% 100% 1.35 M Middle East and South Asia Europe East Asia And Pacific Other Source: DMDC Active Duty Military Personnel Reports 3

5 Industry Trends (Aerospace) Unmanned Aircraft Systems (UAS) continue to expand in size and capability, ranging from the massive surveillance and strike platforms able to land on an aircraft carrier to hand launched systems. Until recently, UAS application beyond defense and security remained limited. Thanks to advances in High Altitude Long, Endurance (HALE) design and solar power, UAS will now be able to function as atmospheric satellites, serving as low cost, mobile internet providers to developing and rural regions where satellites are only able to offer slower, limited coverage. Solar technology will allow the aircraft to stay aloft for months, even years while being controlled from the ground. Most importantly, the new designs operate above FAA regulated airspace Class A airspace ends at approximately 60,000 ft. Mean Sea Level (MSL) bypassing the cumbersome regulations dogging UAS application potential in commercial airspace. Meanwhile, the FAA is working to address UAS operation in commercial applications. Earlier in Q1, the FAA selected six research and testing sites to study operational issues for commercial UAS applications. However, with actionable policy still years away, the long-term, high altitude flight capability represents a crucial, near-term growth opportunity for the industry. According to a recent Facebook whitepaper, roughly 2.7 billion people globally have internet access. That is little more than one third of the current population and access is growing only 9% annually. Recognizing UAS technology s potential to drive internet access, both Facebook and Google have made acquisitions in a new race for sub-space supremacy. Facebook acquired UK-based Ascenta Limited for $20 million at the close of Q1 and Google won a bidding war to acquire New Mexico-based Titan Aerospace just after Q1 s close. Ascenta is a small engineering team founded by creators of the early generation Zephyr, the world s longest flying solar-powered UAS to-date. Ascenta team members will join the Facebook Connectivity Lab s newly minted team of experts in aerospace and communications technology recruited from NASA s Jet Propulsion Lab and Ames Research Center. Meanwhile, Titan boasts UAS designs able to ascend to 65,000 ft. MSL and remain airborne for five years without landing or refueling. Both acquisitions are viewed as critical steps in the companies goal to bring affordable internet access to the world. UAS Acquisitions March 27, 2014 ACQUIRED Ascenta Limited Est. EV $20M April 4, 2014 ACQUIRED Est. EV $60M Boeing outpaced Airbus in new aircraft deals for Q1 following the finalization of an Air Canada order for 61 narrow body jets. Boeing reported 275 gross orders or 234 net orders in Q1. Meanwhile, Airbus ended the quarter with 158 new orders or 103 net orders after adjusting for cancellations. Overall backlog for Boeing and Airbus grew roughly 1% and cancellations for both planemakers ran at similar levels. Major Commercial Aircraft Backlog Company as of Unfilled Orders by Aircraft Model Totals 03/31/ , ,154 03/31/14 A320 Family A330/A340/A350 A380 5,521 4,247 1, Source: Facebook white paper Connecting the World from the Sky ; Boeing and Airbus Public Filings; Industry Newswires 4

6 Most Recent Quarterly Financial Results (Defense and Gov. Services) Most Recent Quarterly Earnings Suprise 1 Most Recent Quarterly Earnings Suprise % EPS Northrop ATK Leidos Company Quarter Ending Revenue EPS 3/31/ % 17.4% 3/30/ % 4.3% 3/30/ % 13.4% Lockheed Boeing 3/31/ % 22.3% 3/30/ % 6.2% 12/31/ % 22.4% Harris Cubic Teledyne Raytheon GD L-3 Revenue -5.0% Booz ICF CACI 5.0% Exelis 9/30/ % 6.1% 3/31/ % -12.9% 3/31/ % -16.0% 3/28/ % 7.6% 3/28/ % 2.0% 3/30/ % 6.2% 12/31/ % -3.1% 3/31/ % -1.7% 12/31/ % -18.9% FLIR 1/31/ % 24.4% ManTech VSE Engility 3/31/ % -21.2% 12/31/ % -5.0% 3/31/ % -33.3% Kratos KEYW -30.0% Defense Prime Index NCIT Defense Systems Index Diversified Government Services Index Middle Market Government Services Index Source: Public Filings; Capital IQ as of 03/31/14 3/30/ % -36.8% 3/31/ % -35.7% 3/31/ % -19.2% 1 Earnings Surprise is calculated as the difference of a Company s most recent quarterly financial results from Capital IQ analyst consensus estimates 5

