ABOUT CHERTOFF CAPITAL

Transcription

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2 National Security Cybersecurity ABOUT CHERTOFF CAPITAL CHERTOFF CAPITAL A DIFFERENTIATED INVESTMENT BANK Chertoff Capital is an industry leading investment bank serving high-growth, mission-focused companies in the national security, cybersecurity, and government technology markets. Established in 2011 by seasoned investment bankers, Chertoff Capital leverages its unparalleled industry experience, unique market insight, and broad transaction execution expertise to provide creative, customized M&A solutions tailored to meet client objectives. RECENT HIGH PROFILE TRANSACTIONS a portfolio company of a portfolio company of private equity investment in private equity investment in has been acquired by has been acquired by Private Placement $710,000,000 $500,000,000 has been acquired by has secured an investment from has been acquired by has been acquired by has been acquired by in partnership with For additional information please contact: JASON KAUFMAN Managing Principal jason.kaufman@ chertoffgroup.com DAVID LEACH Principal david.leach@ chertoffgroup.com RYAN HOFFMAN Senior Director ryan.hoffman@ chertoffgroup.com Chertoff Capital, a wholly-owned subsidiary of Chertoff Group, LLC, is a registered broker dealer and member of FINRA and SIPC. Strategic Advisory engagements are completed through Chertoff Group, LLC. 2

3 EXECUTIVE SUMMARY TABLE OF CONTENTS 2 About Chertoff Capital 3 Executive Summary 4 National Security Industry Snapshot Industry Look Forward Deal Spotlight 8 Cybersecurity Industry Snapshot Market Trends Trend Spotlight 12 Appendix: Valuation Stats National Security: 2015 Selected Transactions National Security Public Comparables Cybersecurity: 2015 Selected Transactions Cybersecurity Public Comparables Index Performance Re-organization of the National Security landscape 2015 was a transformational year for the National Security industry, with ten deals valued at $500M or greater Large defense primes continue to move towards pure-play, product-based platforms, divesting non-core services businesses Government services providers are buying growth and counting on scale and synergies to compete in a highly competitive marketplace Validation of Cybersecurity market demand expectations Increasing venture investments and high valuations define Cybersecurity as a high-growth, high-demand industry Vendors are seeing higher purchase orders, with seven-figure cybersecurity deals increasing by 40% YoY Cloud security and data analytics continue to be the sub-sectors with the highest growth and greatest amount of investor interest Israel has proven to be a hotbed for information security, with multiple acquisitions from domestic players like Microsoft, Check Point, and Cyber Ark In the digital economy, CEOs and Boards must put in place an effective risk management framework to deal with today s persistent and evolving cyber threat environment. - Chad Sweet, TCG Co-Founder, January 2016, United States Cybersecurity Magazine, Seven Global Leaders Advise on Digital Risk National Security Deal Volume Cybersecurity Deal Volume CY15 v. CY14: -5.2% CY15 v. CY14: +27.4% Q1 Q2 Q3 Q4 Source: Infobase, 451 Research 3

4 NATIONAL SECURITY 4

5 INDUSTRY SNAPSHOT A Look Back at was a year of dramatic change across the National Security industry, as evolving competitive dynamics and customer priorities forced government contractors to make major strategic decisions to position themselves for future growth As a result, 2015 bore witness to a wave of divestitures, spin-offs, and carve-out strategies deployed by large defense contractors seeking to shed pure service offerings and enhance their core businesses; for example, the General Dynamics divestiture of its advanced threat detection business, Fidelis Cybersecurity, to Marlin Equity Partners These moves led to significant consolidation across the National Security landscape, as government services firms sought to build scale in order to deliver the cost-effective solutions required to compete Observations on Market Influences Perhaps the largest influence on the current government contracting market is the focus on cost that has emerged during the Obama administration and in the wake of sequestration In the case of Lockheed Martin s sale of IS&GS and L-3 s sale of NSS, both parties were motivated primarily by cost; platform-focused companies, like Lockheed and L-3, operate under a different cost structure than their pure-play Federal IT services counterparts As Federal budgets stabilize, we expect M&A activity to continue at a measured pace as contractors in the $1-$5B revenue range will leverage M&A to fill capability gaps, improve customer portfolios, and add scale to compete with increasingly larger competitors National Security: M&A Analysis 2015 Deal activity among National Security market leaders dipped slightly in Q4 2015, as compared to the same period a year prior; however, overall activity during the year remained strong, as contractors increasingly explored strategic alternatives within their portfolios amid high valuations and strong interest from strategic and financial buyers 2015 was marked by a number of mega deals among strategic acquirers seeking scale, including CSC NPS s merger with SRA, SAIC s purchase of Scitor, and Harris s acquisition of Exelis Many smaller strategic deals were driven by acquirers pursuit of additional capabilities in high-growth areas within the cybersecurity and intelligence markets and their desire to grow market share with certain federal civilian and health agencies, where budgets have fared better than their defense counterparts Additionally, private equity firms were increasingly active market participants in 2015 on both the buyside and sellside, as the cost of debt remained attractive Credit markets experienced volatility in Q4 2015, creating challenges for highly levered deal structures M&A Spotlight Notable Deals in 2015 (Ordered by EV) Closed Acquirer Target EV / EBITDA Mult. Rationale 1 May 2015 $4.7B / 9.1x 2 Nov $2.2B / 11.5x 3 May 2015 $790M / 15.2x 4 Pending NSS $550M / 8.1x Addition of scale to become top 10 industry player, significant cost synergies Scale, highly complementary IT capabilities, cost synergies EPS accretive, access to Intelligence agencies, strong strategic fit Growth in Enterprise IT and Intel, addition of complementary cyber and C4 solutions 5 High-end capabilities in cyber and Oct ND / ND analytics, entrenched position with IC Source: S&P Capital IQ, Infobase, Chertoff Capital estimates 5

