aerospace, defense and government services second quarter 2013 · the mclean group | 7900 westpark...

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Aerospace, Defense and Government Services

Quarterly Industry Update

Second Quarter 2013

http://www.mcleanllc.com

1

Second Quarter 2013

% Change

Q1 2013 Q2 2013 YTD

Defense Prime Index 3.3% 12.6% 16.3%

Government Services Index 15.6% (0.4%) 15.0%

Defense Systems Index 3.7% 7.3% 11.3%

Middle Market D&G Services Index 12.9% 10.8% 25.1%

Large Cap Aerospace Index 12.0% 7.8% 20.7%

Mid Cap Aerospace Index 13.0% 7.8% 21.8%

Small Cap Aerospace Index 9.5% 17.8% 29.0%

S&P 500 10.0% 2.4% 12.6%

Quarterly Industry Snapshot

Source: Public Filings; Capital IQ as of 06/28/13

Notable Quarterly M&A Activity Capital Markets

TransDigm agreed to acquire Arkwin Industries for

$286 million (05/15/13)

PAE agreed to acquire CSC’s Applied Technology

Division (ATD) for $175 million (05/29/13)

Ultra Electronics acquired Varisys Limited (06/06/13)

Precision Castparts agreed to acquire Permaswage

(06/26/13)

Raytheon acquired Visual Analytics (06/27/13)

Industry News Quarterly Summary

Booz Allen Hamilton technician, Edward Snowden, leaked to The Guardian newspaper top secret information exposing PRISM, the

US government’s top secret defense program. The leaks revealed the US government’s interception of audio and video chats,

photographs, emails, documents and connection logs from US Service Providers.

The US Navy's X-47B became the first unmanned craft to fully execute both a catapult launch and a landing from an aircraft carrier

flight deck. The demonstrations took place aboard the USS George H.W. Bush off the Virginia coast.

Defense Secretary Chuck Hagel announced that the DoD would be implementing 11 furlough days for most civilian employees, one

day a week, starting July 8 and continuing through the September 30 fiscal year end. The DoD furloughs, while significantly less

severe than the 22 days originally planned, will save the department $1.8 billion.

IBM prevailed in its protest of the 10-year, $600 million CIA contract awarded to Amazon Web Services in January. The Government

Accountability Office (GAO) found that the CIA failed to evaluate prices comparably under one of the solicitation’s pricing scenarios,

waiving a requirement in the Request For Proposal only for Amazon. The GAO has advised that negotiations be reopened.

Orbital Sciences successfully launched its Antares rocket in a test flight, setting the stage for it to become the second commercially-

built spacecraft to transport supplies and astronauts to the International Space Station.

The first flight of Bombardier's new C-Series jet was delayed by a month to late July.

The next generation Airbus 350 made its maiden flight on June 14.

2

Second Quarter 2013

31

28

40

28

32

29

Q2 2013Q1 2013Q4 2012Q3 2012Q2 2012Q1 2012

53 42 4829

4746 45

30

4543

52

5951

74

2010 2011 2012 2013

Q1 Q2 Q3 Q4

Quarterly Aerospace Transaction Activity

M&A Analysis

TMG tracked 30 announced Defense and Government Services sector

transactions and 31 announced Aerospace sector transactions during

Q2 2013. Transaction activity in the Defense and Government

Services sector remains sluggish compared to prior years’ second

quarters. The M&A “hangover” experienced after a strong Q4 2012

continued into Q2 2013 and along with ongoing market uncertainty

dampened deal volume vs. prior quarters. However, signs of increased

activity began to surface in late Q2 2013. The number of announced

transactions increased monthly throughout the quarter with June

accounting for nearly double the announced transaction activity as

April (13 vs. 7). The tail end of Q2 2013 also saw increased M&A

activity from large primes, such as Raytheon and Ultra Electronics,

who had remained on the sidelines up until that point. During Q2 2013,

financial buyers accounted for 33% of Defense and Government

Services M&A activity vs. 38% in Q1.

Aerospace transactions in Q2 2013 were consistent with previous

quarters (not including Q4 2012) and occurred steadily throughout the

quarter. There were eight divestitures in Q2 2013 (26% of total

transaction activity). TransDigm continued its strong M&A activity with

three more acquisitions worth a combined $475 million, including a

$286 million purchase of Arkwin Industries. TransDigm spent $785

million in 2012 on its purchases of Amsafe and Aero-Instruments.

Arlington Capital’s newly acquired platform company, MB Aerospace,

made its first acquisition in June, purchasing aero-engine component

manufacturer Delta Industries for an undisclosed amount. In July,

Precision Castparts turned heads with its $600 million all-cash

purchase of Permaswage, a French designer and manufacturer of

aerospace fluid fittings. Notable transactions in the composite arena

included Triumph Group acquiring Primus Composites from Precision

Castparts and Rolls Royce acquiring Hyper-Therm HTC.

Defense and Government Services Transaction Activity

Source: InfoBase; Capital IQ as of 06/28/13

???

3

Second Quarter 2013 Industry Trends (Defense and Gov. Services)

Source: Public Filings; Industry Newswires and Capital IQ as of 06/28/13

Company Leadership Change

Andrew Teich succeeded Earl Lewis as

President & CEO of FLIR Systems.

Dave Schmitz was appointed as

President of Cubic Corporation.

QinetiQ North America appointed Gary

Slack as President, COO and Interim

CFO.

Lou Von Thaer was named President of

SAIC’s National Security Sector.

Former COO of BAE Systems, Larry

Prior, joined CSC as VP & GM of the

defense and intelligence group.

Sotera appointed Deborah Alderson as

President & CEO.

