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Jefferies LLC

Member SIPC

INVESTMENT BANKING

2015 Aerospace & Defense Year in Review

IN THIS ISSUE

Defense & Government Services Update Year in Review U.S. Defense Budget Update Public Market Performance M&A Activity Sector Leadership Changes

Commercial Aerospace Update Year in Review Public Market Performance M&A Activity Sector Leadership Change

Equity Market Conditions

Debt Market Conditions

Jefferies Team

Jefferies Aerospace & Defense Group

Jefferies LLC February 2016 /

Disclosure

Important Disclosures This communication is being provided strictly for informational purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security referenced herein. This material has been prepared by Jefferies LLC (“Jefferies”) a U.S.-registered broker-dealer, employing appropriate expertise, and in the belief that it is fair and not misleading. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified by Jefferies, therefore, we do not guarantee its accuracy. This is not an offer or solicitation of an offer to buy or sell any security or investment. Any opinion or estimates constitute our best judgment as of this date, and are subject to change without notice. Jefferies and Jefferies International Limited and their affiliates and their respective directors, officers and employees may buy or sell securities mentioned herein as agent or principal for their own account. This report was created by members of the investment banking division of Jefferies, and has not been reviewed by or discussed with, any member of Jefferies’ research department. This report is not intended to be, and in no way constitutes a “research report”, as such term is defined in Rule 137 promulgated under the Securities Act of 1933, as amended. Jefferies’ investment banking department has done, and may continue to do business with, companies included in this report. This report is a marketing communication and is not and should not be construed as investment research. Reproduction without written permission of Jefferies is expressly forbidden. Additional Information This material is approved for distribution in the United Kingdom by Jefferies International Limited, which is authorised and regulated by the Financial Conduct Services Authority ("FCSA") and is located at Vintners Place, 68 Upper Thames Street, London EC4V 3BJ; telephone +44 (0) 20 7029 8000; facsimile +44 (0) 20 7029 8010. While we believe this information and materials upon which this information was based are accurate, except for any obligations under the rules of the FCSA, we do not guarantee its accuracy. In the UK, this publication is directed solely at persons who have professional experience in matters relating to investments falling within Articles 19(5) and 49(2)(a) to (d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) or at persons to whom it can be otherwise lawfully distributed. For Canadian investors, this material is intended for use only by professional or institutional investors. None of the investments or investment services mentioned or described herein is available to other persons or to anyone in Canada who is not a "Designated Institution" as defined by the Securities Act (Ontario). For investors in the Republic of Singapore, this material is intended for use only by accredited, expert or institutional investors as defined by the Securities and Futures Act and is distributed by Jefferies Singapore Limited which is regulated by the Monetary Authority of Singapore. Any matters arising from, or in connection with, this document should be brought to the attention of Jefferies Singapore Limited at 80 Raffles Place #15-20, UOB Plaza 2, Singapore 048624, telephone: +65 6551 3950. Recipients of this document in any other jurisdiction should inform themselves about and observe any applicable legal requirements in relation to the receipt of this report. All logos, trademarks and service marks appearing herein are property of Jefferies. Member SIPC • © 01/2014 Jefferies LLC

i


Jefferies Recent M&A and Financing Activity 4

October 2014

$1,100,000,000 Sale To

Engility Holdings, Inc. Sole Financial Advisor

A portfolio company of General Atlantic LLC and KKR

Acquisition of Olive Group Holdings Ltd.

Sole Financial Advisor

May 2015

A portfolio company of Forte Capital Advisors, LLC and

Manhattan Strategic Ventures, LLC

Undisclosed

$209,000,000

January 2015

Merger with Hangar 8 plc

Sole Financial Advisor to Gama

October 2015

Undisclosed


Acquisition of

Sale to JLL Partners


September 2015

Undisclosed

February 2015

Credit Facility to Finance Acquisition of TASC, Inc.