7 Most Recent Quarterly Financial Results (US Aerospace) Boeing AeroVironment Spirit AeroSystems Moog B/E Hexcel Ametek UTC Revenue Precision Castparts Rockwell -10.0% AAR 10.0% GenCorp LMI Orbital Most Recent Quarterly Earnings Suprise 1 Textron Triumph 30.0% Wesco Astronics -30.0% EPS Curtis-Wright HEICO TransDigm DigitalGlobe Esterline Large Cap Aerospace Index Mid Cap Aerospace Index Small Cap Aerospace Index Source: Public Filings; Capital IQ as of 03/31/14 Company Most Recent Quarterly Earnings Suprise 1 Quarter Ending Revenue EPS 12/31/ % 1.9% 3/31/ % 4.0% 3/31/ % 17.4% 12/29/ % -3.0% 3/31/ % 0.9% 3/29/ % -11.4% 12/28/ % 10.8% 3/31/ % 3.1% 3/31/ % 14.3% 3/31/ % -91.7% 1/31/ % -9.7% 1/31/ % 17.1% 3/31/ % 2.0% 3/29/ % 3.8% 4/3/ % 67.2% 12/31/ % -32.3% 2/28/ % -4.3% 1/25/ % 157.9% 12/31/ % -10.5% 12/31/2013 NA NA 2/28/ % % 12/31/ % % 3/31/ % -8.0% 12/31/ % -7.4% 1 Earnings Surprise is calculated as the difference of a Company s most recent quarterly financial results from Capital IQ analyst consensus estimates 6

8 Capital Markets: Overview (Defense and Gov. Services) 80.0% Last 52 Weeks Custom Index Performance 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 60.0% 51.5% 48.5% 23.9% 19.9% 10.0% 0.0% -10.0% Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014 Defense Prime Index Diversified Government Services Index Defense Systems Index Middle Market Index S&P 500 Index Constituents and Stock Price as a % of 52 Week High Defense Prime Index Defense Systems Index 87% 96% 97% 98% 97% 98% 90% 89% 100% 97% 99% 95% Diversified Government Services Index 98% 91% 98% 72% 95% 94% Middle Market Index 90% 81% 82% 81% 99% Source: Public Filings; Capital IQ as of 03/31/14 7

9 Capital Markets: Overview (Aerospace) 80.0% Last 52 Weeks Custom Index Performance 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 57.7% 35.8% 33.8% 29.3% 19.9% 10.0% 0.0% -10.0% Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014 Large Cap Aerospace Index Mid Cap Aerospace Index Small Cap Aerospace Index International Aerospace Index S&P 500 Index Constituents and Stock Price as a % of 52 Week High Large Cap Aerospace Index 83% 98% 87% 92% 95% 97% 99% 99% Mid Cap Aerospace Index 91% 67% 94% 92% 94% 94% 79% 76% Small Cap Aerospace Index 82% 97% 87% 93% 81% 62% 95% 95% International Aerospace Index 91% 76% 90% 97% 83% 83% 92% 96% Source: Public Filings; Capital IQ as of 03/31/14 8

10 Public Market Valuations: EV/2014E EBITDA Multiples Defense and Government Services Average: 9.5x Median: 8.6x Defense Prime Index Defense Systems Index Diversified Government Services Middle Market Index Average: 8.6x Average: 9.5x Average: 8.2x Average: 12.0x 9.4x 8.8x 8.6x 8.6x 7.6x 13.8x 10.9x 9.4x 9.1x 8.9x 8.4x 6.3x 8.7x 8.5x 8.4x 8.4x 7.6x 7.4x 27.4x 10.4x 8.1x 8.0x 6.1x BA LMT RTN GD NOC FLIR TDY CUB LLL ATK HRS XLS BAH LDOS SAIC CACI EGL MANT KEYW KTOS ICFI NCIT VSEC Aerospace Average: 11.2x Median: 10.2x Large Cap Aerospace Index Mid Cap Aerospace Index Small Cap Aerospace Index Average: 11.5x Average: 9.9x Average: 12.3x 14.0x 13.6x 12.3x 12.2x 11.0x 10.2x 9.4x 9.0x 14.2x 11.4x 11.2x 10.2x 9.4x 9.0x 8.0x 5.9x 30.2x 12.2x 10.8x 10.0x 8.8x 6.9x 6.9x TDG AME PCP BEAV COL UTX BA TXT HEI HXL DGI ESL CW MOG.A TGI SPR AVAV ATRO WAIR ORB LMIA AIR GY Source: Public Filings; Capital IQ as of 03/31/14 9