Significant Leadership Changes

The Snowden Effect

Following the signing of the Continuing Resolution (CR) by President Obama, contractors have

enjoyed improved visibility and accelerated contracting activity compared to the murky

uncertainty that highlighted Q1. While contractors have largely reported feeling insulated from

the sequester thus far, government officials maintain that firms will encounter the full effects of

the spending cuts. Defense Secretary Chuck Hagel warned a Senate subcommittee that

government contractors will shoulder some of the burden of sequestration in the near future, and

predicted a “sharp drop” in the number of contractors by the end of 2013. This follows Hagel’s

recent requirement to subtract an additional $37 billion from the DoD budget for the remainder of

fiscal year 2013. Due in part to improved visibility, 2013’s second quarter played host to a number of leadership

changes amongst the nation’s largest government contracting firms. Most notably, Sotera

Defense Solutions appointed Deborah Alderson as President & CEO, and Cubic Corporation

named Dave Schmitz the successor to Brad Feldmann as president of Cubic Defense

Applications. The multitude of leadership changes is due to a number of factors; however, the

turnover of executives largely signals the need for firms to adjust their strategic positioning to

adapt to federal spending cuts.

Likely the most publicized event of Q2 was Booz Allen

Hamilton technician Edward Snowden’s leak of top-secret

NSA documents to The Guardian newspaper. The leak

revealed the interception of US and European telephone

metadata and the PRISM and Tempora Internet surveillance

programs. The long-term impact of Snowden’s disclosures on national

security and government contractors within the Intelligence

Community (IC) remains unclear. However, Intelligence

agencies have detected that members of targeted militant

organizations have begun altering communications patterns

in what is believed to be a direct response to Snowden.

Meanwhile, despite fear that Snowden's disclosures could

create momentum on Capitol Hill to review the use of

contractors, attention has instead been directed at the

processes used to issue security clearances. -8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

Jun 3, 2013 Jun 8, 2013 Jun 13, 2013 Jun 18, 2013 Jun 23, 2013 Jun 28, 2013

Booz Allen Hamilton S&P 500 TMG Defense & Government Servies Index

Wed, Jun 5: The Guardian publishes Snowden's leak.

Thur, Jun 6: A second story reveals the

existence Prism.

Sat, Jun 8: Snowden's leaks details of NSA tool Boundless Informant.

Sun, Jun 9: Snowden goes public with a

video interview.

Wed, Jun 12: South China Morning Post publishes the first interview with Snowden

since he revealed his identity.

Fri, Jun 14: The Home Office prohibits Snowden from boarding any flights to

the UK.

Thur, June 20: Top secret documents published show how the NSA makes use of information "inadvertently" collected from

domestic US communications without a warrant.

Fri, Jun 21: The US files espionage charges against Snowden.

Sun, Jun 23: Snowden leaves Hong Kong on a

flight to Moscow.

TMG Custom Index

4

Second Quarter 2013 Industry Trends (Aerospace)

Source: Public Filings; Industry Newswires and Capital IQ as of 06/28/13

6/30/2013 A320 Family A330/A340/A350 A380

5,109 4,014 938 157

Company as of Unfilled Orders by Aircraft Model Totals

6/30/2013 737 747 767 777 787

4,757 3,445 53 56 339 864

The Aerospace industry’s focus is shifting to commercial markets, driven by defense budget cuts and an improving commercial growth

forecasts. In June the International Air Transport Association (IATA) increased its 2013 profit forecast for the global airline industry from

$10.6 billion to $12.7 billion, representing a 67% jump from 2012 profit of $7.6 billion. Faced by improved growth prospects and recent

mergers, airlines around the globe are looking to invest in more energy and cost efficient aircraft. In June, Boeing announced new

investments in its Commercial Airplanes business, including the planned establishment of engineering design centers in Washington, South

Carolina, and Southern California. Boeing also released commercial aviation projections of 34,000 new airplanes estimated at $4.5 trillion

over the next 20 years. Meanwhile, squadrons of military aircraft were grounded through most of Q2 and the F-35 faces added delays and

potential cuts. Aircraft backlog for both Airbus and Boeing continued to expand and Airbus saw its backlog climb by 161 planes in Q2, driven by demand for

its A320 family. Boeing’s backlog grew by 312 aircraft, boosted by 320 new 737 orders. A growing demand for wide-body planes means

Boeing’s 787-10X and 777-8X/9X and Airbus’ A350 will likely benefit the most from the upcoming wave of orders for long-haul capacity.

Aircraft operators’ demand for greater cost and energy efficiency is increasingly being met by advances in propulsion and composite

materials. Innovations are creating stronger, lighter, and more fuel-efficient components offering overall efficiencies that encourage operators

to retire older aircraft and equipment earlier than scheduled. At the Paris Air Show (PAS) Pratt & Whitney’s new Geared Turbofan Advanced

(GTF) added 1,000 engines to its order backlog. The GTF burns 15% less fuel, 5% of which is due to the new gear and the other 10% due to

materials and component efficiency. CFM International, a joint venture by General Electric and Snecma, is utilizing carbon-fiber, ceramic-

matrix composites and other advanced materials to create fuel-burn improvements in conventional turbofans. At PAS CFM announced that

its Leap-1A engine has up to 3% lower specific fuel consumption than the GTF due to advances such as 3-D woven composite fan blades,

compressor variable bleed valves, and an uncooled ceramic matrix composite turbine shroud. Likewise, OEMs are developing lighter and stronger airframes with composite materials. Composite have quickly overtaken metallic

applications on commercial aircraft, growing from just an average of 4-6% composite content by weight in the 1980s to 50+% on both the

Airbus 350 XWB and the Boeing 787. The Airbus 350’s fuselage panels, frames, window frames, clips, and door are made from carbon fiber

reinforced plastic (CFRP), with a hybrid door frame structure consisting of CFRP and titanium. Boeing’s 787’s airframe is nearly 50% carbon

fiber reinforced plastic and other composites, resulting in 20% less weight than the conventional aluminum design. On the defense side,

Lockheed Martin’s F-35 Joint Strike Fighter is manufactured with 40+% composite materials. Overall, the aerospace market for composite

materials is projected to continue its expansion from an estimated $2.3 billion in 2013 to $4.1 billion in 2016.

A350 XWB 787 F-35

50+% Composites* 50+% Composites* 40+% Composites*

*Percent composite estimated as ratio of the aircrafts’ structural weight.