6 INDUSTRY LOOK FORWARD National Security: M&A Outlook for 2016 Over the last twelve months, we have witnessed an unprecedented period of deal-making among large defense contractors, clocking in 10 deals with price tags of $500M or greater, including the creation of what will be the largest pureplay services provider to the Federal Government (Leidos / Lockheed Martin IS&GS) While we are unlikely to see any mega mergers amongst CSRA, CACI, SAIC, or Booz Allen Hamilton that would challenge Leidos in total revenue, it remains to be seen if other integrators will explore a divestiture of their services businesses Strategic acquirers will continue to make targeted acquisitions in cyber, big data, and cloud, as well as bolt-on acquisitions that provide new capabilities and access to difficult-to-penetrate customers, especially within the Intelligence Community and Healthcare IT Private equity buyers are likely to remain heavily involved in the sector as global defense budgets rebound amid an increasingly precarious global threat environment Top Federal IT Services Firms 2015 proved to be transformational for the industry, as a number of major assets changed hands 2015 IT Services Revenue Estimates $10.0B $6.0B $5.0B + + $10.0B $9.0B $9.0B $6.0B $5.3B $5.3B Things to Watch in 2016 The post-sequestration marketplace, marked most notably by decreased spending, has resulted in a significant increase in competition, as contractors cut costs to capture market share Companies that have been successful in growing market share over the past few years have done so by taking work away from competitors; there have not been many new starts Protests will remain a mainstay across the government contracting market, ultimately delaying contract awards and hurting both contractors and their customers Mid-tier services businesses will be squeezed by the new top tier of services leaders (Leidos, CSRA, BAH, CACI, and SAIC) which have developed the scale to compete effectively at lower costs $2.0B $1.0B NSS $4.4B $4.4B $2.5B $1.7B $1.6B $1.2B Indicates transaction BUDGET BLOTTER The two year budget deal agreed to by Congress and the White House in the fall should eliminate the threat of a government shutdown through the 2016 elections An omnibus appropriations bill was passed in December to provide $573 billion for defense programs and operations and another $163 billion for Veterans Affairs Department programs in FY16 While the omnibus spending package should eliminate some of the political posturing that took place over the appropriations process in 2016, Congress will have a shorter legislative calendar to work with in 2016 in the face of the fall elections In early February 2017, the White House released their fiscal 2017 budget proposal, requesting a total of $582.7 billion to fund defense programs. Given inflation, the number is flat from the fiscal 2016 enacted level, despite the increasing prevalence of global threats Source: S&P Capital IQ, Infobase, Chertoff Capital estimates 6