Joint Lead Arranger

$650,000,000

Senior Secured Notes Offering Sole Bookrunner

May 2015



$450,000,000

Credit Facilities to Finance Acquisition by The Carlyle Group Joint Lead Arranger

October 2015

$325,000,000 Private Placement of Equity

Sole Placement Agent

September 2015

Undisclosed

Rights Issue for the Purchase of Landmark Aviation

Joint Global Coordinator

October 2015

$1,142,000,000

Senior Unsecured Notes Offering Joint Bookrunner

May 2015

$300,000,000

Private Placement of Equity Sole Placement Agent

October 2015

$250,000,000 Sale of select logistics & communication services businesses to

IAP Worldwide Services, Inc. Sole Financial Advisor

November 2015

Undisclosed

Joint Lead Arranger & Joint Bookrunner

April 2015

$1,010,000,000 Credit Facility

$370,000,000 Senior Unsecured Notes

Senior Notes Sole Book-running Manager

June 2015

$120,000,000

$128,000,000

December 2014



Senior Unsecured Notes Lead Left Bookrunner

July 2015

$485,000,000

Senior Secured Credit Facilities Lead Left Arranger

$1,075,000,000

Mergers & Acquisitions Financings

August 2015

Undisclosed Acquisition of

Novetta Solutions, LLC Sole Financial Advisor

Common Stock Offering Joint Global Coordinator and

Joint Bookrunner

October 2015

$1,142,000,000


June 2015

$485,000,000

July 2015

$1,075,000,000 Credit Facilities to Finance Acquisition

by Veritas Capital Joint Lead Arranger

July 2015 Aerospace / Defense




April 2015

$370,000,000 Credit Facility to Finance Acquisition by Kohlberg Kravis Roberts & Co. L.P.

Joint Lead Arranger

April 2015

$1,185,000,000

Senior Unsecured Notes Offering Sole Bookrunner

June 2015

$120,000,000

Joint Lead Arranger & Joint Bookrunner

April 2015

$1,010,000,000 Credit Facility

$370,000,000 Senior Unsecured Notes

Credit Facility to Finance Acquisition By JLL Partners

Joint Lead Arranger

September 2015

$80,000,000

August 2014

Credit Facility Sole Lead Arranger

$75,000,000

ii

Acquisition of Olive Group Holdings Ltd.


May 2015



Undisclosed Sale to

JLL Partners Sole Financial Advisor

September 2015

Undisclosed Senior Unsecured Notes Offering

Joint Bookrunner

June 2015

$485,000,000

July 2015



October 2014

$1,100,000,000Sale To

Engility Holdings, Inc.Sole Financial Advisor

A portfolio company of General Atlantic LLC and KKR

Acquisition ofOlive Group Holdings Ltd.


May 2015

A portfolio company ofForte Capital Advisors, LLC and


UndisclosedSale to

JLL PartnersSole Financial Advisor

September 2015

Undisclosed

Sale of select logistics & communication services businesses to

IAP Worldwide Services, Inc.Sole Financial Advisor

November 2015

Undisclosed

$128,000,000

December 2014



August 2015

UndisclosedAcquisition of

Novetta Solutions, LLCSole Financial Advisor

Acquisition ofOlive Group Holdings Ltd.


May 2015



UndisclosedSale to

JLL PartnersSole Financial Advisor

September 2015

Undisclosed

February 2015

Credit Facility to Finance Acquisitionof TASC, Inc.

Joint Lead Arranger

$650,000,000

Senior Secured Notes OfferingSole Bookrunner

May 2015



$450,000,000

Credit Facilities to Finance Acquisition by The Carlyle GroupJoint Lead Arranger

October 2015

$325,000,000Private Placement of Equity

Sole Placement Agent

September 2015

Undisclosed

Senior Unsecured Notes OfferingJoint Bookrunner

May 2015

$300,000,000

Private Placement of EquitySole Placement Agent

October 2015

$250,000,000Common Stock Offering

Joint Global Coordinator and Joint Bookrunner

October 2015

$1,142,000,000


June 2015

$485,000,000

July 2015

$1,075,000,000Credit Facilities to Finance Acquisition

by Veritas CapitalJoint Lead Arranger


April 2015

$370,000,000Credit Facility to Finance Acquisition by Kohlberg Kravis Roberts & Co. L.P.

