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HW&Co. Industry Reader Templatewww.harriswilliams.com
Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which is private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number 7078852). Harris Williams & Co. Ltd is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business.
AEROSPACE, DEFENSE & GOVERNMENT SERVICES
INDUSTRY UPDATE JANUARY 2017
THE COMMERCIAL AEROSPACE AFTERMARKET IS POISED FOR CONTINUED GROWTH
Global
INCREASING PASSENGER AND CARGO TRAFFIC, RECORD AIRCRAFT UTILIZATION, AND DELAYS IN AIRCRAFT RETIREMENTS ARE DRIVING INCREASING MAINTENANCE DEMAND ACROSS ALL GENERATIONS OF THE FLEET
STRONG GLOBAL MRO DEMAND SUSTAINED GROWTH OVER THE NEXT DECADE
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
0
200
400
600
800
1000
1200
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
# of Retirements % of Installed Fleet
North America
By Segment By Region
2015 Global MRO Demand by Region 2015 Global MRO Demand by Region
40% 41%
$64.3B
Deliveries
HMVs forecasted to grow at
over 4% annually through 2024P
Aircraft Deliveries and First HMVs1
Sources: Airline Monitor, Boeing (RPM Growth), CapitalIQ (S&P 500), Airline Monitor (Cargo RTKS, RPMs, Global Fleet) 1) First HMVs calculated as five years after initial aircraft delivery
PASSENGER TRAFFIC IS RESILIENT WORLD AIR CARGO TRAFFIC
CONTINUES TO TREND UPWARD
150
175
200
225
250
Cargo RTKs (in billions)
0
500
1,000
1,500
2,000
2,500
0
5,000
10,000
15,000
0
20,000
40,000
60,000
1990 1994 1998 2002 2006 2010 2014 2018P 2022P 2026P 2030P 2034P
Global Fleet RPMs
Historical and Projected Global Fleet and Revenue Passenger Miles (1990-2035)
4.2% CAGR
4.0% CAGR
and several macroeconomic setbacks
1
PAGE |
$68.8
$78.8
Legacy
Aircraft
Sources: RBC Equity Research Global Aerospace & Defense 2015 Primer (Projected U.S. O&M Spend), Avascent (Aircraft MRO Spend)
2
AEROSPACE, DEFENSE & GOVERNMENT SERVICES
INDUSTRY UPDATE JANUARY 2017
DEFENSE AVIATION MRO IS EXPANDING GLOBALLY, DRIVEN BY INCREASED SPENDING BY THE U.S. DOD AND STRONG GROWTH IN ASIA, AFRICA AND THE MIDDLE EAST
U.S. DOD O&M BUDGETS ARE INCREASING ACROSS THE BOARD
$26+ BILLION BUDGET FOR DOD DEPOT MAINTENANCE
$248 $245 $251
Increased OPTEMPO for
fighters and bombers
$73.3
2015 – 2020P Projected Increase in Global Military MRO Spend
($ in billions) More than 75% of global growth expected in Asia, Africa and the Middle East
South America
MILITARY AIRCRAFT DELIVERIES (2015 – 2024)
GROWING INTERNATIONAL MILITARY AIRCRAFT MRO SPEND
($ in billions) ($ in billions)
military aircraft deliveries over the next decade
$4.9
Transport &
Difference in MRO Spend (2024 vs. 2015)
($ in billions)
Change 37% 21% 3% 23% 27% 12% 11% 13% 4%
PAGE |
AEROSPACE AFTERMARKET SERVICES PUBLIC AND M&A MARKETS REMAIN STRONG
While Trading
Aftermarket
ENTERPRISE VALUE / 2017E EBITDA
STOCK PRICE INDEX – LAST 12 MONTHS
10.6x 10.1x
9.0x 8.5x
Median: 7.5xMedian: 10.3xMedian: 9.0x
Aerospace Structural Components
Announced: September 2016 Closed: September 2016 Closed: August 2016 Closed: July 2016
Announced: July 2016 Closed: April 2016 Closed: January 2016 Closed: October 2015 Closed: July 2015
3
Woodward, Inc.
Wesco Air cr af t Hol di ngs, I nc.