11 Capital Markets: Stock Performance (Defense and Gov. Services) Last 52 Weeks NCI 60.6% NCI 119.6% KEYW 39.2% VSE 110.9% Engility 34.9% Alliant Techsystems 96.3% Flir 19.6% Engility 87.9% Alliant Techsystems 16.8% Northrop Grumman 75.9% Booz 14.9% Exelis 74.6% ICF 14.7% Lockheed Martin 69.1% General Dynamics 14.0% Raytheon 68.0% L % Booz 63.7% Lockheed Martin 9.8% Harris 57.9% VSE 9.8% General Dynamics 54.5% Raytheon 8.9% Kratos 49.9% Northrop Grumman 7.7% ICF 46.4% Teledyne 6.0% Boeing 46.2% Harris 4.8% L % S&P % Flir 38.4% CACI 0.8% CACI 27.5% Exelis (0.3%) Teledyne 24.1% ManTech (1.7%) Cubic 19.5% Kratos (1.8%) S&P % Cubic (3.0%) KEYW 16.0% Boeing (8.1%) ManTech 9.5% (20%) 0% 20% 40% 60% 80% 0% 25% 50% 75% 100% 125% Defense Prime Index Defense Systems Index Diversified Government Services Index Middle Market Government Services Index S&P 500 Index Source: Public Filings; Capital IQ as of 03/31/14 10

12 Capital Markets: Stock Performance (Aerospace) AeroVironment Finmeccanica Astronics Orbital Sciences TransDigm Embraer Rockwell Collins Textron Gilat Esterline HEICO Thales UTC Curtiss-Wright GenCorp S&P 500 Wesco Aircraft Holdings B/E Aerospace Safran Ametek Hexcel Moog LMI Aerospace Precision Castparts Airbus Group AAR Boeing Meggitt Bombardier Triumph Rolls-Royce Spirit AeroSystems DigitalGlobe (0.3%) (0.4%) (2.2%) (2.6%) (3.6%) (4.3%) (6.1%) (6.8%) (7.4%) (8.1%) (9.0%) (10.8%) (15.1%) (15.8%) (17.3%) (29.5%) 38.1% 30.2% 24.3% 19.7% 15.0% 10.3% 7.8% 6.9% 5.7% 4.5% 3.8% 2.8% 2.7% 2.1% 1.4% 1.3% 0.4% (50%) (25%) 0% 25% 50% AeroVironment Astronics Finmeccanica Curtiss-Wright HEICO Orbital Sciences Hexcel Wesco Aircraft Holdings Spirit AeroSystems Boeing Thales Safran B/E Aerospace Moog AAR Esterline GenCorp Precision Castparts Textron Airbus Group Rockwell Collins UTC TransDigm S&P 500 Ametek Bombardier DigitalGlobe Embraer Meggitt Rolls-Royce Gilat Triumph LMI Aerospace Last 52 Weeks (0.5%) (2.3%) (5.0%) (13.3%) (17.7%) (32.2%) 122.0% 112.6% 91.1% 83.1% 73.2% 67.2% 50.1% 49.5% 48.4% 46.2% 45.9% 44.5% 44.0% 42.9% 41.1% 40.7% 37.4% 33.3% 31.8% 31.0% 26.2% 25.1% 21.1% 19.3% 18.8% 2.0% 0.3% (100%) (50%) 0% 50% 100% 150% Large Cap Aerospace Mid Cap Aerospace Small Cap Aerospace International Aerospace S&P 500 Source: Public Filings; Capital IQ as of 03/31/14 11