Joint Lead Arranger

April 2015

$1,185,000,000

Senior Unsecured Notes OfferingSole Bookrunner

June 2015

$120,000,000Senior Unsecured Notes Offering

Joint Bookrunner

June 2015

$485,000,000

July 2015

$1,075,000,000Credit Facilities to Finance Acquisition

by Veritas CapitalJoint Lead Arranger


Defense & Government Services Update

1


2015 Defense & Government Services Year in Review

The Budget

FY 2016 Presidential Budget, recently modified and supported by the Bipartisan Budget Act of 2015, requested $522 billion in base spending and $59 billion for Overseas Contingency Operations, representing an increase of $26 billion and decrease of $5 billion, respectively

Continued focus on Operations and Maintenance as well as Procurement in efforts to maintain security and stability while increasing budgetary efficiency

Although U.S. Defense budget still under pressure, investors have gained clarity around budget outlook

Public Market Performance

Public markets were relatively flat in 2015 with the S&P 500 declining by 0.7% over the course of the year

Defense stocks were mixed compared to the broader markets

─ Strongest performers were the Primes, up 12.1% on average over the course of the year

─ Midcap Defense and Government Service were mixed with some winners and some losers

Public valuations in the sector remained strong with forward multiples relatively flat over the year but up significantly from cyclical troughs around 5.0x from 2008 – 2010

─ Defense Primes forward EBITDA multiples ended the year at 9.6x compared to 9.1x at the beginning of 2015 and up from cyclical lows of 4.1x in 2009

─ Midcap Defense forward EBITDA multiples ended the year at 9.7x compared to 9.3x at the beginning of 2015 and up from cyclical lows of 5.4x in 2011

─ Government Services forward EBITDA multiples ended the year at 9.1x compared to 9.3x at the beginning of 2015 and up from cyclical lows of 4.7x in 2012

Mergers & Acquisitions

M&A activity was robust in 2015

─ Record year in terms of aggregate deal value with over $24 billion worth of M&A in the sector – a level not seen since 2007

There have been a number of transformative deals in the sector in 2015, most notably Lockheed Martin’s acquisition of Sikorsky for $9.0 billion and Harris’ $4.6 billion merger with Exelis

Deal activity led by consolidation in the Government Services sector, notably CACI’s $550 million acquisition of L-3 NSS, CSC Government Services spin-off from CSC and subsequent merger with SRA, SAIC’s $790 million acquisition of Scitor, and Engility’s $1.1 billion acquisition of TASC

Defense Primes divesting services business

─ BAE attempting to divest two scale government services businesses, but ultimately decided to retain assets

─ Lockheed Martin exploring strategic alternatives for its government services business

─ L-3 Communications divested its government services business (NSS) to CACI

Financial buyers capitalizing on robust capital markets

─ Buyers capitalizing on cheap capital and view of industry “bottom” to pay aggressive multiples

─ Veritas Capital’s acquisition of Alion, Carlyle Group’s acquisition of Novetta

Financing

The sector remained active in the leveraged finance market in 2015 despite overall leveraged finance volumes being down

─ ~$12 billion of financings were completed

─ ~35% of volume was for LBOs and acquisitions

─ ~40% of deals were for sponsor backed companies

StandardAero, Novetta, Alion and MB Aerospace were notable leveraged finance transactions in 2015

High Yield issuance ended the year with volume of $262 billion with the index yielding 8.76% – up 211 bps from the beginning of the year

New institutional loan volume was $258 billion for the year with about 60% of deals for LBOs and acquisitions Source: Capital IQ. Market data as of December 31, 2015.

