aerospace & defense - moss adams · 2016-09-20 · narrow-body market is still strong for both...

MOSS ADAMS CAPITAL LLC

Aerospace & Defense

Market Monitor

Fall 2016

2 MOSS ADAMS CAPITAL LLC Aerospace & Defense

Bull vs. Bear Debate for Commercial Aerospace

Bear Debate:

Industry is late into a 7-8 year upcycle;

World economy is sending mixed signals, especially China;

Emerging markets (esp middle east) are severely affected by price of oil;

Other markets are deferring aircraft orders;

Wide-body market is slowing;

Strengthening dollar puts a pinch on overseas customers.

Bull Debate:

Long-term traffic growth will continue at 5%+;

Backlogs still at all-time highs;

Narrow-body market is still strong for both Boeing and Airbus (book-to-bill rates > 1.2);

Boeing has long-term labor contracts in place … stability of workforce;

Boeing is successfully ramping up production … execution risk is lower;

Boeing has announced plans for a New Midsize aircraft (“NMA”).

Source: Aerospace Market News, July 2016; Aviation Newsweek; WSJ; Moss Adams Capital Analysis.


Suppliers’ Relationship with Boeing is Changing

Source: Aerospace Market News, July 2016. Moss Adams Capital research.

The “Great Rush” by airlines to acquire aircraft appears to be over (Ernest Arvai, AirInsight Consulting).

Focus by Boeing/Airbus is now on production ramp-up and cost containment.

65% of parts production for Boeing is performed by third party suppliers … often with higher margins than Boeing.

Renewed strategic emphasis on the supply chain for Boeing … also by stock analysts.

Boeing striving to change the business relationship with its suppliers.

Suppliers must align with Boeing to keep contracts and remain competitive … or get stonewalled.

“The economics of being a Boeing supplier are facing the greatest challenge yet” (Robert Spingarm, CreditSuisse).


Single-Aisle Dominates the Backlog

Source: Aerospace Market News, July 2016.


Small / Mid Cap

Aerospace

Down 0.5x

S&P 500

Up 0.9x

Boeing

Up 0.6x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

13.0x

EV

/ E

BIT

DA

S&P 500

4%

Small / Mid Cap

Aerospace

-3%

Boeing

-7%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Ma

rke

t P

erf

orm

an

ce

Public market valuations for Small and Mid-Cap aerospace suppliers are down over a one year period, due to uncertainty about earnings growth, China’s economy, oil prices, Britain’s departure from the EU, and long-term interest rates.

Over a one year period, equity investments in small and mid-Cap aerospace companies have lost 3% versus a loss of 7% for Boeing, and a gain of 4% for the overall S&P 500 index.

Trading multiples for Small and Mid-Cap aerospace suppliers are at an average of 12.2x EBITDA, while the S&P 500 is trading at 11.6x EBITDA and Boeing at 10.9x.

Small / Mid Cap Aerospace Stock Performance EBITDA Multiples

Note: Small and Mid-Cap Aerospace companies are composed of the public companies included on slide 5. Source: Capital IQ as of 8/17/16.

“Bull vs. Bear” Debate Impacting Aerospace Valuations


Small/Mid-Cap Aerospace Firms: Valuations

Note: Not meaningful (NM) if EV/Sales is greater than 10x, or EV/EBITDA is greater than 20x. NA if denominator is 0, for percentages and multiples, or if estimates are not available. NTM figures are based on the median estimate of Wall St. analysts. Source: Capital IQ as of 8/17/16.

($US in millions, except where noted and per share amounts)

8/17/2016 TTM Data NTM Est. Growth EV Multiple

Company Name

Share

Price 52 week High/Low

Market

Cap

Enterprise

Value Sales EBITDA

EBITDA

Margin Sales EBITDA

TTM

Sales

TTM

EBITDA

NTM

Sales

NTM

EBITDA

Small/Mid Cap Aerospace

B/E Aerospace Inc. $47.85 $51.64 / $36.38 $4,863 $6,807 $2,809 $601 21.4% 5.4% 4.7% 2.4x 11.3x 2.3x 10.8x

TransDigm Group Incorporated 283.93 289.67 / 180.76 15,124 23,756 3,106 1,394 44.9% 12.2% 14.7% 7.6x 17.0x 6.8x 14.9x