Rockwel l Coll ins, Inc.
Est er line Technologies Cor p.
Bar nes Group, I nc.
Kaman Corp.
Magell an Aerospace Corp.
Spi ri t AeroSys tems Hol di ngs , I nc.
Tri umph Group, I nc.
GKN Plc
Honeywell I nt er nati onal, Inc.
Eat on Corp. Plc
AEROSPACE VALUATION AND M&A TRANSACTION DATA
STOCK PERFORMANCE AND TRADING MULTIPLES
AEROSPACE M&A ACTIVITY
AEROSPACE, DEFENSE & GOVERNMENT SERVICES
INDUSTRY UPDATE JANUARY 2017
Enterprise Value > $100 million
SELECT RECENT AEROSPACE M&A ACTIVITY
EV / CY 2017E EBITDA
CY2017E CY2017E CY2017E Current Market % of Stock Price
Rev enue EBITDA EBITDA MarginStock Price Cap 52-Wk High YoY Change
Bombardier $16,844 $988 5.9% $1.40 $4,563 66.1% 134.5%
Boeing 93,015 10,614 11.4% 147.02 97,710 91.8% 26.0%
Airbus 72,324 7,123 9.8% 61.27 53,591 86.6% 16.7%
Embraer 5,947 833 14.0% 5.07 4,050 65.9% (34.5%)
Arconic $12,187 $1,741 14.3% $20.18 $9,154 89.1% --
HEICO 1,467 351 23.9% 75.79 4,736 92.0% 45.6%
Zodiac Aerospace 5,620 484 8.6% 22.67 7,231 83.6% 51.6%
RBC Bearings 661 165 24.9% 82.00 2,185 86.3% 58.3%
TransDigm Group 3,547 1,691 47.7% 251.38 13,384 85.4% 15.0%
Woodward 2,099 369 17.6% 67.70 4,224 94.7% 52.3%
BBA Av iation 2,357 450 19.1% 3.28 3,628 92.1% 72.2%
B/E Aerospace 3,084 656 21.3% 59.03 6,234 96.0% 61.9%
Meggitt 2,476 538 21.7% 5.67 4,213 87.1% 23.9%
Astronics 669 115 17.2% 36.71 962 78.7% 15.2%
Hexcel 2,112 496 23.5% 49.24 4,663 89.3% 29.3%
Moog 2,447 316 12.9% 69.90 2,292 95.7% 21.5%
Wesco Aircraft 1,522 209 13.7% 13.95 1,470 88.4% 45.3%
Rockwell Collins 5,383 1,322 24.6% 88.24 11,696 91.4% 4.4%
Esterline Technologies 2,021 311 15.4% 84.85 2,506 89.6% 10.4%
Barnes Group 1,325 295 22.2% 45.62 2,527 91.4% 49.1%
Kaman 1,876 186 9.9% 48.89 1,348 92.5% 29.7%
KLX Aerospace 1,665 321 19.3% 39.37 2,468 81.4% 72.4%
AAR 1,914 165 8.6% 38.05 1,096 98.2% 33.5%
Heroux-Dev tek 352 61 17.2% 11.65 400 94.5% 14.5%
Safran 19,729 3,825 19.4% 67.82 29,999 91.0% 18.3%
Senior 1,185 157 13.2% 2.22 1,014 62.5% (6.8%)
Ducommun 561 62 11.0% 27.08 314 90.3% 116.2%
LMI Aerospace 377 47 12.5% 7.88 122 77.4% (6.0%)
Magellan Aerospace 790 139 17.5% 13.96 748 88.8% 13.0%
Spirit AeroSystems 6,895 1,114 16.2% 55.91 6,890 90.8% 26.7%
Triumph Group 3,530 493 14.0% 27.30 1,256 68.1% (22.1%)
GKN 11,563 1,327 11.5% 3.86 7,184 85.3% 21.4%
Ametek $3,933 $1,042 26.5% $47.61 $11,736 90.5% 5.9%
Parker-Hannifin 11,365 1,669 14.7% 137.23 19,263 93.8% 64.1%
Curtiss-Wright 2,168 432 19.9% 100.32 4,237 93.2% 41.0%
Honeywell 39,575 8,561 21.6% 112.21 89,976 93.5% 22.1%
Eaton 19,708 3,356 17.0% 65.54 30,625 93.6% 41.7%
United Technologies 58,880 10,568 17.9% 106.85 90,920 94.7% 29.0%
Crane 2,745 478 17.4% 74.40 4,261 94.3% 62.6%
Textron 14,256 1,684 11.8% 44.56 13,265 87.5% 31.4%
Rolls Royce 17,213 2,100 12.2% 8.20 15,740 71.3% 30.7%
General Electric 126,909 21,094 16.6% 30.87 276,273 93.5% 9.6%
Wesco Air cr af t Hol di ngs, I nc.