2


Summary of the U.S. FY 2016 DoD Budget

Key Points

The U.S. FY 2016 Presidential Budget Request, issued in Q1 2015, was modified and supported by the Bipartisan Budget Act of 2015 (“BBA15”), which passed on Nov. 2

─ Requests $522 billion in base spending – an increase of $26 billion over the previous year

Along with the base budget, BBA15 requests $59 billion for Overseas Contingency Operations (OCO), down from $64 billion in FY 2015

BBA15 builds upon the three pillars of the 2014 Quadrennial Defense Review (QDR) strategy

─ Protect the homeland, build security globally, and project power and win decisively

BBA15 also reflects the five major priorities given in the 2014 QDR strategy

─ Transition to the Asia-Pacific

─ Maintain a strong commitment to security and stability in Europe and the Middle East

─ Sustain a global approach to countering violent extremists

─ Prioritize and protect key investments in technology

─ Reinvigorate efforts to build innovative partnerships

BBA15 can support the 2014 QDR strategy unless sequester level cuts return

Department of Defense Spending (FY 2001 - FY 2020)

FY 2016 Base Budget Request Comparison

316 345

438 468 479

535

600

666 666 691 687

645

577 581 560 581 584 583 591 597 608 593 605 617 629

0

250

500

$750

Base Budget OCO Other

470

490

510

530

550

570

590

$610

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

FY 2013 President's Budget (PB13) FY 2016 Presidential Budget (PB16) Sequester Level Budget (SLB)

($Billions)

($Billions)

($Billions)

3


10-year TEV / Forward EBITDA

4.0x

6.0x

8.0x

10.0x

12.0x

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Defense Primes Midcap Defense Government Services S&P 500

9.7x

9.1x 9.6x

(1) (2) (3)

Sector Valuations Remain Near Cyclical Highs

Source: Capital IQ. Note: Market data as of December 31, 2015. (1) Defense Primes include BAE Systems, Boeing, General Dynamics, Lockheed Martin, Northrup Grumman and Raytheon. (2) Midcap Defense includes AeroVironment, Cobham, Comtech, Cubic, FLIR Systems, Harris, Kratos, L-3, Mercury and Orbital ATK. (3) Government Services includes Booz Allen Hamilton, CACI, CSRA, Engility, ICFI, KEYW, Leidos, ManTech, NCIT, SAIC, Vectrus and VSE Corp.

1 Year Median

3 Years Median

5 Years Median

10 Year Median

Defense Primes 9.6x 8.3x 6.3x 7.8x

Midcap Defense 9.4x 8.8x 7.3x 8.8x

Government Services 9.4x 7.5x 6.9x 8.5x

S&P 500 10.3x 8.9x 8.0x 8.4x

10.2x

4


1.1x

0.9x

0.0x

1.0x

3.0x

2.4x

NM

-0.4x

-0.7x

0.3x

-0.6x

1.1x

4.4x

-0.4x

3.5x

NA

1.4x

0.4x

NA

2.8x

0.4x

7.5x

NM

0.6x

NM

0.4x

0.3x

1.9x

Defense & Government Services Valuation M

idca

p D

efen

se

Gov

ernm

ent S

ervi

ces

Source: Capital IQ. Note: Market data as of December 31, 2015.