Spirit AeroSystems Holdings, Inc. 44.87 56.23 / 40.03 5,790 6,189 6,715 896 13.3% 0.8% 17.0% 0.9x 6.9x 0.9x 5.9x

Hexcel Corp. 44.82 54.00 / 37.54 4,146 4,814 1,934 428 22.1% 7.4% 12.9% 2.5x 11.2x 2.3x 10.0x

Esterline Technologies Corp. 74.33 96.44 / 45.12 2,185 2,833 1,927 232 12.0% 3.6% 31.4% 1.5x 12.2x 1.4x 9.3x

Teledyne Technologies Inc. 105.82 109.40 / 73.66 3,667 4,287 2,223 357 16.0% 0.9% NA 1.9x 12.0x 1.9x NA

Triumph Group, Inc. 31.19 52.96 / 22.94 1,545 3,058 3,820 (148) NA (4.9%) NA 0.8x NA 0.8x 6.8x

Moog Inc. 60.17 67.92 / 38.11 2,157 2,881 2,416 322 13.3% 2.4% (1.5%) 1.2x 8.9x 1.2x 9.1x

Curtiss-Wright Corporation 89.32 90.31 / 58.00 3,968 4,552 2,151 396 18.4% 1.8% 9.5% 2.1x 11.5x 2.1x 10.5x

HEICO Corporation 73.33 73.02 / 47.24 4,363 5,065 1,286 307 23.8% 12.0% 11.0% 3.9x 16.5x 3.5x 14.9x

AAR Corp. 23.48 26.93 / 18.36 815 904 1,663 116 7.0% 5.9% 19.9% 0.5x 7.8x 0.5x 6.5x

Astronics Corporation 42.83 56.94 / 24.75 1,082 1,228 681 119 17.5% 1.0% 0.1% 1.8x 10.3x 1.8x 10.3x

Ducommun Inc. 22.42 24.94 / 12.28 250 428 594 40 6.7% (3.8%) 49.9% 0.7x 10.7x 0.7x 7.1x

LMI Aerospace Inc. 7.20 12.25 / 7.05 98 345 356 37 10.5% 1.3% 30.4% 1.0x 9.3x 1.0x 7.1x

Median $3,673 $2,042 $314 16.0% 2.1% 13.8% 1.6x 11.2x 1.6x 9.3x

as of August 17, 2016 Average $4,796 $2,263 $364 17.5% 3.3% 16.7% 2.1x 11.2x 1.9x 9.5x


Recent A&D Transactions with Disclosed Value

Source: Capital IQ as of 08/17/16.

$ in millions

Transaction Announced Acquirer/Investor Target Target Description Value Metric

06/28/16 FLIR Systems, Inc. (NasdaqGS:FLIR) Armasight Inc.Provides night vision and advanced infrared thermal imaging solutions, direct view

binoculars, illumination tools, and other precision optics equipment.$41.0

06/21/16 OSI Systems, Inc. (NasdaqGS:OSIS)American Science & Engineering Inc.

(NasdaqGS:ASEI)

Develops, manufactures, markets, and sells X-ray inspection and other detection products

for homeland security and security applications.$264.1 1.8x Rev

05/24/16 TransDigm Inc. ILC Industries, LLCManufactures data bus, motion control, and solid-state power controller products for

aerospace and defense industries.$1,000.0

05/23/16 KBR Holdings, LLC Wyle Inc.Provider of specialized engineering, scientific, and technical services to the Department of

Defense, NASA, and a variety of commercial customers.$600.0

05/17/16 KLX Inc. (NasdaqGS:KLXI) Herndon Aerospace & Defense CompanyDistributes commercial and defense supply chain management solutions to the U.S.

Government, domestic, and international companies.$210.0 1.6x Rev; 10.3x EBITDA

03/23/16 Mercury Systems, Inc. (NasdaqGS:MRCY) Microsemi Corp. - RF Integrated SolutionsManufactures high-frequency components and subsystem solutions for defense electronics,

homeland security, and other government end-use applications.$300.0 3.0x Rev; 10.7x EBITDA

02/29/16 Albany International Corp. (NYSE:AIN) Blue Falcon I Inc.Designs, manufactures and assembles wings, tanks, rotor blades, and airframes for

commercial and military aircraft. $210.0 2.7x Rev

02/29/16 J.F. Lehman & Company API Technologies Corp.Designs, develops, and manufactures systems for radio frequency (RF) microwave,

millimeterwave, electromagnetic, power, and security applications.$310.5 1.3x Rev; 15.1x EBITDA