5

Second Quarter 2013

Company Quarter

Ending Revenue EPS

3/31/2013 -1.8% 8.0%

3/29/2013 6.2% 8.2%

3/31/2013 7.2% 14.2%

3/31/2013 2.4% 18.7%

3/31/2013 3.3% 21.9%

3/31/2013 2.1% 8.8%

3/31/2013 -2.7% 0.0%

3/29/2013 -3.8% 60.2%

3/31/2013 0.1% -6.9%

5/3/2013 4.8% -8.0%

3/31/2013 9.0% 59.4%

3/31/2013 -1.9% 4.5%

3/31/2013 -4.0% -2.8%

3/29/2013 -0.4% 0.0%

3/31/2013 3.6% 8.1%

3/31/2013 0.1% 0.0%

3/31/2013 2.4% 8.5%

3/31/2013 3.5% 100.0%

3/31/2013 6.7% -125.0%

3/31/2013 11.7% 87.5%

3/31/2013 -10.5% -13.2%

Most Recent Quarterly Financial Results (Defense and Gov. Services)

Most Recent Quarterly Earnings Suprise1


Defense Prime IndexDefense Systems IndexGovernment Services IndexMiddle Market Index

Most Recent Quarterly Earnings Suprise1

1Earnings Surprise is calculated as the difference of a Company’s most recent

quarterly financial results from Capital IQ analyst consensus estimates

GD

Raytheon

Teledyne

Harris

Northrop

L-3Booz

CACI

FLIR

DRCO

ManTech

ICFExelis

SAIC

-25.0%

25.0%

-7.0% 7.0%

EPS

Revenue

VSE

CSC

KEYW

Kratos

Lockheed

Cubic

NCIT

-25.0%

25.0%

-7.0% 7.0%

EPS

Revenue

VSE

CSC

KEYW

Kratos

Lockheed

Cubic

NCIT

-25.0%

25.0%

-7.0% 7.0%

EPS

Revenue

VSE

CSC

KEYW

Kratos

Lockheed

Cubic

NCIT

-25.0%

25.0%

-7.0% 7.0%

EPS

Revenue

VSE

CSC

KEYW

Kratos

Lockheed

Cubic

NCIT

-25.0%

25.0%

-7.0% 7.0%

EPS

Revenue

VSE

CSC

KEYW

Kratos

Lockheed

Cubic

NCIT

-25.0%

25.0%

-7.0% 7.0%

EPS

Revenue

VSE

CSC

KEYW

Kratos

Lockheed

Cubic

NCIT

-25.0%

25.0%

-7.0% 7.0%

EPS

Revenue

6

Second Quarter 2013

PCP

Boeing

Gilat

Hexcel

Spirit AeroSystems

B/E

Triumph

LMI

Rockwell Collins

HEICO

UTCAmetek

Esterline

Curtis-Wright

Textron

Bombardier

Moog

-20.0%

20.0%

-5.0% 5.0%

EPS

Revenue

Company Quarter

Ending Revenue EPS

3/31/2013 1.6% 6.3%

3/31/2013 4.3% 8.7%

3/31/2013 0.4% 17.7%

3/31/2013 4.5% 0.0%

3/31/2013 0.0% 2.5%

3/31/2013 0.2% 0.0%

3/30/2013 -1.1% -11.1%

3/31/2013 -3.5% 6.9%

5/31/2013 NA NA

3/31/2013 4.6% -2.2%

4/26/2013 -1.6% -10.4%

3/31/2013 -0.1% 2.4%

3/31/2013 -0.3% -2.4%

3/31/2013 -5.0% 32.0%

3/28/2013 2.4% 18.8%

3/31/2013 4.6% 5.7%

4/30/2013 5.5% -42.9%

3/30/2013 6.6% 33.3%

2/28/2013 20.7% NA

3/31/2013 -7.4% -88.2%

3/31/2013 -3.7% 0.0%

4/30/2013 3.8% 10.0%

3/31/2013 -1.7% -9.1%

3/31/2013 5.8% 14.8%

Most Recent Quarterly Financial Results (Aerospace)

Most Recent Quarterly Earnings Suprise1 Most Recent Quarterly Earnings Suprise1

1Earnings Surprise is calculated as the difference of a Company’s most recent

quarterly financial results from Capital IQ analyst consensus estimates Source: Public Filings; Capital IQ as of 06/28/13

Digital Globe

Orbital

AeroVironment

Wesco

Astronics

-20.0%

20.0%

-5.0% 5.0%

EPS

Revenue

Digital Globe

Orbital

AeroVironment

Wesco

Astronics

-20.0%

20.0%

-5.0% 5.0%

EPS

Revenue

Digital Globe

Orbital

AeroVironment

Wesco

Astronics

-20.0%

20.0%

-5.0% 5.0%

EPS

Revenue

Digital Globe

Orbital

AeroVironment

Wesco

Astronics

-20.0%

20.0%

-5.0% 5.0%

EPS

Revenue

Digital Globe

Orbital

AeroVironment

Wesco

Astronics

-20.0%

20.0%

-5.0% 5.0%

EPS

Revenue

Large Cap Aerospace IndexMid Cap Aerospace IndexSmall Cap Aerospace Index

7

Second Quarter 2013

PCP AME BEAV UTX BA COL TXT BBD.B HXL MOG.A ESL TGI CW ORB AIR SPR AVAV DGI WAIR HEI ATRO GY LMIA

12.2x 11.2x12.7x 9.6x 8.6x9.2x 7.7x 7.6x 10.7x 7.9x7.9x 6.6x7.3x7.4x 6.0x 5.6x 38.9x 14.2x 11.5x11.7x 11.0x 9.6x 7.4x

LLL RTN LMT GD NOC SAI BAH CACI MANT CSC TDY FLIR CUB HRS XLS KEYW KTOS ICFI DRCO VSEC NCIT

7.6x 7.1x 7.1x 6.7x 6.4x 7.2x 7.1x 6.6x 5.5x 3.6x 10.5x 9.8x 9.2x 6.7x 5.1x 15.9x 8.5x 7.6x 5.4x6.2x 6.0x