7 DEAL SPOTLIGHT: LEIDOS & LOCKHEED MARTIN S IS&GS NewCo Overview Deal Facts Information Systems & Global Solutions business is merging with Headquarters Reston, VA (LDOS Current HQ) # of Employees 33,000 Chairman / CEO Roger Krone Ownership LMT SH s: 50.5% / LDOS SH s: 49.5% Enterprise Value $5,000M EV / Revenue / EBITDA Mult. 0.95x / 7.8x NewCo Revenue Mix The deal expands Leidos s presence within Civilian agencies by 17% Intel 20% Defense 35% Civilian 45% Leidos Pre-Deal Mix Combined Entity Mix 32% 40% 28% In the initial public markets reaction, both 110% stocks declined after the deal announcement Lockheed s share price fell ~5% following 100% the announcement, but rebounded after investors received guidance from management that they still expected earnings growth in the out years 90% However, Leidos s share price declined almost 14% in the two days of trading following the announcement 80% Transaction Structure The transaction, announced January 26, 2016, creates the largest pureplay IT services provider to the Federal Government The total value of the deal is approximately $5B, including $3.2B in Leidos s stock (1) and $1.8B special cash payment to Lockheed, which will be used to reduce the company s debt obligations, increase shareholder dividends and possibly buy back shares Additionally, Leidos s shareholders will receive a special cash dividend of approximately $1B, roughly $13.50 per share, at closing, which is expected to occur in the second half of 2016 The transaction is structured as a Reverse Morris Trust, which combines a tax-free spinoff with a prearranged merger, allowing the seller to divest an unwanted asset in a tax-free manner, while providing shareholders the benefit of a prearranged M&A solution Leidos anticipates realizing approximately $120M in cost synergies by the end of 2018 and increasing the company s adjusted EBITDA margin from ~8.0% to ~9.5%-10.0%, however, the deal will not be accretive to adjusted earnings per share until the second year of operations Public Market Reaction (YTD 2016) Deal Announcement 1/4/2016 1/11/2016 1/18/2016 1/25/2016 Leidos (NYSE: LDOS) Lockheed Martin (NYSE: LMT) -1.5% since deal -13.7% since deal (1) Based on LDOS 5-day vol. weight aver. stock price of $55.22 as of Jan. 25, 2016 and adjusted for the ~$13.50 special cash dividend Source: S&P Capital IQ, SEC Fillings 7

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9 INDUSTRY SNAPSHOT Cybersecurity: Growing Levels of Awareness Cybersecurity Spending Increasing: as the cyber-threat landscape continues to grow in both complexity and footprint, security spending is rising in tandem; the total cybersecurity market is estimated to grow to $170B by 2020 Financial Institutions Investing Heavily in IT Security: U.S. financial services cybersecurity market will reach $9.5B in 2015, making it the largest and fastest growing non-government cybersecurity market $200 $150 $100 $50 $0 J.P. Morgan, Bank of America, Citi, and Wells Fargo will collectively spend $1.5B p.a. (~15% of total financial sector cybersecurity spend) U.S. Government is Taking Notice: Federal Government budgeted $14B for cybersecurity spending in 2016; annual cybersecurity spending of the U.S. Federal Government is larger by 2.0x compared to other countries $1M+ Cyber Security Deals on the Rise: volume of seven-figure cybersecurity deals (vendors selling to end-users) has increased by 40% YoY Skyrocketing Demand for Cybersecurity Workforce: demand for cybersecurity professionals is expected to rise to 6 million globally by 2019, with a projected shortfall of 1.5 million Annual Cost of Breaches Increasing: cost of cybercrime to the global economy is estimated to be between $400B - $575B per year Cybersecurity Spend to Hit $170B by 2020 Cybersecurity Spend +127% $77B $170B Israel: A Leading Hub for Cybersecurity Largest Growth Areas ($ in billions) Global Security Spend Sector CAGR Internet of Things (1) Security $6.9 $ % Managed Security Services $14.3 $ % Cloud Security $4.2 $8.7 16% Enterprise Governance, Risk & Complaince $5.8 $ % (1) Represents projections. Source: Markets & Markets. BREACH BLOTTER Top 10 Security Breaches of 2015: 1. Feb. 2015: Anthem 80M patient and employee records 2. Jul. 2015: Ashley Madison 37M clientele records 3. Jun. 2015: OPM 21M-25M federal workers records 4. Oct. 2015: Experian / T- Mobile 15M customer records 5. Mar. 2015: Premera BlueCross BlueShield 11.2M records 6. Jul. 2015: LastPass 7M users 7. May 2015: CareFirst BlueCross BlueShield 1.1M records 8. Jun. 2015: Kaspersky Multiple customers 9. Jul. 2015: Hacking Team 1.1M s 10. Mar. 2015: Slack 500K addresses / personal account data There are more than 300 cybersecurity companies in Israel ranked second only to the U.S. as the largest exporter of cyber products Accounted for ~$6B of exports in 2014, or ~10% of the global market Israel-based start-ups founded in 2014 and 2015 most commonly specialize in advanced persistent threats, web, mobile and cloud security, all of which rank among the hottest growth areas Israel-based cyber companies garnered significant attention from investors, attracting ~20% of global private-sector cybersecurity investment Later-stage growth companies saw a 218% increase from 2014 in cybersecurity funding, reaching a total of ~$360M (Series B or above) Niche companies are attracting strong interest and premium valuations from large vendors seeking to acquire disruptive technologies and top engineering talent Microsoft, Check Point, and CyberArk were among the most active acquirers of Israel-based companies in 2015 Leading Acquirers of Israel-Based Targets Acquirer Source: Chertoff Capital Analysis, Gartner, Experian, HP and the Ponemon Institute of Cyber Crime, TechCrunch, and market research reports Targets 9