13 Short Interest (US Aerospace, Defense and Gov. Services) 4.0% Last 52 Week Median Short Interest 3.5% 3.0% 2.5% 2.0% 2.3% 2.2% 1.5% 1.0% Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014 Defense and Government Services Aerospace Short Interest as of March 31, 2014 Defense and Government Services 1.4% 4.3% 1.6% 2.1% 1.4% 1.1% 21.2% 4.9% 9.8% 7.1% 3.5% 1.7% 18.3% 6.2% 0.3% 1.0% 4.3% 2.3% 0.4% 4.2% 1.7% 3.3% 1.2% Aerospace 1.1% 1.3% 1.4% 1.0% 4.3% 3.7% 3.0% 0.7% 3.1% 12.2% 2.3% 2.9% 0.7% 1.1% 1.0% 3.9% 9.2% 4.1% 1.6% 0.2% 33.8% 10.2% 2.1% 1.5% Source: Public Filings; Capital IQ as of 03/31/14 12

14 Dry Powder Calculations (Defense and Gov. Services) ($ millions) Defense Prime Index 3x LTM EBITDA $24,639.0 $12,852.0 $16,875.0 $11,109.0 $10,245.0 Less LT Debt 8, , , , ,735.0 Plus Cash 6, , , , ,036.0 Dry Powder $22,646.0 $13,237.0 $13,987.0 $9,065.0 $8,546.0 Middle Market Defense & Government Services Index 3x LTM EBITDA $1,989.2 $358.1 $2,007.0 $941.4 $3,314.1 $4,485.0 $1,018.1 Less LT Debt 2, , , Plus Cash Dry Powder $74.6 $459.0 $1,827.0 $1,141.6 $2,005.2 $1,081.0 $531.9 Middle Market Defense & Government Services Index 3x LTM EBITDA $1,687.2 $943.1 $384.6 $1,083.0 $464.6 $762.0 Less LT Debt 1, , , Plus Cash Dry Powder $ $323.1 $216.1 $180.0 $540.2 $514.0 Middle Market Index 3x LTM EBITDA $256.2 $62.5 $198.3 $54.1 $195.7 Less LT Debt Plus Cash Dry Powder $225.2 ($20.1) ($390.1) $54.3 $93.1 Source: Public Filings; Capital IQ as of 03/31/14 13

15 Dry Powder Calculations (US Aerospace) ($ millions) Large Cap Aerospace Index 3x LTM EBITDA $2,801.2 $2,229.3 $24,516.0 $8,635.5 $3,240.0 $3,642.0 $2,685.2 $33,402.0 Less LT Debt 1, , , , , , , ,241.0 Plus Cash , , ,619.0 Dry Powder $1,681.3 $907.7 $23,969.0 $5,351.5 $1,126.0 $1,613.0 ($2,644.9) $17,780.0 Mid Cap Aerospace Index 3x LTM EBITDA $1,068.0 $740.4 $1,096.3 $698.5 $990.9 $1, $705.3 $1,766.3 Less LT Debt 1, , , ,621.5 Plus Cash Dry Powder $233.5 ($173.1) $598.5 $334.5 $761.4 $589.9 ($1,451.9) $170.2 Small Cap Aerospace Index 3x LTM EBITDA $588.9 $26.7 $182.0 $327.6 $42.1 $141.2 $442.6 $580.7 Less LT Debt Plus Cash Dry Powder ($10.8) $119.5 $36.2 ($222.4) $64.6 ($148.3) $652.8 $65.6 Source: Public Filings; Capital IQ as of 03/31/14 14

16 Announced M&A Transactions acquired acquired acquired Closed Closed Closed April 28, 2014* April 18, 2014* March 31, 2014 Notes Notes Notes Kaman Corporation acquired B.W. Rogers Company. Based in Ohio, B.W. Rogers, is a broad line distributor of fluid power products, including hydraulic hoses, fittings, pumps, motors, cylinders, valves, pneumatics, machine control and automation products. B.W. Rogers is one of largest distributors of Parker Hannifin motion and control products and operates 21 locations in seven states from the Northeast to the Midwest. *Announced Q1, closed Q2 Sysorex acquired AirPatrol Corporation, a mobile locationbased cybersecurity systems company. Based in Maple Lawn, Maryland, AirPatrol has 4 US and 11 foreign patent applications pending for its location, security and context awareness systems that can detect smartphones, tablets, laptops and other mobile devices. *Announced Q1, closed Q2 Source: Capital IQ and InfoBase as of 03/31/14 Precision Castparts Corp (PCC) acquired California based Aerospace Dynamics International (ADI) from The Marvin Group for $625.0 million. ADI is a top aerospace industry supplier with 625 employees operating a wide range of high-speed machining centers. ADI has special expertise in large complex components, hard metal machining, and critical assemblies with strong positions across growing commercial platforms, including a significant presence on the Airbus A