Est er line Technologies Cor p.
HEROUX-DEVTEK INC
Spi ri t AeroSys tems Hol di ngs , I nc.
Honeywell I nt er nati onal, Inc.
United Technologies Corp.
Jan-17 Ross Aviation Dulles FBO Aviation Serv ices and
Support Jet Aviation Group
Support
Support Rockwell Collins
and Related Proprietary
Hermetic Solutions Group
Support BBA Aviation
Dec-16 Scotia Technology Electromechanical, Power,
and Related Proprietary United Flexible (ACP)
Dec-16 Thompson Aero Seating Aircraft Interiors AVIC International Holding
Corporation
12
23
11
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
0
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
M e
d ia
n E
B ITD
A M
u ltip
Northr op Gr umman Corp.
Rayt heon Co.
The Boeing Co.
Hunt ingt on I ngall s I ndust ri es , I nc.
Air bus Group SE
Kratos Def ense & Securit y Sol ut ions , I nc.
Tel edyne Technol ogies, I nc.
Elbit Sys tems Ltd.
Ult ra Elect ronics Holdings Pl c
Harri s Cor p.
Cubi c Cor p.
Orbit al ATK, Inc.
DEFENSE VALUATION AND M&A TRANSACTION DATA
STOCK PERFORMANCE AND TRADING MULTIPLES
AEROSPACE, DEFENSE & GOVERNMENT SERVICES
DEFENSE M&A ACTIVITY SELECT RECENT DEFENSE M&A ACTIVITY
Enterprise Value > $50 million
EV / CY 2017E EBITDA
INDUSTRY UPDATE JANUARY 2017
CY 2017E CY 2017E CY 2017E Current Market % of Stock Price
Rev enue EBITDA EBITDA Margin Stock Price Cap 52-Wk High YoY Change
Lockheed Martin $49,603 $7,034 14.2% $263.42 $74,437 97.6% 17.6%
Northrop Grumman 25,050 3,838 15.3% 246.29 40,583 97.0% 25.0%
Raytheon 25,568 3,760 14.7% 146.10 43,172 95.8% 22.2%
General Dynamics 32,040 4,802 15.0% 168.43 53,592 93.5% 39.7%
Thales 16,684 2,027 12.2% 97.07 20,074 96.7% 29.4%
BAE Systems 24,451 2,845 11.6% 7.45 23,717 94.6% 17.2%
Boeing 93,015 10,614 11.4% 147.02 97,710 91.8% 26.0%
Huntington Ingalls 7,143 994 13.9% 176.20 8,853 89.3% 54.4%
Airbus 72,324 7,123 9.8% 61.27 53,591 86.6% 16.7%
Mercury Systems $380 $84 22.2% $30.36 $1,228 96.6% 76.9%
Kratos 705 54 7.7% 6.55 568 79.7% 149.1%
Teledyne Technologies 2,200 378 17.2% 121.71 4,291 94.1% 58.2%
Elbit Systems Holdings 3,193 410 12.9% 104.69 4,481 99.1% 26.7%
L-3 Communications 10,606 1,283 12.1% 152.11 11,480 93.9% 32.9%
FLIR Systems 1,714 407 23.7% 35.45 4,819 95.4% 13.2%
Ultra Electronics Holdings 1,014 187 18.5% 24.46 1,648 88.2% 1.8%
Harris 7,249 1,538 21.2% 103.90 12,533 96.6% 19.7%
Cubic 1,511 130 8.6% 44.20 1,281 87.4% 12.1%
Orbital ATK 4,588 706 15.4% 85.73 5,113 93.8% 1.9%
Cobham 2,529 449 17.8% 2.00 2,951 63.1% (38.9%)
Comtech Telecommunications 595 68 11.4% 11.47 254 45.7% (42.1%)
Chemring 598 95 15.9% 1.99 578 88.7% 9.1%
AeroVironment 291 24 8.3% 27.54 591 84.9% (2.9%)
Lockheed Mar ti n Cor p.