10 MARKET TRENDS Cybersecurity Sector Still White Hot Again Cybersecurity M&A activity reached historic levels in 2015 as deal count exceeded 35, amassing to a record breaking 149 in 2015 In comparison, cybersecurity M&A volume totaled 94 and 117 transactions in 2013 and 2014, respectively Cloud security and data analytics will continue to dictate acquisition strategies heading into 2016 Notable transactions in 2015 include: Microsoft s acquisitions of Secure Islands and Adallom, Bain Capital s acquisition of Blue Coat, Blue Coat s acquisitions of Elastica and Perspecsys, and Splunk s acquisition of Caspida Carriers (e.g. Verizon, AT&T, BT, Orange, etc.) and professional services firms (e.g. Big 4) will become major components of the cybersecurity buyer universe over the next few years, with a focus on cybersecurity services providers Venture Capital investment continues to increase, including later stage venture capital, with $1.9 billion in venture investment in 2014, and $3.5 billion expected in 2015 Shifting market environments and increased pressure for start-ups to achieve profitability have tightened investment parameters; however, the emergence of exclusively focused cyber-funds and increased volume from corporate VCs suggest activity will remain elevated in 2016 Despite strong public market performance in the first three quarters of 2015, the industry preference appears to be toward acquisition rather than public offering, evidenced by a lackluster year for IPOs in 2015 Highly focused, niche, feature-based companies often derive higher valuations from M&A and would likely struggle to generate coverage from Wall Street analysts and institutional investors TCG believes the M&A pipeline for 2016 is robust Key subsectors to monitor include cloud security, data analytics, threat intelligence, identity access management and incident response M&A Spotlight Notable Deals in 2015 (Ranked by EV) Closed Acquiror Target EV / EBITDA Mult. Rationale 1 May 2015 $2.4B / 3.7x 2 May 2015 $1.3B / 3.5x 3 Sep $786M / 3.6x M&A Volume by Target Geography North Asia 3% Israel 5% Western Europe 22% North America 65% Platform for growth and future re-entrance into the public market Greater exposure into advanced cyber solutions Security expertise enhances information and communications solutions 4 Jun $635M / ND Deepens IoT security capabilities Other 5% Total Transactions: Sep $425M / 2.0x Adds capabilities to support ios and Android products Source: Chertoff Capital Analysis, 451 Research, Capital IQ 10

11 TREND SPOTLIGHT: CYBER SERVICES EXITS Trend Spotlight After two major acquisitions of cybersecurity services providers in 2013 FireEye buying Mandiant for nearly $1B and NTT acquiring Solutionary for over $200M cybersecurity buyers have been focused primarily on product vendors with (perceived) higher margins and scalable business models In the second half of 2015, however, velocity of deal activity involving cybersecurity services targets picked up significantly, with atypically high valuations for IT services companies Formerly product-focused IT security titans are investing organically (e.g. Rapid7, IBM) and inorganically (see chart to the bottom right) to build out differentiated service offerings. Marketsavvy financial sponsors have also increased investment in cybersecurity services (e.g. Carlyle Group) and professional services firms and carriers are entering the M&A fray too Why? One of the largest driving forces in the cybersecurity market is the lack of human cyber talent, which is creating a premium for truly differentiated cyber warrior shops Talent shortage is causing many midsized and budget-constrained enterprise customers to demand managed security services; and managed security is becoming a differentiator even revenue generator for hosting, network, and co-location providers Threat intelligence providers also have deep pools of cyber talent and capabilities that can be leveraged to improve entire product suites, as well as service delivery and customer satisfaction Providing C-level cyber risk advisory, and incident response services boosts customer trust and stickiness, creating opportunity to become the preferred IT security vendor IPO Spotlight Dell announced plans to IPO SecureWorks, a market leading MSSP acquired for $612M (5.1x EV/Rev) in 2011 Suggests Dell believes that public markets will value cybersecurity services as highly as private investors Exit Analysis Dell SecureWorks Key Facts Headquarters: Founded: Employees: TTM Revenue: TTM Net Loss: Projected EV: Project EV/Rev: Recent Cybersecurity Services M&A Deals Date Acquirer Target Size Atlanta, GA EV/LTM Rev Jan $200M 5.0x Jan N/D N/D Dec $35M 2.0x Nov $142M 4.7x Oct N/D N/D Portcullis Oct N/D N/D Sep N/D N/D Sep $710M 4.9x 1999 ~2,400 ~$316M ($67M) $1.5B 451 expects valuation to be roughly consistent with the 5.1x revenue valuation that Dell paid for SecureWorks in 2011, a steep premium for a mature IT services provider operating with large losses There remains a strong possibility that SecureWorks will sell to a strategic acquirer looking to pre-empt the IPO process Leading candidates within the buyer universe are telecom carriers and internet service providers, auditing and consulting professional services providers, private equity sponsors, and incumbent cybersecurity market leaders SecureWorks exit whether IPO or private sale will define the upper limits of what the market is willing to pay for scaled cybersecurity services providers 4.7x Source: 451 Research 11