17 Announced M&A Transactions acquired to acquire acquired Ascenta Limited Brussels operations Test Lab Business Closed Announced Closed March 27, 2014 March 20, 2014 March 19, 2014 Notes Notes Notes Facebook acquired the UK-based aerospace company Ascenta for $20.0 million as part of the company s plan to deliver web access to remote areas via drones, satellites and lasers. AAR will acquire inventory and customer contracts from Sabena technics Brussels. The agreement includes ongoing power-by-thehour support for 13 customers, which AAR's Aviation Supply Chain division will handle from its new facility at the Brussels Airport. In addition to supporting the customers that will transition from Sabena technics, this 24/7 facility will support AOG and other parts requirements for existing AAR customers in Europe, the Middle East and Africa. Source: Capital IQ and InfoBase as of 03/31/14 National Technical Systems acquired Wyle s test lab business. Wyle operates three test facilities and is a leader in environmental, dynamics, structural, EMI/EMC, fluid flow, and acoustics testing solutions, primarily serving the nuclear, space, and defense end markets. Wyle s testing laboratories are located in Huntsville, Alabama, El Segundo, California, and San Bernardino, California 16

18 Announced M&A Transactions acquired acquired acquired Closed Closed Closed March 18, 2014 March 18, 2014 March 18, 2014 Notes Notes Notes Lockheed Martin acquired BEONTRA, a provider of integrated planning and demand forecasting tools for airports around the world. BEONTRA s capabilities expand Lockheed s business in commercial airport information technology solutions. BEONTRA has more than 40 airport operator customers across five continents including some of the world s major airports including Dubai, London Heathrow, Sydney, Copenhagen, Frankfurt, Schiphol and Munich. Evoke Research and Consulting, acquired the Consulting Practice of Adrian Technologies (ATI). The ATI Consulting Practice has delivered more than 315 Lean Six Sigma projects over the past three years and has trained more than 1,300 customers in Lean Six Sigma Green, Black, and Master Black Belt. The acquisition of the ATI Consulting Practice matures the Organizational Improvement services offered by Evoke. Hittite Microwave Corporation acquired substantially all the assets of Keragis Corporation, a provider of extremely high power, wideband amplifier modules. This acquisition combines Hittite's design and manufacture capabilities of high performance integrated circuits (ICs), modules and subsystems with Keragis' extremely wideband high power amplifier module products. Source: Capital IQ and InfoBase as of 03/31/14 17

19 Announced M&A Transactions acquired acquired to acquire Closed Closed Announced March, March 17, 2014 March 13, 2014 Notes Notes Notes ICF International acquired CITYTECH, a Chicago-based digital interactive consultancy specializing in enterprise application development, web experience management, mobile application development, cloud enablement, managed services, and customer experience management solutions. For 2013, CITYTECH had annual revenues of approximately $16.0 million and 100 employees. Hunter Technology acquired the equipment and inventory assets of Spectral Response, an EMS supplier providing a broad range of product design and manufacturing solutions to electronics and RF OEM customers. With the acquisition of NBS assets, Hunter added significant engineering resources in PCB design, gained leading edge DF(x) review capability, doubled its floor space, and tripled its SMT capacity. Thales signed a binding agreement to acquire LiveTV, JetBlue s fullyowned subsidiary for a total of $400.0 million. LiveTV provides In- Flight Entertainment solutions and Regional Satellite Radio. With estimated revenues for 2014 projected at over $150.0 million, it employs around 450 people. Source: Capital IQ and InfoBase as of 03/31/14 18