8.3x

8.7x

9.2x

10.1x

11.1x

10.9x

NM

9.9x

6.4x

9.4x

9.6x

9.2x

12.1x

10.9x

11.2x

9.4x

10.8x

9.7x

9.0x

10.0x

8.3x

16.7x

10.5x

8.9x

7.1x

9.2x

7.1x

6.9x

Def

ense

Pri

mes

12.6x

15.5x

14.4x

17.8x

18.0x

17.7x

NM

13.4x

14.7x

16.9x

16.3x

14.5x

NM

17.1x

30.6x

16.2x

17.7x

15.9x

15.4x

13.3x

12.2x

NM

19.8x

20.9x

15.4x

15.4x

9.7x

13.9x

1.5x

1.4x

-0.9x

2.5x

3.6x

4.1x

NM

-0.2x

-0.9x

0.8x

-0.4x

0.8x

75.6x

-1.1x

3.6x

NA

2.9x

0.8x

NA

-6.7x

-1.6x

NM

NM

2.6x

NM

1.6x

0.4x

-1.4x

2016 EV / EBITDA Change Since 1/2/2015 2016 P / E Change Since 1/2/2015

5


$5.00

$144.59

$137.36

$217.15

$188.81

$124.53

$29.47

$2.83

$20.09

$47.25

$28.07

$86.90

$4.10

$119.51

$18.36

$89.34

$30.85

$92.78

$30.00

$32.48

$35.56

$6.02

$56.26

$30.24

$13.65

$45.78

$20.89

$62.18

91.0%

91.0%

89.3%

95.3%

97.3%

95.8%

96.2%

81.1%

55.4%

87.0%

81.5%

96.8%

57.6%

89.9%

91.8%

94.1%

98.4%

89.1%

89.7%

66.3%

81.3%

47.8%

94.5%

85.8%

79.5%

81.8%

61.9%

74.0%

95.9%

Defense & Government Services Stock Price Performance M

idca

p D

efen

se

Gov

ernm

ent S

ervi

ces

Source: Capital IQ. Market data as of December 31, 2015.

6.5%

11.3%

(0.8%)

12.3%

28.9%

14.7%

9.4%

(12.0%)

(36.4%)

(11.6%)

(12.8%)

21.3%

(17.8%)

(6.3%)

36.1%

NA

16.2%

8.4%

NA

(24.4%)

(11.4%)

(41.4%)

30.4%

0.8%

34.7%

(7.5%)

(23.7%)

(9.3%)

(0.7%)

Def

ense

Pri

mes

Stock Price % of 52 Week High 2015 Share Performance

S&

P

S&P

6


Total Transaction Size (1)

Defense & Government Services Historical M&A Activity U.S. Deal Volume – Past 15 Years

$20,354

$16,593

$20,127

$5,687 $7,853

$10,699

$13,639

$23,783

$15,494

$6,400 $4,764

$16,607

$21,481

$6,075 $4,818

$24,020

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total Enterprise Value

($Millions)

Source: ThomsonOne.com. (1) Includes transaction equal to and over $250 million. Solely reflects transactions that have closed.

Total Transaction Volume (1)

21

14 15 14

19

15

21

31

13 10

17

30

12 13

9 12

0

5

10

15

20

25

30

35

40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Number of Deals

7


Defense & Government Services Recent M&A Activity

Announced Acquirer Target Description

Dec 2015 Manufactures inflatable satellite communication antennas and terminals that provide deployment and high-bandwidth communications in remote and hard-to-reach areas

Dec 2015 Leading provider of real-time Full Motion Video PED for the Department of Defense, the intelligence community and commercial customers based in Ashburn, Virginia

Dec 2015 Provides big data analytics and cloud computing solution services primarily to the U.S. Department of Defense

Nov 2015 Develops and delivers wireless communication technology in the United States, Europe, Latin America, Africa, and Asia

Nov 2015 Designs, manufactures, and distributes space-based wireless communications products and subsystems in Canada and internationally

Nov 2015 Provides full life cycle mission support solutions to the U.S. Department of Defense and Intelligence Agencies

Oct 2015 Designs and manufactures tactical mission computing products for military, commercial aviation, industrial, government, and telecommunications markets

Sep 2015 Manufactures single-board computers and electronic embedded systems for aerospace, defense, and industrial solutions

Aug 2015 Provides information technology (IT) and professional services to the United States federal government

Aug 2015 Provides advanced analytics software and solutions to detect threat / fraud, and protect high value networks for government and commercial enterprises

Aug 2015 Provides aircraft program depot-level maintenance and mission support services

Jul 2015 Provides engineering, information technology, naval architecture, and operational solutions for defense, civilian, and foreign governments, and commercial industries

Jul 2015 Designs, manufactures, and services military and commercial helicopters

Jun 2015 A cyber security company that provides risk management, governance, operations, and compliance services for government and commercial customers in the U.S.