12 APPENDIX: VALUATION & INDUSTRY STATS 12

13 NATIONAL SECURITY: 2015 SELECTED TRANSACTIONS Date Closed Target Target Description Acquirer Pending Pending L-3 National Security Solutions TeleCommunication Systems Inc. Provides mission critical IT and intelligence services to the US Federal Government Develops wireless communication technology and related solutions in the US and across the globe Pending Brimtek, Inc. Develops surveillance systems for security, law enforcement, and military communities Pending GATR Technologies, Inc. Manufactures satellite communication antennas and terminals that provide deployment and high-bandwidth communications in remote areas 12/18/15 TeraLogics, LLC Provides software solutions for video and sensor data streaming, archiving, tagging, and tracking solutions 11/30/15 SRA Companies, Inc. Provides IT and professional services to Federal Civilian and National Security customers CACI Inc. Comtech Telecommunications Digital Barriers plc Cubic Corporation Cubic Corporation 11/30/15 DVTEL, INC. Develops and manufactures video surveillance solutions FLIR Systems, Inc. 11/16/15 Data Networks Corporation Provides mission critical IT services to Defense and Federal Civilian customers 11/3/15 GSM Consulting, Inc. Develops software and IT solutions for the US Federal Government and Fortune 500 customers 11/2/15 SPARC, LLC (Software Services Assets) Provides software and mobile application development services, as well as user interface and experience (UI/UX) design services 10/31/15 Novetta Solutions, LLC Provides advanced analytics software and cybersecurity solutions to US Federal Government 10/23/15 Aeryon Labs Inc. Manufactures small unmanned aerial systems (suas) for military, public safety, and commercial operators worldwide 10/13/15 ForceX, Inc Provides navigation, surveillance, C2, and situational awareness solutions to National Security and Defense customers 10/5/15 Wallop Defence Systems Ltd. Provides advanced cyber monitoring, threat hunting, and professional services capabilities 10/1/15 Axios, Inc. Provides communications and signal processing solutions and mission support services to the US Federal Government 9/15/15 CRGT, Inc. Provides information management and technology services to Defense, Homeland Security, Intel, and Cederal Civilian clients 8/21/15 Kratos Defense & Security Solutions, Inc., Electronic Products 8/21/15 Alion Science and Technology Corp. 8/17/15 EM Business Holdings, Inc. 6/15/15 Knowledge Consulting Group, Inc. Operations manufacturing electronic systems, subsystems, and components for electronic warfare, missile, radar, intelligence surveillance, and reconnaissance programs in the US and UK Provides engineering, IT, naval architecture and operational solutions for defense, civilian, commercial and foreign clients Provides engineering, science and technology solutions for defense, security and intel clients Cyber security advisor in both the public and private sectors focused on anticipating threats and implementing defensive countermeasures 6/1/15 A-T Solutions, Inc. Provides counterterrorism services, products, technology, and training services to National Security customers 5/29/15 Exelis Inc. Provides C4ISR electronics and systems in the United States and internationally 5/4/15 Scitor Holdings, Inc. Provides systems engineering, management consulting, and information services to customers in the US 4/27/15 Welkin Associates, Ltd. Provides systems engineering and technical assistance support (SETA), and advisory services to the US Federal Government and commercial clients 4/1/15 Acentia, LLC Provides business management and technology consulting services to government and commercial clients in the US 3/25/15 Agilex Technologies, Inc. Provider of digital solutions, focused exclusively on the unique mission and IT requirements of the US Federal Government CSC ASRC Federal Preferred Systems Solutions, Inc. Booz Allen Hamilton The Carlyle Group Summit Partners LLP L-3 Communications Raytheon Company LGS Innovations LLC Salient Federal Solutions, Inc. Ultra Electronics, Inc. Veritas Capital American Systems Corporation ManTech International Corporation Pacific Architects and Engineers Incorporated PAE Science Applications International Corporation ManTech International Corporation MAXIMUS Federal Services, Inc. Accenture Federal Services LLC Source: S&P Capital IQ 13