20 Announced M&A Transactions to acquire to acquire acquired Announced Announced Closed March 12, 2014 March 11, 2014 March 10, 2014 Notes Notes Notes Lockheed Martin entered into a definitive agreement to acquire Industrial Defender, a provider of cyber security solutions for control systems in the oil and gas, utility and chemical industries. The Company s solutions, including Industrial Defender Automation Systems Manager, help protect and manage critical infrastructure by reducing cyber risks, easing regulatory compliance and enhancing the efficiency of customers control environments. Global Digital Solutions filed a Form 8-K with the SEC providing information regarding three proposed transactions, including an unsolicited letter of intent to acquire Remington Outdoor Company, also known as Freedom Group. Freedom Group designs, manufactures and markets firearms, ammunition and related products for the hunting, shooting sports, law enforcement and military markets. LORD Corporation acquired the assets of Stellar Technology. Stellar Technology designs and manufactures custom sensing solutions for the oil and gas, aerospace and industrial markets. Its pressure, load, force, torque, displacement and temperature products are highly complementary to LORD Corporation's existing capabilities in sensing systems and motion control technologies. Source: Capital IQ and InfoBase as of 03/31/14 19

21 Announced M&A Transactions acquired acquired acquired Closed Closed Closed March 10, 2014 March 6, 2014 March 5, 2014 Notes Notes Notes BRTRC, a mid-sized firm focused on providing integrated technical solutions to the government, acquired SecureForce. SecureForce is a leading provider of cybersecurity, risk and compliance and information assurance services to government agencies based in the DC area. The company s customers include the VA, TSA, NASA, and Freddie Mac, among others. TransDigm acquired Elektro-Metall Export (EME), for approximately $47.4 million made up of $40.3 million in cash plus the assumption of approximately $7.1 million of net indebtedness. EME, headquartered in Ingolstadt, Germany, manufactures proprietary, highly engineered aerospace electromechanical actuators, electrical and electromechanical components and assemblies primarily for commercial aircraft, helicopters and other specialty applications. Source: Capital IQ and InfoBase as of 03/31/14 L-3 Communications acquired Data Tactics Corporation, a specialized provider of Big Data analytics and cloud computing solution services, primarily to the US Department of Defense. Data Tactics provides solutions that address the future of national security needs. The business is expected to generate sales of approximately $50.0 million for the year ending December 31,

22 Announced M&A Transactions acquired acquired acquired Test and Services (EADS T&S) unit Closed Closed Closed March 3, 2014 February 28, 2014 February 28, 2014 Notes Notes Notes Cubic Corporation acquired Intific, a technology company focused on software and game-based solutions in modeling and simulation, training and education, cyber warfare, and neuroscience. The acquisition enables Cubic to broaden its presence in a variety of adjacent businesses in the cyber security and next generation defense technologies. Intific closed 2013 with approximately $14.0 million in revenue and employs 80 personnel primarily located in Texas and Virginia. Astronics Corporation, looking to boost its test systems business and expand into the commercial aerospace market, acquired EADS North America's Test and Services (EADS T&S) unit for $53.0 million. EADS T&S provides engineered Automatic Test Systems (ATS), subsystems and instruments for commercial aerospace and defense operators. Source: Capital IQ and InfoBase as of 03/31/14 Wesco Aircraft Holdings has acquired Haas Group Inc. for $550.0 million in cash, subject to certain closing adjustments, from certain investment funds affiliated with The Jordan Company, L.P. With $573.5 million in 2012 revenues, Haas is a leading global provider of chemical supply chain management (CSCM) solutions to the commercial aerospace, airline, military, energy, and other markets. 21

23 Announced M&A Transactions acquired acquired acquired Facility Repair and Renewal Business Closed Closed Closed February 27, 2014 February 26, 2014 February 25, 2014 Notes Notes Notes Zodiac Aerospace acquired Pacific Precision Products (PPP). Based in Southern California PPP employs a workforce of 40 people to develop and manufacture equipment for oxygen systems. Its products are used in business jet aviation and other specialized companies such as cabin completion centers. PPP directly compliments Zodiac s Aircraft Systems segment s existing oxygen activities. Digital Globe acquired Spatial Energy. Based in Colorado, Spatial Energy helps companies in the energy industry to efficiently acquire and analyze complex geospatial information. Its cloudbased spatial data management and delivery platform, Spatial on Demand, integrates vast archives of geospatial data into a centralized easily accessible online database. Spatial Energy's customers include 12 of the top 20 largest oil and gas companies. Source: Capital IQ and InfoBase as of 03/31/14 Versar acquired Lime Energy s Facility Repair and Renewal (FRR) business unit. The acquisition represents five task orders with total revenue between $6.2 and $9.7 million and enhances Versar s offerings in support of various DoD and other Federal agencies nationwide. FRR primarily serves the United States Army Corps of Engineers Huntsville Engineering Center customers providing a fast track, efficient method for design and execution of all types of facility repairs, renovations and minor construction. 22