02/25/16 General Atomics Corp. Miltec Corporation Designs, develops, integrates, and tests missile and aerospace systems. $14.6 0.5x Rev

02/03/16 Liberty Hall Capital Partners, L.P. AIM Aerospace, Inc.Designs, manufactures, and supplies interiors, composites, ducting and tooling products to

airlines and original equipment manufacturers worldwide.$220.0

01/08/16 GE Aviation Convergence Fuel Systems, LLC Designs and manufactures fuel systems for commercial aerospace applications $323.4

12/21/15 HEICO Electronic Technologies Corp. Robertson Fuel Systems, LLCDevelops, manufactures, and markets primary and auxiliary fuel systems for rotary and fixed

wing aircraft and ground combat vehicles.$255.0

11/19/15 Senior plc (LSE:SNR) STEICO Industries Inc. Manufactures precision tube and welded assemblies for aerospace companies $75.0 2.0x Rev


Recent A&D Transactions with Disclosed Value (continued)


$ in millions


11/19/15TransDigm Group Incorporated

(NYSE:TDG)Breeze-Eastern Corporation (AMEX:BZC) Designs, develops, manufactures, sells and services engineered mission equipment. $197.0 1.8x Rev; 8.0x EBITDA

10/22/15 Benchmark Electronics Inc. (NYSE:BHE) Secure Communication Systems Inc. Designs and manufactures tactical mission computing products $230.0

10/13/15L-3 Communications Holdings Inc.

(NYSE:LLL)L-3 ForceX

Provides navigation, surveillance, tracking, command and control, and situational

awareness solutions to customers in security and defense industries.$60.0

09/25/15 Kolon Glotech, Inc. DACC Co., LtdManufactures carbon / carbon-composites for aircraft brake disks, as well as high

temperature jigs and fixtures.$22.3 0.9x Rev

09/23/15 BBA Aviation plc (LSE:BBA) Landmark Aviation, L.L.C.Provides end-to-end services for business and general aviation customers. One of the largest

FBO networks in the world.$2,065.0 2.9x Rev; 18.0x EBITDA

09/22/15 Meggitt (Rockmart), Inc. EDAC Composites LLC Produces composites for the aerospace & defense industries. $340.0 2.9x Rev; 10.6x EBITDA

09/16/15Aerojet Rocketdyne Holdings, Inc.

(NYSE:AJRD)United Launch Alliance, LLC Provides space launch services. $2,000.0

09/09/15 Versar Inc. Johnson Controls Security Systems, LLCServes Federal clients by designing, installing and supporting physical security, network

security, and facilities management systems.$20.0 0.6x Rev

08/27/15 The Carlyle Group LP Novetta Solutions, LLCProvides advanced analytics software and solutions to detect threat and fraud, for

government and commercial enterprises worldwide.$650.0 14.4x EBITDA

08/10/15 Berkshire Hathaway Inc. (NYSE:BRK.A) Precision Castparts Corp. (NYSE:PCP)Manufactures and sells metal components and products to the aerospace, power, and

general industrial markets.$37,916.7 3.7x Rev; 13.9x EBITDA

08/07/15 Sunvair Aerospace Aviation Avionics & Instruments, Inc. Aircraft repair company. $29.0

08/06/15 Rockwell Collins Inc. International Communications Group, Inc.Designs, develops, and manufactures communications systems and solutions for aerospace

& defense industry.$50.0

07/30/15 Sensata Technologies Holding NV Custom Sensors & Technologies, Inc. Comprised of sensing product lines and brands, including Kavlico, BEI, Crydom, and Newall. $1,000.0 3.1x Rev




$ in millions



(NYSE:TDG)PneuDraulics, Inc. Develops and manufactures precision hydraulic components for the aerospace industry. $325.0

07/28/15 GKN plc Fokker Technologies Group B.V.Supplies aero structures, electrical wiring systems, landing gear, etc. for the military and

business jet end markets.$778.3 0.8x Rev; 9.2x EBITDA

07/27/15 Precision Castparts Corp. (NYSE:PCP) Noranco Inc. Manufactures aero structures, landing gear systems, and aero engine precision components. $560.0 10.0x EBITDA