Public Market Valuations: EV/2013E EBITDA Multiples


Defense and Government Services

Defense Prime Index Government Services Index Defense Systems Index Middle Market Index

Aerospace

Large Cap Aerospace Index Mid Cap Aerospace Index Small Cap Aerospace Index

Average: 7.4x

Median: 7.1x

Average: 10.5x

Median: 9.2x

Average: 7.0x Average: 6.0x Average: 8.3x Average: 8.3x

Average: 9.9x Average: 7.4x Average: 13.9x

8

Second Quarter 2013

21.8%

33.7%

28.0%25.1%

17.9%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Jun 2012 Jul 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013 May 2013 Jun 2013

Defense Prime Index Government Services Index

Middle Market Defense & Government Services Index Defense Systems Index

S&P 500 Index

Defense

Systems Index 92% 99% 99% 94% 98%

Defense Prime

Index 99% 97% 99% 98% 96%

Capital Markets: Overview (Defense and Gov. Services)

Last 52 Weeks Custom Index Performance

Government

Services Index 90% 97% 87% 92% 89%

Middle Market

Index 76% 99% 81% 96% 52% 99%

Index Constituents and Stock Price as a % of 52 Week High


9

Second Quarter 2013

29.3%

21.2%

46.5%

17.9%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%


Large Cap Aerospace Index Mid Cap Aerospace Index Small Cap Aerospace Index S&P 500 Index

Capital Markets: Overview (Aerospace)

Last 52 Weeks Custom Index Performance

Large Cap

Aerospace

Index 96% 95% 98% 94% 100% 94% 83% 95%

Mid Cap

Aerospace

Index 99% 99% 91% 95% 98% 93% 83% 97%

Small Cap

Aerospace

Index 76% 99% 96% 97% 90% 95% 81% 98%

Index Constituents and Stock Price as a % of 52 Week High


10

Second Quarter 2013

(17.9%)

(14.5%)

(11.1%)

(6.5%)

(2.8%)

(1.4%)

2.4%

2.8%

3.7%

6.0%

6.3%

9.7%

11.1%

12.4%

12.5%

12.6%

15.8%

18.0%

26.6%

28.8%

29.3%

64.3%

(40%) (20%) 0% 20% 40% 60% 80%

KEYW

NCI

CSC

Dynamics Research

ManTech

Teledyne

S&P 500

SAIC

FLIR

L-3

Harris

CACI

General Dynamics

Lockheed

Raytheon

Cubic

ICF

Northrop

Exelis

Kratos

Booz

VSE

Second Quarter 2013

(4.1%)

0.0%

2.2%

11.0%

11.4%

13.7%

14.9%

15.4%

15.8%

16.8%

17.7%

17.9%

18.8%

24.6%

25.5%

29.8%

32.0%

32.2%

38.3%

39.9%

72.6%

76.3%

(25%) 0% 25% 50% 75% 100%

Dynamics Research

Cubic

NCI

Kratos

ManTech

Booz

SAIC

CACI

L-3

Raytheon

Harris

S&P 500

General Dynamics

Lockheed

Teledyne

Northrop

KEYW

ICF

FLIR

Exelis

VSE

CSC

Last 52 Weeks

Capital Markets: Stock Performance (Defense and Gov. Services)

Defense Prime Index Government Services Index Defense Systems Index

Middle Market Defense & Government Services Index S&P 500 Index


11

Second Quarter 2013 Capital Markets: Stock Performance (Aerospace)

Large Cap Aerospace Mid Cap Aerospace Small Cap Aerospace Index


(12.6%)

(9.9%)

(4.5%)

(2.6%)

(2.4%)

(0.5%)

0.5%

0.8%

2.4%

4.1%

4.6%

6.8%

7.3%

11.3%

12.4%

13.1%

16.0%

16.1%

17.4%

19.2%

19.3%

19.5%

22.3%

26.2%

37.1%

(25%) 0% 25% 50%

Textron

LMI Aerospace

Esterline

Gilat

Ametek

UTC

Rockwell Collins

Triumph

S&P 500

Orbital Sciences

B/E Aerospace

Curtis-Wright

DigitalGlobe

AeroVironment

Moog

Spirit AeroSystems

HEICO

Bombardier

Hexcel

Precision Castparts

Boeing

AAR

GenCorp

Wesco Aircraft Holdings

Astronics

Second Quarter 2013

(23.3%)

(9.9%)

4.7%

7.8%

15.9%

16.4%

17.9%

19.4%

23.1%

24.6%

27.1%

27.5%

28.5%

32.0%

34.4%

37.4%

37.9%

40.7%

44.5%

44.7%

45.9%

63.1%

77.7%

104.6%

149.8%

(60%) 0% 60% 120% 180%

AeroVironment

Spirit AeroSystems

Textron

LMI Aerospace

Esterline

Bombardier

S&P 500

Curtis-Wright

UTC

Moog

Ametek

HEICO

Rockwell Collins

Hexcel

Orbital Sciences

Precision Castparts

Boeing

Triumph

B/E Aerospace

Astronics

Wesco Aircraft Holdings

AAR

Gilat

DigitalGlobe

GenCorp

Last 52 Weeks

12

Second Quarter 2013

2.7%

2.1%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%


Defense and Government Services Aerospace

Short Interest (Aerospace, Defense and Gov. Services)