24 Announced M&A Transactions to merge with to acquire acquired Announced Announced Closed February 24, 2014 February 19, 2014 February 19, 2014 Notes Notes Notes RF Micro Devices, a specialist in the design and manufacturing of high-performance radio frequency solutions, and TriQuint Semiconductor, a RF solutions supplier and technology innovator, announced a definitive merger agreement under which the companies will combine in an allstock transaction. The merger will create new growth opportunities in three large global markets, mobile devices, network infrastructure and aerospace/defense. Advanced Helicopter Services will acquire Cascade Airframe Repair, a longtime helicopter repair services company, based at Boeing Field in Seattle, Washington. Advanced Helicopter Services (AHS) will add Cascade to its growing list of highly successful helicopter related service companies in the Pacific northwest supporting a broad and diverse client base of multiple mission and model type helicopters. Ultra Electronics Holdings has acquired 3 Phoenix Inc. in a $87.0 million deal that provides Ultra sonar, radar, intelligence, surveillance and reconnaissance products and solutions. 3 Phoenix has 182 employees, and its main customers are the Navy and the commercial sector. The company will be bolted onto Ultra s Tactical and Sonar Systems Division, and integration will occur throughout The McLean Group advised 3 Phoenix on the deal. Source: Capital IQ and InfoBase as of 03/31/14 23

25 Announced M&A Transactions acquired acquired acquired Aerospace Systems-Wichita Closed Closed Closed February 3, 2014 January 29, 2014 January 27, 2014 Notes Notes Notes Héroux-Devtek acquired the entire share capital of U.K.-based APPH Limited and U.S.-based APPH Wichita from BBA Aviation. APPH is an integrated provider of landing gear and hydraulic systems and assemblies for original equipment manufacturer and aftermarket applications. After 14 years as part of the Triumph Group, the Wichita, Kansas-based aircraft window, sheet metal, and composite structure operation known since 2000 as Triumph Aerospace Systems-Wichita was re-acquired by the firm s founder and current president, Jim Lee. The new entity has revived its original brand and will again be known as Lee Aerospace. MacAulay-Brown (MacB), a leading National Security company providing innovative engineering and technical solutions to Defense, Intelligence, Homeland Security and Federal agencies, has acquired Commonwealth Technology (CTI), a provider of specialized products and engineering solutions for National Security missions. CTI will now operate as a wholly-owned subsidiary of MacB. Source: Capital IQ and InfoBase as of 03/31/14 24

26 Announced M&A Transactions acquired to acquire acquired Aerospace Power Distribution Management Solutions and the Integrated Cockpit Solutions Closed Announced Closed January 24, 2014 January 20, 2014 January 16, 2014 Notes Notes Notes Precision Castparts acquired Trans World Alloys, a SOS-affiliated company, based in Gardena, CA. Trans World Alloys specializes in metal-products distribution. Safran entered into a definitive agreement to acquire the Aerospace Power Distribution Management Solutions and the Integrated Cockpit Solutions business of Eaton. The acquisition of the Aerospace Power Distribution Management Solutions business brings key contactor and circuit breaker technologies to Safran. The business generated revenues of more than $100.0 million and EBITDA in excess of $14.0 million in Precision Castparts Corporation acquired SOS Metals of Gardena, CA. SOS recycles metals including titanium, aluminum and hightemperature alloys at plants in the United States, Brazil, Britain and Asia. The purchase price was not disclosed. Source: Capital IQ and InfoBase as of 03/31/14 25