14 NATIONAL SECURITY: PUBLICLY TRADED COMPANIES Currently, both Defense Primes and Defense Technology firms are trading at 11.0x+ LTM EBITDA, a significant improvement in the last five years despite difficult market conditions Federal IT services firms trail slightly, trading at approximately 10.5x LTM EBITDA; the notable increase in valuation from just two years prior has been driven largely by attempts to improve margins through significant cost-cutting Operating / Valuation Metrics ($ in millions, except price per share) 52-Week Enterprise Market LTM Margin Enterprise Value / EBITDA Revenue EBITDA CAGR Defense Primes % Change Value Cap. Gross EBITDA LTM 2015E 2016E '12 - '14 '14 - '16 '12 - '14 '14 - '16 The Boeing Company 11.2% $98,802.1 $99, % 10.2% 10.0x 9.8x 9.0x 5.4% 3.5% 7.8% 10.1% Lockheed Martin Corporation 12.8% 73, , % 13.0% 12.3x 11.2x 10.2x (1.7%) 1.1% 11.2% 7.8% General Dynamics Corporation (0.2%) 45, , % 14.6% 9.7x 9.6x 9.2x (0.2%) 2.9% 9.6% 5.5% Northrop Grumman Corporation 28.1% 40, , % 15.1% 11.2x 11.7x 11.3x (2.5%) (0.2%) 0.2% (0.6%) Raytheon Company 15.1% 40, , % 14.3% 12.3x 11.7x 11.0x (3.3%) 1.5% 2.7% 2.3% Median 12.8% $45,127.7 $45, % 14.3% 11.2x 11.2x 10.2x (1.7%) 1.5% 7.8% 5.5% Federal IT Services Booz Allen Hamilton Holding Corporation 16.3% $5,933.4 $4, % 9.3% 12.0x 11.7x 10.4x (3.7%) 1.0% 0.1% 4.6% Leidos Holdings, Inc. 29.3% 4, , % 8.3% 11.6x 12.0x 11.6x (11.4%) 0.8% (10.5%) (0.1%) CACI International Inc. 7.7% 3, , % 9.1% 10.8x 10.8x 9.7x (4.1%) 0.5% (3.1%) 2.6% Science Applications International Corporation (7.6%) 3, , % 7.0% 10.5x 10.1x 9.5x (9.9%) 8.5% (10.0%) 11.5% Engility Holdings, Inc. (24.1%) 2, , % 9.7% 12.6x 10.6x 9.6x (9.1%) 30.8% (12.6%) NM ManTech International Corporation 0.0% 1, , % 7.5% 9.4x 9.3x 8.9x (17.1%) (4.3%) (25.1%) (1.4%) ICF International Inc. (13.2%) 1, % 9.9% 9.2x 8.9x 8.2x 5.9% 8.6% 3.2% 14.2% The KEYW Holding Corporation (42.0%) % NM NM NM 16.5x 9.2% 8.2% NM NM NCI, Inc. 33.7% % 8.4% 7.0x 6.8x 6.7x (7.2%) 4.1% 7.3% 17.7% Median 0.0% $2,285.7 $1, % 8.7% 10.6x 10.3x 9.6x (7.2%) 4.1% (6.6%) 4.6% Defense Technology Harris Corporation 21.0% $15,640.1 $10, % 21.5% 12.7x 10.5x 9.9x (3.8%) 24.3% (5.0%) 22.1% L-3 Communications Holdings Inc. (5.3%) 13, , % 10.5% 11.0x 11.4x 10.2x (3.8%) (2.3%) (7.3%) (0.7%) Teledyne Technologies Inc. (13.7%) 3, , % 16.5% 10.1x 10.5x 9.7x 6.1% (0.6%) 10.3% 0.4% FLIR Systems, Inc. (13.1%) 3, , % 22.6% 10.8x 10.2x 9.4x 4.4% 4.2% (4.4%) 10.1% Cubic Corporation (10.2%) 1, , % 8.2% 10.3x 10.1x 9.0x 0.3% 2.4% (11.5%) 6.2% Kratos Defense & Security Solutions, Inc. (18.3%) % 6.5% 13.1x 12.7x 10.7x (5.4%) (8.9%) (23.6%) 0.3% Mercury Systems, Inc. 31.9% % 16.1% 14.5x 12.0x 10.6x (2.0%) 8.2% 25.2% 46.9% AeroVironment, Inc. 8.1% % 6.6% NM NM NM (8.9%) 7.3% (45.8%) 7.1% Median (7.8%) $2,499.2 $2, % 13.3% 11.0x 10.5x 9.9x (2.9%) 3.3% (6.2%) 6.6% Overall Median 3.8% $3,511.5 $2, % 9.9% 10.9x 10.6x 9.7x (2.0%) 3.3% (3.1%) 5.9% Quarterly Change in Consensus NTM EPS Estimate Q1 '15 Q2 '15 Q3 '15 Q4 '15-10% + -10% to -5% -5% to 0% 0% to 10% 10% to 25% 25% + Source: S&P Capital IQ 14