Last 52 Week Median Short Interest

Defense and Government Services

1.5% 5.1% 2.0% 3.3% 1.4% 1.9% 19.2% 2.8%

9.4% 9.2% 0.2% 2.7% 14.2% 7.5% 0.2% 1.4%

1.9% 0.9% 2.8% 4.0% 1.4%

Aerospace

0.4% 1.6% 1.3% 0.0% 1.0% 5.1% 2.6% 0.6%

2.5% 2.0% 1.5% 5.0% 2.1% 2.6% 1.2% 2.5%

8.7% 1.9% 22.2% 3.5% 0.0% 4.1% 4.2% 1.6%

Short Interest as of June 28, 2013


13

Second Quarter 2013

Defense Systems Index

3x LTM EBITDA $445.4 $2,073.0 $1,102.0 $3,150.0 $1,017.3

Less LT Debt 78.0 649.0 248.4 1,925.0 698.7

Plus Cash 148.6 185.0 246.0 459.0 49.0

Dry Powder $516.0 $1,609.0 $1,099.6 $1,684.0 $367.6

Middle Market Defense & Government Services Index

3x LTM EBITDA $88.0 $273.0 $82.8 $313.2 $53.9 $212.9

Less LT Debt 96.7 86.7 96.4 647.2 26.0 155.1

Plus Cash 0.0 4.5 3.1 51.6 0.9 1.4

Dry Powder ($8.7) $190.8 ($10.5) ($282.4) $28.8 $59.3

Defense Prime Index

3x LTM EBITDA $11,133.0 $4,761.0 $15,852.0 $10,779.0 $10,020.0

Less LT Debt 3,909.0 3,651.0 6,304.0 3,942.0 4,731.0

Plus Cash 3,745.0 276.0 3,065.0 3,183.0 3,125.0

Dry Powder $10,969.0 $1,386.0 $12,613.0 $10,020.0 $8,414.0

Government Services Index

3x LTM EBITDA $1,572.7 $1,005.4 $5,998.5 $602.6 $2,616.0

Less LT Debt 1,715.2 687.8 2,732.0 200.0 1,298.0

Plus Cash 350.4 56.3 2,054.0 172.3 563.0

Dry Powder $207.9 $373.9 $5,320.5 $574.9 $1,881.0

Dry Powder Calculations (Defense and Gov. Services)

($ millions)


14

Second Quarter 2013

Mid Cap Aerospace Index

3x LTM EBITDA $656.1 $844.1 $1,038.6 $882.6 $1,030.0 $480.2 $466.2 $2,039.3

Less LT Debt 722.8 999.2 779.4 273.9 817.5 148.9 1,176.7 1,329.9

Plus Cash 47.4 118.8 169.2 18.3 149.8 199.4 313.1 32.0

Dry Powder ($19.3) ($36.3) $428.3 $627.0 $362.3 $530.8 ($397.4) $741.5

Small Cap Aerospace Index

3x LTM EBITDA $44.2 $124.9 $197.7 $655.2 $95.2 $597.3 $132.7 $544.9

Less LT Debt 0.0 28.1 707.4 1,146.4 47.6 228.5 279.0 603.6

Plus Cash 75.3 17.8 134.6 273.7 71.5 16.9 0.8 53.9

Dry Powder $119.5 $114.6 ($375.1) ($217.5) $119.1 $385.7 ($145.5) ($4.9)

Dry Powder Calculations (Aerospace)

Large Cap Aerospace Index

3x LTM EBITDA $2,609.0 $1,977.9 $23,385.0 $3,231.0 $7,159.5 $3,168.0 $4,023.0 $30,156.0

Less LT Debt 1,323.7 1,960.1 9,171.0 7,257.0 3,807.2 1,158.0 3,740.0 22,824.0

Plus Cash 177.3 531.5 8,335.0 3,733.0 280.2 337.0 701.0 4,767.0

Dry Powder $1,462.6 $549.3 $22,549.0 ($293.0) $3,632.5 $2,347.0 $984.0 $12,099.0

($ millions)


15

Second Quarter 2013 Announced M&A Transactions (Defense and Gov. Services)

Source: Capital IQ and InfoBase as of 06/28/13

Announced Announced Closed

April 2, 2013 April 9, 2013 April 16, 2013

Notes Notes Notes

EOIR Technologies, a portfolio

company of The White Oak Group,

announced it will acquire Viecore

Federal Systems Division (FSD), a

wholly owned subsidiary of Nuance

Communications. Viecore FSD

specializes in the design,

development, and support of

advanced decision support

technologies and data

management systems, from

prototype through production.

Braxton Technologies and its

parent company, The O’Neil Group

Co., have agreed to acquire Net-

Centric Design Professionals. Net-

Centric is a 50 employee, Boulder-

based engineering company

specializing in cyber security and

systems integration.

Haystax Technology, an

Edgewater Funds portfolio

company, acquired Digital

Sandbox, which provides threat

and risk analysis and monitoring

software to National Security and

Homeland Security customers.

Federal, State and Local agencies

use Digital Sandbox products to

quantify and monitor natural and

man-made threats and to allocate

resources based on threat and risk

priorities.

will acquire will acquire has acquired

Viecore Federal Systems Division

16


Closed Closed Closed

April 16, 2013 April 17, 2013 May 7, 2013

Notes Notes Notes

Global Secure Networks, an

investor group led by Bob Roe,

acquired TrustComm, which

provides satellite-based

telecommunication services to

energy, enterprise and government

industries, and also to disaster

recovery agencies worldwide.

Bohemia Interactive Simulations, a

Riverside Company portfolio firm,

acquired TerraSim which provides

commercial products enabling the

rapid production of correlated

terrain for visual, constructive and

serious game simulation systems.

This is Riverside’s first bolt-on

acquisition since acquiring

Bohemia in December 2012.

Haystax Technology, an

Edgewater Funds portfolio

company, acquired FlexPoint

Technology, a professional

services company providing private

and public cloud solutions that

deliver secure collaboration and

application development

capabilities for secure

environments. The acquisition

extends Haystax’s defense and

intelligence market product and

service offerings and is its second

acquisition in three weeks.

has acquired has acquired has acquired

Global Secure Networks


17



May 8, 2013 May 15, 2013 May 17, 2013

Notes Notes Notes

Inmarsat acquired Australian

satellite communications specialist

TC Communications. TC

Communications designs and

manufactures optical

communications equipment and

currently offers more than 60

different networking products. The

Company will be integrated into

Inmarsat’s existing operations with

a particular focus on supporting its

expanding global government and

enterprise business units.

The SI Organization (the SI)

acquired Applied Communication

Sciences (ACS), a provider of

applied research, technical

consulting and technology

solutions to US defense and

intelligence agencies, US civil

government organizations and

commercial customers. ACS was

the research and engineering arm

of Telcordia Technologies and was

established to mitigate US

government concerns arising from

Ericsson’s acquisition of Telcordia.