27 Announced M&A Transactions acquired acquired acquired Closed Closed Closed January 7, 2014 January 3, 2014 January 3, 2014 Notes Notes Notes Vanquish Worldwide, a Service Disabled Veteran Owned Small Business (SDVOSB) dedicated to providing Government and commercial contractor services since 2007 has acquired Front Range Training and Consulting, a SDVOSB specialized in training and program support for Government and commercial clients. AMETEK acquired Teseq Group for $92.0 million. Teseq is a leading manufacturer of test and measurement instrumentation for electromagnetic compatibility (EMC) testing. Teseq manufactures a range of conducted and radiated EMC compliance testing systems and RF amplifiers for a wide range of industries, including aerospace, medical equipment, automotive and transportation. Teseq generates annual sales of approximately $53.0 million. Source: Capital IQ and InfoBase as of 03/31/14 Curtiss-Wright Corporation acquired 100% of the shares of Component Coating and Repair Services Limited (CCRS) for approximately $25.0 million in cash, net of cash acquired. CCRS is a leading UK provider of ultrasmooth and corrosion resistant coatings and precision airfoil repair services for aerospace and industrial turbine applications. The acquired business will operate within Curtiss-Wright's Commercial/Industrial segment. 26

28 Announced M&A Transactions acquired acquired acquired Closed Closed Closed January 2, 2014 January 2, 2014 January 1, 2014 Notes Notes Notes Motorola Solutions acquired Twisted Pair Solutions, a recognized leader in push-to-talk over broadband applications for secure, real-time communication anywhere, on any device. Twisted Pair s WAVE software transforms smartphones, tablets and PCs into powerful, secure communication solutions that provide integrated voice, text messaging, location and presence in one application that serves global public and private sector customers. The McLean Group advised Twisted Pair. Huntington Ingalls Industries acquired The S.M. Stoller Corporation (Stoller), a leading provider of environmental, nuclear, and technical consulting and engineering services to the Department of Energy, Department of Defense and the private sector. Stoller provides a full range of services in support of managing environmental issues. Source: Capital IQ and InfoBase as of 03/31/14 DAI acquired HTSPE. Based in Hemel Hempstead in the United Kingdom, HTSPE is currently implementing 200 projects around the world for clients such as the UK Department for International Development, EuropeAid, and the World Bank, in technical areas including climate change, land tenure, governance, education, and monitoring & evaluation. The McLean Group advised DAI on the transaction. 27

29 The McLean Group Overview An independent, industry-focused investment bank with deep expertise in mergers and acquisitions, corporate finance, capital raises, and business valuations. Founded in 1997 Headquartered in McLean, Virginia with 20 offices nationwide; over 65 dedicated professionals The McLean Group is a licensed broker/dealer and all M&A professionals hold FINRA/SEC licenses Through our dedicated industry groups, we bring extensive domain and transactional expertise to every client engagement Largest valuation practice in the mid-atlantic area, outside the Big 4 accounting firms Deep Industry Expertise Aerospace, Defense & Government (ADG) Diversified Industrials Technology & Telecommunications Agriculture & Food Processing Energy & Clean Technologies Transportation & Logistics Business Services Healthcare Services Travel & Hospitality Core Capabilities Investment Banking Mergers & Acquisition (Private Company Sale, Public M&A Advisory, Buy-side Advisory, etc.) Corporate Divestitures Private Equity Investments Strategic Alternatives Analysis Business Valuation Services Financial Reporting (Purchase price allocation, goodwill impairment, stock option expense) Equity Incentive Plans and Tax Litigation Support Transaction Advisory (Fairness Opinion, Due Diligence) 28

30 The McLean Group s ADG Practice The McLean Group s Aerospace, Defense & Government (ADG) industry group is one of the largest, most experienced, and most capable investment banking teams focused exclusively on the defense and government services industry Deep Government Market Expertise Aerospace Hardware & Services C4ISR Cyber Security Products & Services Defense Electronics Healthcare IT Intelligence Community IT, Software & Consulting Services Logistics & Training Technical & Professional Services Discriminators One of the largest ADG teams in the country 15 bankers that cover the sector Leadership team averages over 10 years of exclusive focus on the sector Longstanding relationships with virtually every strategic and financial buyer in the sector 41 closed transactions in the government sector since 2010 As an independent investment bank, we avoid potential conflicts of interest and are able to provide honest advice to best support our clients Recent Representative Buyers / Clients 29

31 Recent ADG Advisory Experience 30

32 Contact Information The McLean Group 7900 Westpark Drive, Suite A320 McLean, VA Main: Fax: Aerospace, Defense and Government Services Team Joe Golden Principal Cameron Hamilton Principal Mitch Martin Principal Greg Woodford Senior Managing Director Gregory Nossaman Managing Director Kathleen Crow Managing Director John Stack Managing Director Harry Ward Director Brent Lorenz Vice President 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. 31