Northr op Gr umman Corp.
Rayt heon Co.
The Boeing Co.
Hunt ingt on I ngall s I ndust ri es , I nc.
Air bus Group SE
Kratos Def ense & Securit y Sol ut ions , I nc.
Tel edyne Technol ogies, I nc.
Elbit Sys tems Ltd.
Ult ra Elect ronics Holdings Pl c
Harri s Cor p.
Cubi c Cor p.
Orbit al ATK, Inc.
Announced
Engineering
Dec-16 Meggitt Target Systems Unmanned Systems QinetiQ Group
Dec-16 DRS Environmental Systems Tactical and Protection
Equipment and Systems HDT Global
Dec-16 Liquid Robotics Unmanned Systems Boeing
Nov-16 Prox Dynamics Unmanned Systems FLIR Systems
Nov-16 MacDonald Humfrey Homeland Security
Technologies and Systems L-3 Communications
Nov-16 Pacific Safety Products Tactical and Protection
Equipment and Systems Safariland
Munitions Nammo Group
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
0
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
M e
d ia
n E
B ITD
A M
u ltip
CY2017E CY2017E CY2017E Current Market % of Stock Price
Rev enue EBITDA EBITDA Margin Stock Price Cap 52-Wk High YoY Change
KEYW $315 $40 12.8% $12.95 $473 95.4% 129.4%
SAIC 4,607 353 7.7% 80.88 3,690 90.6% 94.1%
ManTech International 1,665 129 7.8% 43.34 1,549 95.2% 36.3%
Engility 2,126 189 8.9% 35.00 1,170 89.4% 8.0%
CACI International 4,217 369 8.7% 126.10 3,006 94.3% 40.6%
Booz Allen Hamilton 5,942 587 9.9% 35.60 5,359 92.4% 18.9%
Leidos 10,182 966 9.5% 49.45 7,491 83.2% (9.6%)
CSRA 5,182 900 17.4% 31.31 5,360 93.4% 14.1%
Vectrus 817 34 4.1% 21.96 253 62.8% 17.6%
NCI, Inc 333 30 8.9% 13.10 185 85.6% (2.1%)
Serco $3,751 $144 3.8% $1.70 $2,034 91.2% 75.4%
CGI 8,325 1,565 18.8% 48.29 14,875 95.4% 18.0%
Jacobs 10,909 668 6.1% 58.00 7,011 91.5% 54.1%
ICF 1,240 127 10.3% 52.60 1,017 88.3% 59.8%
AECOM 17,856 943 5.3% 37.02 5,539 90.9% 36.6%
Babcock International 6,756 876 13.0% 12.36 5,929 80.6% (0.6%)
Fluor 18,975 915 4.8% 52.25 7,377 90.4% 26.3%
KBR 4,597 327 7.1% 16.78 2,377 93.5% 13.7%
GOVERNMENT SERVICES VALUATION AND M&A TRANSACTION DATA
STOCK PERFORMANCE AND TRADING MULTIPLES
AEROSPACE, DEFENSE & GOVERNMENT SERVICES
Government Services
GOVERNMENT SERVICES M&A ACTIVITY SELECT RECENT GOVERNMENT SERVICES M&A ACTIVITY
Enterprise Value > $50 million
Median: 10.0x
($ in millions)
Jan-17 The Kemtah Group IT Serv ices and Consulting Belcan
Jan-17 Enlighten IT Consulting IT Serv ices and Consulting MacAulay-Brown
Dec-16 Veris Group Intelligence and
Cybersecurity Coalfire
Dec-16 Edaptive Systems IT Serv ices and Consulting ManTech International
Dec-16 Haystax Technology Intelligence and
Cybersecurity Fishtech Ventures
Technical Assistance Roper Technologies
Nov-16 The Radiant Group Intelligence and
Cybersecurity Digital Globe
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
0
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
M e
d ia
n E
B ITD
A M
u ltip
Energy, Power & Infrastructure
IndustrialsHealthcare & Life Sciences
UNITED STATES EUROPE
Boston One International Place Suite 2620 Boston, Massachusetts 02110 Phone: +1 (617) 482–7501
Cleveland 1900 East 9th Street 20th Floor Cleveland, Ohio 44114 Phone: +1 (216) 689–2400
Minneapolis 222 South 9th Street Suite 3350 Minneapolis, Minnesota 55402 Phone: +1 (612) 359–2700
Richmond (Headquarters) 1001 Haxall Point 9th Floor Richmond, Virginia 23219 Phone: +1 (804) 648–0072
San Francisco 575 Market Street 31st Floor San Francisco, California 94105 Phone: +1 (415) 288–4260