Cassidian CyberSecurity, a

business unit of EADS N.V.

acquired Arkoon Network Security.

Akroon is major European

provider of network security,

information systems protection and

data confidentiality services.

Arkoon Network Security employs

80 staff and achieved sales of 13

million Euros in 2012.



18


Closed Announced Closed

May 21, 2013 May 29, 2013 May 30, 2013

Notes Notes Notes

Subsystems Technologies

acquired Alapko, a provider of

program support and technology

solutions to the intelligence

community. Alapko specializes in

cyber security and budgetary

analysis solutions. The acquisition

expands Subsystems’ technical

capabilities, allowing it to detect

threats to the federal government

with greater precision. Alapko will

be a wholly owned subsidiary of

Subsystems.

PAE entered into an agreement

with Computer Sciences

Corporation to purchase its Applied

Technology Division. The Applied

Technology Division has about

5,400 employees who provide

aviation maintenance, base

operations and maintenance, and

space range support for the US

government. This acquisition will

add military and space testing and

training services to PAE’s portfolio.

Deloitte has acquired nearly all the

assets of Vigilant, which

specializes in security monitoring

and cyber threat intelligence. The

acquisition will greatly increase

Deloitte’s capacity to serve high-

risk industries including financial

services, aerospace and defense,

technology, and energy. The two

firms will now work under the

Vigilant by Deloitte brand.

has acquired will acquire has acquired

Applied Technology Division


http://www.deloitte.com/view/en_US/us/index.htm

19



June 3, 2013 June 3, 2013 June 4, 2013

Notes Notes

InfoTrust Group acquired Flatirons

Solutions, a firm that specializes in

consulting and systems integration

for content-heavy and regulatory-

driven industries. The acquisition

will expand InfoTrust’s range of

solutions and allow it to help

organizations across a wider array

of industries and expand their

business into Europe and Asia.

Quantum Research International

acquired J2 Technologies, a

defense engineering services

company. J2 Technologies

specializes in aviation and missile

defense architecture, defense

technology assessments, software

and prototype development, and

integration support. The deal will

expand Quantum's current portfolio

of prime contracts in the areas of

space operations, cyber security

and intelligence agencies support.

Information Innovators acquired

GoldBot Consulting, a software

development company known for

its data mining and information

analytics. The deal will widen

Information Innovators’ array of

solutions and allow it to move into

web services and predictive

intelligence. Information Innovators

will also be benefited by GoldBot’s

highly-trained system engineers

and program managers who

specialize in geospatial information

systems and predictive analysis.



http://www.flatironssolutions.com/

http://www.j2tec.com/index.html

http://www.iiinfo.com/

http://www.google.com/url?sa=i&rct=j&q=&source=images&cd=&cad=rja&docid=Nxtye_9Dn5IksM&tbnid=c9AHG5ZZFJb3BM:&ved=0CAUQjRw&url=http://www.ibm.com/software/data/bigdata/business-partners-profiles-si.html&ei=p_CwUb_ML-O9yQGoyoCoBg&bvm=bv.47534661,d.aWc&psig=AFQjCNGRHwR488dhyFFp7ReKw-4VKthLuA&ust=1370636836992308

20



June 5, 2013 June 17, 2013 June 18, 2013

Notes Notes Notes

Ultra Electronics has acquired

Varisys Limited for an initial cash

payment of £16.0 million, with the

possibility of another £2.0 million

based on performance over the

next two years. Varisys designs

and manufactures products for

embedded computing applications.

It serves clients in the aerospace,

telecommunications, defense, and

industrial sectors. The acquisition

will increase Ultra’s presence in the

highly specialized electronic

markets.

Nippon Telegraph and Telephone

Corporation (NTT) agreed to

acquire Solutionary, a managed

security services provider based in

Omaha, NE. Solutionary

specializes in managed security

services, global threat intelligence,

and protecting mobile data. The

acquisition expands NTT’s

cybersecurity and information and

communications technology

capabilities.

System Development Integration

(SDI) acquired i-sys Corporation.

i-sys specializes in integrated

security management systems,

end-to end building automation

(lighting, HVAC and energy

management), mechanical

services, and advanced fire safety

systems. The acquisition extends

SDI's service network coverage

throughout the US, while adding

technical expertise in markets with

concentrated critical infrastructure

protection needs.

has acquired will acquire has acquired


http://www.varisys.co.uk/

21



June 21, 2013 June 25, 2013 June 27, 2013

Notes Notes Notes

ATK entered into an agreement to

acquire Caliber Company, the

parent company of Savage Sports

Corporation. Savage is one of the

world's largest manufacturers of

hunting rifles and shotguns. The

acquisition would expand ATK's

portfolio offering by adding long

guns to its leading brands in

commercial and security

ammunition, shooting sports and

security-related accessories.

CPI International acquired MCL,

Inc., a manufacturer of power

amplifier products and systems for

the satellite communications

market and a wholly owned

subsidiary of MITEQ, Inc. The

transaction will allow CPI to extend

the distribution of MCL, Inc’s range

of high-power satcom amplifier

products to its global customer

base.

Raytheon acquired Visual Analytics

Incorporated, a firm that

specializes in data analytics, data

visualization and information

sharing. The transaction will add

advanced analytic products and

knowledge management solutions

with intuitive user interfaces to

Raytheon's offerings and will

further broaden the Company's

customer base in federal, state and

local law enforcement.



http://www.raytheon.com/

http://www.visualanalytics.com/

22

Second Quarter 2013 Announced M&A Transactions (Aerospace)



Notes Notes Notes

US aircraft fuel tank systems

maintenance company, North

American Aircraft Services (NAAS)

acquired Usher Aviation. Founded

in 2007, Usher specializes in

maintenance of all general aviation

piston engine aircraft. The

acquisition is part of NAAS’s effort

to create a new strategic corporate

headquarters in Shannon, Ireland

to manage its Europe, Middle East,

and Africa operations.