Jun 2015 Designs and manufactures RF and microwave integrated systems and subsystems for use in EW, radar, communication, missile, flight test and simulation applications

Apr 2015 Offers web, email, and cyber security solutions to government agencies, commercial enterprises, and educational institutions

Mar 2015 Provides business process services to government health and human service agencies in the U.S., Australia, Canada, the U.K. and Saudi Arabia

Mar 2015 Provides full life-cycle services and solutions in technical, engineering and enterprise information technology markets in the U.S.

Feb 2015 Provides C4ISR related products and systems

Jan 2015 Designs and manufactures unmanned aerial systems solutions for the intelligence and special operations market

Tactical Communications & Network Solutions Assets

Embedded Computing

Government Services

Aviation & Logistics Assets

National Security Solutions

8


Selected Leadership Changes in 2015

Company Announcement

July 7, AeroVironment names Raymond Cook as CFO April 30, AeroVironment names Wahid Nawabi as COO

June 23, Boeing names Dennis Mullenburg as CEO, effective July 1

January 21, Cobham announces the departure of David Squires as COO, effective by the end of April 2015

December 2, CSRA names Lawrence Prior III as President and CEO November 30, CSRA names David Keffer as CFO upon completion of merger with SRA

February 27, Engility names David Savner and Peter Marino as Co-Chairman of the Board, John Hynes as COO and Wayne Rehberger as CFO

August 12, FLIR Systems names Amit Singhi as CFO

August 25, KEYW names William Weber as President, CEO and Director, effective October 1 July 15, KEYW names Bruce Potter as CTO May 27, KEYW announces Leonard Moodispaw will retire as Chairman of the Board and CEO, names Caroline Pisano as Chairman of the Board

August 31, Leidos names Martin Miner as CIO June 15, Leidos names James Reagan as Executive Vice President and CFO

February 18, Lockheed Martin names Dana Jackson as Vice President and CTO

July 30, NCI announces Chairman and CEO Charles Narang will step down as CEO, names Brian Clark as President and CEO

January 12, Northrup Grumman names Kenneth Bedingfield as Vice President and CFO

February 9, Orbital ATK names David Thompson as President and CEO, Blake Larson as COO, and Garret Pierce as CFO

January 7, Raytheon appoints Anthony O’Brien Vice President and CFO

9


Commercial Aerospace Update

10


2015 Commercial Aerospace Year in Review

Industry Dynamics

Global airline profitability is at all time highs, with $33.0b in industry profits estimated for 2015E, compared to $19.9b in 2014 and $10.6b in 2013

Traffic demand remains robust, growing 6.8% over 2014 YTD levels as of October 2015

Several years of strong order activity, minimal cancellations and delays to major new aircraft programs have led to record high backlogs representing 7-8 years of production visibility at projected build rates

Total industry backlog remains at record levels – 51% of the current active global fleet

Public Market Performance

Public valuations in sector remained robust at year end, but have fallen slightly from cyclicals highs reached in H1 2015

─ Structures comparables are trading at 8.1x TEV / Forward EBITDA, below high of 9.7x

─ Services comparables are trading at 10.1x TEV / Forward EBITDA, below high of 10.9x

─ Electro-Mechanical comparables are trading at 11.5x TEV / Forward EBITDA, below high of 12.9xx

─ Diversified Industrial / Aero comparables are trading at 9.8x, below high of 10.4x

Structures, Services, Electro-Mechanical and Diversified Industrial / Aero indices are up +282, +132, +291, and +157, respectively, since their lows in December 2008

Companies actively seeking acquisitions to take advantage of premium public market valuations

Mergers & Acquisitions

M&A activity continued to be robust in 2015

─ 92 acquisitions were announced in the global aerospace market for a aggregate value of over $81 billion