Washington, D.C. 800 17th St. NW 2nd Floor Washington, D.C. 20006 Phone: +1 202-207-2300
Frankfurt Bockenheimer Landstrasse 33–35 60325 Frankfurt Germany Phone: +49 069 3650638 00
London 63 Brook Street London W1K 4HS, England Phone: +44 (0) 20 7518 8900
NETWORK OFFICES
Services
Harris Williams & Co. has a broad range of industry expertise, which creates powerful opportunities. Our clients benefit from our deep–sector experience, integrated industry intelligence and collaboration across the firm, and our commitment to learning what makes them unique. For more information, visit our website at www.harriswilliams.com/industries.
OUR FIRM
Harris Williams & Co. (www.harriswilliams.com) is a preeminent middle market investment bank focused on the advisory needs of clients worldwide. The firm has deep industry knowledge, global transaction expertise, and an unwavering commitment to excellence. Harris Williams & Co. provides sell-side and acquisition advisory, restructuring advisory, board advisory, private placements, and capital markets advisory services.
Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which is private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number 7078852). Harris Williams & Co. Ltd is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business.
THIS REPORT MAY CONTAIN REFERENCES TO REGISTERED TRADEMARKS, SERVICE MARKS AND COPYRIGHTS OWNED BY THIRD-PARTY INFORMATION PROVIDERS. NONE OF THE THIRD-PARTY INFORMATION PROVIDERS IS ENDORSING THE OFFERING OF, AND SHALL NOT IN ANY WAY BE DEEMED AN ISSUER OR UNDERWRITER OF, THE SECURITIES, FINANCIAL INSTRUMENTS OR OTHER INVESTMENTS DISCUSSED IN THIS REPORT, AND SHALL NOT HAVE ANY LIABILITY OR RESPONSIBILITY FOR ANY STATEMENTS MADE IN THE REPORT OR FOR ANY FINANCIAL STATEMENTS, FINANCIAL PROJECTIONS OR OTHER FINANCIAL INFORMATION CONTAINED OR ATTACHED AS AN EXHIBIT TO THE REPORT. FOR MORE INFORMATION ABOUT THE MATERIALS PROVIDED BY SUCH THIRD PARTIES, PLEASE CONTACT US.
The information and views contained in this report were prepared by Harris Williams & Co. (“Harris Williams”). It is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. The information contained herein is believed by Harris Williams to be reliable, but Harris Williams makes no representation as to the accuracy or completeness of such information. Harris Williams and/or its affiliates may be market makers or specialists in, act as advisers or lenders to, have positions in and effect transactions in securities of companies mentioned herein and also may provide, may have provided, or may seek to provide investment banking services for those companies. In addition, Harris Williams and/or its affiliates or their respective officers, directors and employees may hold long or short positions in the securities, options thereon or other related financial products of companies discussed herein. Opinions, estimates and projections in this report constitute Harris Williams’ judgment and are subject to change without notice. The financial instruments discussed in this report may not be suitable for all investors, and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Also, past performance is not necessarily indicative of future results. No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams’ prior written consent.
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