MidOcean Partners and co-

investors acquired "a significant

equity position" in Noranco Inc.

from Bedford Capital. Based in

Canada, Noranco supplies

complex machined and sheet

metal components, kits, and

assemblies for mission-critical

landing gear, aerostructure, and

aircraft engine applications.

Noranco has 650 employees and

five North American plants, three in

Canada and two in Arizona.

The former management team of

GMV USA acquired GMV’s

business activities in the US

Institutional Aerospace market.

The resulting entity, MetiSpace

Technologies, Inc., is an

independent, woman-owned small

business with an exclusive

agreement to be the reseller of

GMV’s products for satellite ground

control and mission planning for

the US Institutional Aerospace

market.

has acquired has acquired a stake in has spun off


23


Closed Closed Announced


Notes Notes Notes

Cornerstone Capital, a middle-

market investment firm, acquired

Keystone Engineering from UTC

Aerospace Systems. Keystone

designs and produces satellite

propellant tanks, launch vehicle

domes, and other space support

products. Keystone also services

warning and control systems for

aircraft. Keystone is Cornerstone’s

fourth investment in the aerospace

industry.

DigitalGlobe acquired Tomnod, a

small company that analyzes

imagery through crowdsourcing

software. Tomnod's Global Insight

software allows Internet users to

plot information on satellite pictures

and create geospatial databases

with the satellite pictures.

PPG Industries announced it will

acquire Deft. Based in California,

Deft is a privately held provider of

specialty coatings to the

commercial and military aerospace

industries as well as general

industrial markets.

has acquired has acquired will acquire


24

Second Quarter 2013



Notes Notes Notes

Leading Edge Aviation Services

acquired Associated Painters,

which reimages and paints all

types of domestic and international

aircraft. Associated Painters

operates its four US facilities in:

Everett and Spokane, WA;

Jacksonville, FL; and Oklahoma

City, OK.

Prospect Partners announced its

investment in Velocity Aerospace

Group, an aviation aftermarket

services firm that provides

maintenance, repair and overhaul

services to a global customer base

of commercial air transports,

corporate business aircraft,

regional airlines and helicopters.

Merex Holding Corporation

acquired Livermore, CA-based

Aircraft Logistic-Support Company

(ALCO). ALCO provides

Maintenance, Repair and Overhaul

(MRO) services for auxiliary power

units (APUs) and engine driven

compressors (EDCs), as well as a

variety of other critical components

for hydraulic, pneumatic, fuel and

electrical systems. ALCO provides

support for a number of military

aircraft and commercial aircraft.


Velocity Aerospace Group

Announced M&A Transactions (Aerospace)


25

Second Quarter 2013

Closed Announced Announced


Notes Notes Notes

Starbase Jet, a private aviation

company, acquired Perfection Air

Charter, a boutique private jet

brokerage firm. The acquisition will

increase Starbase’s presence in

southern California and allow it to

meet increased demand in the

Asia-Pacific region.

Harlow Aerostructures LLC has

entered into an Asset Purchase

Agreement (APA) with AGC

Incorporated for $5.7 million cash.

Harlow will be the stalking-horse

bidder in an auction currently

scheduled for May 13, 2013. AGC,

which manufactures and repairs

precision components and

assemblies for the aerospace

industry, filed for Chapter 11

bankruptcy on April 16, 2013.

TransDigm Group Incorporated

and Aerosonic Corporation

announced a definitive merger

agreement under which Aerosonic

will become an indirect, wholly-

owned subsidiary of TransDigm.

TransDigm will offer to acquire all

of Aerosonic’s outstanding shares

for $7.75 per share in cash in a $39

million transaction (fully-diluted).

has acquired entered into an APA with will merge with



26

Second Quarter 2013


April 23, 2013 May 1, 2013 May 6, 2013

Notes Notes Notes

System Studies & Simulation (S3)

acquired Summit Aviation, an

aircraft maintenance, inspection,

and bench repair services firm.

Summit also provides metal and

composite repair, aircraft pick up

and delivery, and aircraft wash

services. The acquisition will bring

S3 closer to its goal of being a full-

service aviation provider.

Rolls-Royce plc acquired Hyper-

Therm High-Temperature

Composites, Inc (HTC). Based in

California, Hyper-Therm HTC

produces state-of-the-art composite

materials, including ceramic matrix

composites (CMCs), engineered

coatings and thermal-structural

components. Rolls Royce expects

CMCs to transform the weight and

performance of today’s advanced

engines. Hyper-Therm HTC will

become a wholly-owned subsidiary

and Rolls-Royce’s hub for technical

development of CMCs.

Triumph Group acquired Primus

Composites, an overseas division

of Primus International, from

Precision Castparts Corp. Primus

is a global supplier of composite

and metallic propulsion and

structural composite components

and assemblies. Primus

Composites, with manufacturing

facilities in England and Thailand,

will become part of Triumph

Aerostructures Group.


Primus Composites



27

Second Quarter 2013

Announced Closed Closed

May 6, 2013 May 6, 2013 May 7, 2013

Notes Notes Notes

HEICO entered into a definitive

agreement to acquire Reinhold

Industries from The Jordan

Company. Reinhold is a California

based manufacturer of advanced

custom composite components and

sheet molding compounds for

aerospace, defense, and space

applications. Since acquiring

Reinhold in 2007, The Jordan

Company made two bolt on

acquisitions. Reinhold will become

part of HEICO’s Flight Support

Group subsidiary.

The board of directors of Flight

Research, Inc. (FRI) acquired

100% ownership from prior owners

Sean and Nadia Roberts. FRI, a

California provider of test aircraft

with comprehensive test flight

expertise, maintains a large fleet of

instrumented aircraft ranging from

single engine reciprocating aircraft

to supersonic fighters and

helicopters. Transaction terms

were not disclosed.