─ Over 80 transactions have been announced annually since 2011

There have been a number of transformative deals in the sector in 2015, most notably Berkshire Hathaway’s announced acquisition of Precision Castparts Corp for $37 billion

─ Other notable transactions include Veritas Capital’s $2.1 billion acquisition of StandardAero, HNA’s acquisition of Swissport for $2.8 billion and BBA Aviation’s acquisition of Landmark for $2.1 billion

Significant scarcity value for commercial aerospace assets of scale – larger transactions have resulted in highly competitive auctions and premium valuations

Consolidation in the airframe and engine structure manufacturing sector has remained a key driver of M&A for the past 5+ years with interest in aftermarket / MRO picking up significant momentum in 2015

Financing Historically low interest rates have provided strategic and financial buyers with inexpensive financing and helped fuel increased M&A activity

─ Capital markets environment supporting significant leverage for financial buyers

Low interest rates have fueled a rally in the equity market to all-time highs

11


10-year TEV / Forward EBITDA

3.0x

5.0x

7.0x

9.0x

11.0x

13.0x

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Structures Services Electro-Mechanical Diversified Industrial / Aero S&P 500

10.1x 10.2x

8.1x

(1) (2) (3)

Sector Valuations Remain Near Cyclical Highs

Source: Capital IQ. Note: Market data as of December 31th, 2015. (1) Structures includes: Barnes, B/E Aerospace, GKN, Hexcel, LMI Aerospace, Senior, Spirit, Triumph Group and Zodiac. (2) Services includes: AAR, BBA Aviation, CAE and Heico. (3) Electro-Mechanical includes: Astronics, Esterline, Meggitt, Moog and TransDigm. (4) Diversified Industrials/Aero includes: Ametek, Curtis Wright, Eaton, Honeywell, Parker, Textron, United Technologies and Woodward.

1 Year Median

3 Years Median

5 Years Median

10 Year Median

Structures 8.9x 8.7x 8.1x 7.7x

Services 10.0x 9.7x 8.8x 8.6x

Electro-Mechanical 12.3x 11.2x 9.9x 9.0x

Diversified Industrial / Aero 9.9x 9.8x 9.3x 9.0x

S&P 500 10.3x 9.3x 8.5x 8.3x

11.5x

(4)

9.8x

12


1.0x

-0.2x

-0.1x

2.0x

1.2x

-1.1x

0.1x

-0.6x

0.1x

0.4x

-2.0x

-0.2x

-0.5x

-1.4x

NM

-0.8x

0.6x

0.6x

0.8x

1.3x

0.4x

0.0x

0.8x

0.5x

0.5x

0.6x

1.9x

Commercial Aerospace Valuation

Source: Capital IQ. Note: Market data as of December 31, 2015.