15 CYBERSECURITY: 2015 SELECTED TRANSACTIONS Date Closed Target Target Description Acquirer Pending Elastica, Inc. Provides cloud security solutions for businesses and their employees Blue Coat Systems Inc. Pending Secure Islands Technologies Provides information protection and control (IPC) solutions for data Microsoft Corporation Ltd. immunization on computer and mobile devices Pending McAfee Next-Generation Provide network firewall and intrusion prevention appliances and related Forcepoint Firewall and McAfee Firewall firewall security software for enterprises worldwide (Raytheon Websense) Enterprise Businesses Pending Diebold (Diebold Electronic Comprises web based tools and information software and electronic Securitas AB Security) security solutions business in North America Pending TippingPoint Technologies, Designs, manufactures, and markets network-based intrusion prevention Trend Micro Incorporated Inc. systems and appliances Pending Vormetric, Inc. Provides data security solutions that protect data-at-rest in physical, Thales e-security, Inc. virtual, big data, and cloud environments Pending EMC Corporation Provides information infrastructure and IT solutions, and services including Dell, Inc. enterprise storage systems and software Pending Voltage Security, Inc. Provides data protection, data-centric encryption, tokenization, and key Hewlett-Packard Company management solutions for combating security threats 12/22/15 Lancope, Inc. Develops network visibility and security intelligence solutions Cisco Systems, Inc. 12/16/15 Kount Inc. Develops fraud and risk management software solutions for companies that CVC Capital Partners have card-not-present (CNP) environments 12/14/15 SurfRight B.V. Develops online security software for the Windows platform Sophos Group plc 12/11/15 Cyveillance, Inc. Provides online threat intelligence solutions to protect network, customers, Lookingglass Cyber employees, information, and physical assets Solutions, LLC 12/9/15 Core Security Technologies, Provides enterprise vulnerability assessment and management, penetration Courion Corporation Inc. testing, and attack intelligence and analytics software 11/27/15 Fox-IT Group B.V. Provides managed security services, including threat intelligence, forensics, NCC Group (Solutions) online fraud detection, banking security, and incident response Limited 10/15/15 Viewfinity, Inc. Provides generation application control and privilege management CyberArk Software, Ltd. solutions for secure securing desktop, laptop, and server environments 10/15/15 Marvasol, Inc. (LastPass) Develops SaaS based password and data management services for LogMeIn, Inc. individuals and enterprises 10/13/15 RevelOps, Inc. Provides real-time elastic log management and analytics service Rapid7 LLC 10/5/15 Raytheon Foreground Provides real-time threat monitoring, identification, penetration testing and Raytheon Company Security forensics 9/16/15 Coalfire Systems, Inc. Provides cyber risk management and security strategy services to executives The Carlyle Group LP, and board-level decision makers globally The Chertoff Group 9/8/15 Adallom, Inc. Develops security solutions for sensitive and regulated data Microsoft Corporation 9/1/15 TrustWave Holdings, Inc. Provides on-demand data security and payment card industry compliance SingTel management solutions 8/26/15 OpenDNS, Inc. Provides Internet security and domain name system services to secure the Cisco Systems, Inc. networks used by people to connect to the Internet worldwide 8/17/15 Xceedium, Inc. Provides data protection and software monetization solutions CA, Inc. 6/8/15 IdmLogic LTD. Designs and develops identity and access governance (IAG) solutions CA, Inc. 5/29/15 Websense, Inc. Provides hosted anti-data leakage, intrusion detection and access control Raytheon Company SaaS to enterprises 5/26/15 Blue Coat Systems Inc. Provides enterprise cybersecurity, Web traffic management and mobile Bain Capital, LP device security systems and SaaS for businesses globally 5/22/15 ShieldArc Inc. Provides a cloud application security solution Palo Alto Networks, Inc. 5/12/15 Resolution1 Security, Inc. Designs incident resolution solutions for enterprises and governments Fidelis Cybersecurity 5/6/15 Privax Limited Provides virtual private network (VPN) and internet privacy solutions AVG Technologies N.V. 5/4/15 Fidelis Cybersecurity Provides network security hardware and software; specializing in data Marlin Equity Partners, LLC Solutions leakage prevention and cyber attack prevention 4/20/15 Simeio Solutions, LLC Offers enterprise identity and access management solutions Welsh, Carson, Anderson & Stowe 4/15/15 Courion Corporation Provides identity and access management (IAM) solutions to manage access K1 Investment Management risk and maintain compliance 4/2/15 Lacoon Security Ltd. Provides mobile cyber security solutions for enterprises Check Point Software 3/6/15 Emerging Threats Pro Designs and develops security software Proofpoint, Inc. 2/17/15 Hyperwise Security Ltd. Develops and markets an APT protection product, which is based on chip Check Point Software level sandboxing technology that can detect cyber attacks 1/7/15 SafeNet, Inc. Provides data protection and software monetization solutions to customers Gemalto NV across commercial enterprises and government agencies 1/2/15 Tripwire, Inc. Provides threat, security, and compliance solutions that enable enterprises, Belden Inc. service providers, and government agencies to detect, prevent, and respond to cyber threats Source: S&P Capital IQ, 451 Research 15