GA Telesis acquired parts of

Finnair Engine Services (FES). GA

Telesis will employ 80 engine

service professionals from Finnair’s

existing workforce. The deal

involved a sale of assets and

transfer of personnel to GA Telesis’

wholly owned subsidiary GA

Telesis Engine Services Oy

(GATES). GATES simultaneously

executed a long-term lease on all

of Finnair’s engine maintenance

and test cell facilities.

will acquire has acquired has acquired parts of

Board of Directors

Engine Services



28

Second Quarter 2013


May 15, 2013 May 16, 2013 May 23, 2013

Notes Notes Notes

TransDigm Group announced that

it plans to acquire Arkwin Industries

for $286 million in cash or 3x

Arkwin’s 2012 revenue. Located on

Long Island, NY, Arkwin

manufactures proprietary, highly-

engineered aerospace hydraulic

and fuel system components for

commercial and military aircraft,

helicopters and other specialty

applications. Arkwin also has

product positions on various

ground-based aero derivative

turbine engines.

MAZ Aviation Group acquired Gore

Design Completions, a Texas-

based company specializing

design and installation of high-end

custom interiors for wide-body jets

that fly foreign heads of state,

corporate VIPs, etc. The 25-year-

old company sold in the wake of

owner legal disputes. MAZ is

Saudi Arabia-based company that

manages aircraft refurbishments.

Air Comm Corporation (ACC)

acquired the Addison, Texas

division of Meggitt. The division

works with air conditioning systems

for fixed wing aircrafts and

helicopters. The deal will provide

the necessary resources to support

ACC’s thermal management

technology.

will acquire has acquired has acquired

Addison, TX division



29



May 29, 2013 June 6, 2013 June 10, 2013

Notes Notes Notes

Astronics Corporation entered into

a definitive agreement to acquire

the outstanding shares of PECO

for $136.0 million in cash. PECO

specializes in Passenger Service

Units which manage air handling,

emergency oxygen, electrical

power management, and cabin

lighting systems. Astronics

management believes it will benefit

from the strong relationships PECO

has with its aerospace customers.

MB Aerospace acquired the aero-

engine component manufacturing

business of Delta Industries. The

multi-million dollar deal will expand

MB Aerospace’s projected

revenues to more than $160.0

million for the 2013 fiscal year. The

acquisition follows a secondary

Management Buy Out in March led

by MB Aerospace’s Chief

Executive Craig Gallagher.

South African aerospace and

defense firm Paramount Group

acquired Advanced Technology

and Engineering (ATE). ATE

specializes in avionics, sensor

systems and unmanned aircraft

systems technology. The deal will

improve Paramount’s

manufacturing and technology

capabilities, allowing it to take

advantage of increased foreign

investment. With this transaction,

Paramount saved ATE from

liquidation.

will acquire has acquired has acquired


http://www.astronics.com/

30

Second Quarter 2013


June 19, 2013 June 21, 2013 June 23, 2013

Notes Notes Notes

Epec Engineered Technologies

acquired Suncoast Digital

Technologies, a supplier of OEM

user interface keyboard

assemblies. The transaction is

expected to increase Epec’s

customer support services, which

is in line with the firm’s long term

growth strategy aimed at supplying

a greater range of electronic

product services to its customers.

TransDigm entered into an

agreement to acquire the assets

of GE Aviation's Electromechanical

Actuation Division (EAD) for

approximately $150.0 million in

cash. GE EAD specializes in

manufacturing proprietary, highly

engineered aerospace

electromechanical motion control

subsystems. The acquisition is

expected to close at the end of Q3

2013.

Greenpoint Technologies,

NewSpring Capital, and Wells

Fargo acquired Aviation Technical

Services, an aircraft maintenance,

repair, and overhaul services

provider. Greenpoint, which

provides interior design for Boeing

Business Jets, will use the

acquisition to expand its offering of

aviation services.

has acquired will acquire have acquired



31


Announced Announced

June 25, 2013 June 26, 2013

Notes Notes

Signature Flight Support will purchase a

majority share of Starlink Aviation’s FBO in

Montréal, Quebec, Canada. Starlink

Aviation specializes in aircraft

management, aircraft maintenance,

corporate shuttle and aircraft charter

services. The acquisition, subject to

customary closing conditions, is expected

to close during the third quarter of 2013.

Precision Castparts (PCC) will acquire

Permaswage SAS for $600 million. Based

in France, Permaswage designs and

manufactures aerospace fluid fittings.

Permaswage specializes in permanent

fittings used in airframe fluid conveyance

systems and related installation tooling.

The transaction will extend PCC’s

permanent fittings business while building

on the separable fittings market foothold it

established with its 2008 acquisition of

Airdrome.

will acquire will acquire


32


Closed Closed

June 27, 2013 June 28, 2013

Notes Notes

ESCO Technologies acquired Canyon

Engineering Products and its 70,000

square foot Valencia, CA manufacturing

facility. Canyon designs and manufactures

aerospace industry precision fluid control

devices. The deal broadens ESCO’s

aerospace product line, allowing it to

optimize its manufacturing layout and gain

scale economies through consolidation

and integration.

Sensintel acquired BAE Systems’

Unmanned Aircraft Programs business.

Sensintel is a newly formed company that

developes unmanned aerial systems

(UAS) and sensors and provides related

services. The deal expands Sensintel’s

product and service offerings, allowing it to

design and manufacture three UAS: the

Silver Fox, the Manta, and the Coyote.

has acquired has acquired

Unmanned Aircraft Programs business.


33

Second Quarter 2013 Recent ADG Advisory Experience

34

Second Quarter 2013

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.

Aerospace, Defense and Government Services Team

The McLean Group

7900 Westpark Drive, Suite A320

McLean, VA 22102

Main: 703.827.0200

Fax: 703.827.0175

Contact Information

Joe Golden

Principal

[email protected]

Cameron Hamilton

Principal

[email protected]

Mitch Martin

Principal

[email protected]

Andy Smith

Principal, Valuation

[email protected]

Greg Woodford

Senior Managing Director

[email protected]

Greg Nossaman

Managing Director

[email protected]

Greg Boucher

Managing Director

[email protected]

Kathleen Crow

Managing Director

[email protected]

Michael Langman

Managing Director

[email protected]

John Stack

Managing Director

[email protected]

Harry Ward

Director

[email protected]

Brent Lorenz

Vice President

[email protected]

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