07/20/15 Lockheed Martin Corporation (NYSE:LMT) Sikorsky Aircraft Corporation Designs, manufactures, and services commercial and military helicopters. $9,000.0 1.2x Rev; 13.0x EBITDA

06/30/15 H-D Advanced Manufacturing Company Firstmark CorporationManufactures and sells components and sub-assemblies for aerospace and defense

applications.$84.0

06/29/15 Ballard Power Systems Inc. Protonex Technology Corporation Manufactures power management products. $25.1 1.8x Rev

06/19/15 Astro-Med, Inc. RITEC CorporationDesigns and manufactures computer and related peripheral products for the military and

aerospace industries.$7.4

06/09/15Global Defense & National Security

Systems, Inc.STG Incorporated Provides a variety of services including cyber security and intelligence solutions. $165.5 0.8x Rev; 9.0x EBITDA

06/01/15 Handy & Harman Group Ltd. JPS Industries, Inc. Manufactures materials for highly engineered products. $110.7 0.7x Rev

06/01/15 Apollo Global Management, LLC OM Group Inc.Develops and manufactures magnetic materials, chemicals, batteries, and battery

management systems.$1,037.0 1.0x Rev; 12.0x EBITDA

06/01/15 Ultra Electronics Defense, Inc.Kratos Defense & Security Solutions, Inc.,

Electronic Products Division

Manufactures systems, subsystems, and components for electronic warfare, missile, radar,

intelligence surveillance, and reconnaissance programs.$265.0 1.2x Rev:12.0x EBITDA

05/28/15 L3 Communications Holdings, Inc. CTC Aviation Group Ltd Operates as an airline training organization. $218.5 2.5x Rev

05/26/15 Veritas Capital StandardAero Business Aviation Services, LLC Provides MRO services and custom solutions for aircraft and rotorcraft engines. $2,275.0 1.3x Rev; 11.9x EBITDA




$ in millions


05/21/15 Cyberit Ltd.NICE Systems Ltd., Cyber and Intelligence

DivisionProvides cyber and intelligence solutions. $157.9 2.0x Rev

05/15/15 Magellan Aerospace Corp. Euravia Engineering & Supply Co. LtdOperates as an aviation company that provides repair and overhaul services for a range of

gas turbines, and engine and airframe components.$47.0 2.2x Rev

05/18/15 Ametek Inc. Global Tubes Manufactures precision engineered tube products. $500.0 1.7x Rev


(NYSE:TDG)Pexco LLC, Aerospace Business

Designs, fabricates, and delivers custom plastic extrusion products for specialty uses in

industries including aerospace and defense.$336.0 2.2x Rev; 10.0x EBITDA

04/28/15 ManTech International Corporation Welkin Associates, LtdProvides systems engineering and technical assistance support (SETA) to the US

government and commercial clients.$34.0 1.0x Rev

04/23/15 API Technologies Corp.Aeroflex/Inmet Inc. and Aeroflex / Weinschel,

Inc.A portfolio of aerospace parts manufacturers and test equipment. $80.0 1.6x Rev

04/14/15 Sparton Corp. Hunter Technology CorporationProvides electronic design and manufacturing services for a variety of industries, including

A&D.$68.0 0.8x Rev

04/09/15 Insitu, Inc. 2d3 Inc. Provides science solutions for industrial, defense, and entertainment applications. $24.8 3.0x Rev

04/01/15 Adams Rite Aerospace, Inc. Adams Rite Aerospace, Inc.Designs and manufactures control and security systems for customers in the commercial,

military, and general aviation aerospace markets.$75.0 1.7x Rev; 8.3x EBITDA

04/01/15 ITT Corporation Hartzell Aerospace Group Designs and manufactures a variety of products for use in the aerospace industry. $53.1 1.6x Rev; 8.5x EBITDA

03/26/15 Roller Bearing Company of America, Inc.Avborne Accessory and Sonic Industries and

Sargent Aerospace Canada

Provides repair and overhaul services to the commercial and military aviation industry

worldwide.$500.0 2.6x Rev; 9.4x EBITDA

Deal Revenue EBITDA

Size Multiple Multiple

Transactions Represented 50 34 19

Median $219.3 1.7x 10.6x

Mean $1,302.6 1.8x 11.3x


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aerospace & defense - moss adams · 2016-09-20 · narrow-body market is still strong for both...

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