16 CYBERSECURITY: PUBLICLY TRADED COMPANIES The Cybersecurity sector experienced a volatile fourth quarter, closing with a median 0.7% increase in share price over the past 12 months, compared to 10.8% as of September 30, 2015 Share price decline among the Cybersecurity Sector is in-line with the overall public markets, which experienced significant volatility in Q4 Despite a dip in the overall markets, a number of Cybersecurity companies finished the year strong, including: Palo Alto Networks (+44%), Proofpoint (+35%), Imperva (+28%), and CyberArk Software (+14%) The Cybersecurity sector continues to yield premium valuations, supported by a median 6.69x EV / 2015E revenue multiple The increased demand for information security products and services continues to have significant positive impact on the topline of Cybersecurity companies, with a median revenue CAGR of 28% from E Growth via acquisition remains prevalent due to larger public companies seeking to a acquire innovation to bolster their technology portfolios Operating / Valuation Metrics ($ in millions, except price per share) 52-Week Enterprise Market LTM Margin Enterprise Value / Sales Revenue CAGR Cybersecurity % Change Value Cap. Gross EBITDA LTM 2015E 2016E '12 - '14 '14 - '16 Palo Alto Networks, Inc. 43.7% $15,235.7 $15, % NM 14.75x 13.69x 10.19x 51.1% 42.2% Check Point Software Technologies Ltd. 3.6% 13, , % 52.9% 8.70x 8.51x 7.88x 5.5% 8.4% Symantec Corporation (18.1%) 12, , % 28.2% 2.06x 2.06x 1.98x (1.7%) (1.8%) Splunk, Inc. (0.2%) 6, , % NM 11.67x 10.99x 8.36x 50.5% 35.9% Fortinet Inc. 1.7% 4, , % 6.6% 4.91x 4.57x 3.72x 20.2% 26.8% FireEye, Inc. (34.3%) 3, , % NM 5.25x 4.76x 3.47x 126.0% 43.7% Proofpoint, Inc. 34.8% 2, , % NM 11.40x 10.92x 8.62x 35.7% 29.1% Imperva Inc. 28.1% 1, , % NM 8.41x 8.26x 6.68x 25.4% 27.9% CyberArk Software, Ltd. 13.8% 1, , % 22.7% 9.43x 9.25x 6.97x 47.7% 38.3% Qualys, Inc. (12.3%) 1, , % 22.3% 7.08x 6.69x 5.39x 20.9% 24.0% Barracuda Networks, Inc. (47.9%) % 1.1% 2.76x 2.75x 2.37x NA 16.2% Rapid7, Inc. NA % NM 5.30x 5.08x 4.04x 29.2% 30.4% VASCO Data Security International Inc. (40.7%) % 22.1% 1.89x 2.00x 2.08x 14.4% 6.9% Median 0.7% $2,811.4 $2, % 22.3% 7.08x 6.69x 5.39x 27.3% 27.9% Quarterly Change in Consensus NTM EPS Estimate Q1 '15 Q2 '15 Q3 '15 Q4 '15-10% + -10% to -5% -5% to 0% 0% to 10% 10% to 25% 25% + Source: S&P Capital IQ 16

17 PUBLIC COMPANY INDEX PERFORMANCE National Security: Public Company Index Performance vs. S&P S&P 500 Defense Primes Federal IT Services Defense Technology Systems Cybersecurity: Public Company Index Performance vs. S&P S&P 500 NASDAQ Cybersecurity Source: S&P Capital IQ 17