10.4x

8.1x

6.2x

10.7x

8.1x

8.0x

6.4x

25.6x

10.6x

6.1x

10.1x

8.0x

13.8x

9.6x

9.1x

8.2x

8.6x

13.8x

10.6x

12.6x

16.6x

9.4x

9.7x

8.9x

8.6x

9.6x

10.6x

Str

uctu

res

Ser

vice

s D

iver

sifie

d In

dust

rial

s E

lect

ro-M

echa

nica

l

13.2x

13.7x

11.2x

18.1x

24.1x

12.0x

12.0x

7.0x

16.7x

15.3x

12.3x

17.0x

24.5x

14.5x

14.3x

11.6x

14.5x

21.1x

16.1x

19.6x

16.0x

12.1x

15.8x

15.4x

14.6x

14.6x

16.8x

-0.9x

0.0x

0.1x

-1.6x

0.9x

-2.7x

1.8x

2.8x

-2.3x

1.4x

-1.4x

-2.2x

NM

-1.5x

-0.2x

1.6x

1.4x

1.4x

0.6x

-0.1x

0.9x

1.8x

0.9x

0.0x

2.1x

2016 EV / EBITDA Change Since 1/2/2015 2016 P / E Change Since 1/2/2015

13


65.6%

84.7%

79.3%

84.9%

68.1%

63.5%

86.3%

56.2%

61.3%

76.8%

52.2%

92.9%

85.3%

52.6%

67.2%

63.1%

78.4%

93.3%

92.9%

92.9%

88.3%

70.5%

96.4%

74.9%

89.5%

77.2%

87.8%

95.9%

Commercial Aerospace Stock Price Performance

Source: Capital IQ. Market data as of December 31, 2015.

$42.37

$35.39

$3.08

$46.45

$10.07

$2.30

$50.07

$39.75

$21.98

$26.29

$1.89

$15.35

$54.36

$40.71

$81.00

$3.75

$60.60

$228.45

$92.30

$53.59

$68.50

$52.04

$103.57

$96.98

$42.01

$96.07

$49.66

(26.2%)

(3.9%)

(10.3%)

12.5%

(28.8%)

(24.3%)

17.4%

(40.4%)

(21.6%)

(3.4%)

(46.9%)

1.3%

(6.7%)

(26.3%)

(26.5%)

(26.6%)

(17.1%)

15.5%

9.1%

1.8%

(2.2%)

(23.4%)

3.3%

(24.9%)

(0.4%)

(16.5%)

2.2%

(0.7%)

Stock Price % of 52 Week High 2015 Performance

S&

P

Str

uctu

res

Ser

vice

s D

iver

sifie

d In

dust

rial

s E

lect

ro-M

echa

nica

l

S&P

14


Total Transaction Size (1)

Commercial Aerospace Historical M&A Activity Global Deal Volume – Past 15 Years

$20,124

$5,503

$31,653

$16,754 $14,902

$53,434

$42,637

$81,611

$19,103 $11,889

$7,300

$69,771

$80,720 $84,706

$33,683

$81,002

$0

$20,000

$40,000

$60,000

$80,000

$100,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total Enterprise Value

($Millions)

Source: ThomsonOne.com. (1) Includes disclosed values only.

Total Transaction Volume (1)

34 37

48 46 51

61

90 88 90

64 68

82

92 84

95 92

0

20

40

60

80

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Number of Deals

15


Announced Acquirer Target Description

Nov 2015 Designs, develops, manufactures, sells, and services engineered mission equipment for specialty aerospace and defense applications worldwide

Nov 2015 Designs, manufactures, and markets cabin interiors for airlines, airframe OEMs, and regional aircraft manufacturers

Nov 2015 Manufactures complex machined parts for the aerospace industry

Nov 2015 Manufactures and supplies precision machined products to direct OEM suppliers of commercial, aerospace, and defense manufacturers

Oct 2015 Leading provider of proprietary thermal management systems, auxiliary power generation systems and related aftermarket spares and repairs

Oct 2015 International group providing complex engineering solutions to the A&D market

Oct 2015 Leading global provider of ground handling and technical services

Oct 2015 Produces and supplies direct replacement parts for gas turbine engines and components

Oct 2015 Provides maintenance, repair and overhaul services for commercial and military aircraft

Oct 2015 Leading provider of training content for early stage pilot training

Sep 2015 Operates a network of fixed base operations and provides maintenance, repair and overhaul services

Sep 2015 Composite Business

Manufacturers aerospace composites and components

Aug 2015 Provides development, delivery and support of edge aerospace and defense systems

Aug 2015 Manufactures and sells metal components and products to the aerospace, power, and general industrial markets

Jul 2015 Provides ground services at over 270 stations worldwide

Jul 2015 Manufactures aero-structures, landing gear systems, and engine components

Jul 2015 Designs and manufactures aircraft components and systems for aircraft manufacturers

May 2015 Provides aircraft maintenance, repair and overhaul services and custom solutions for business aviation, commercial aviation, and military customers

Apr 2015 Aerospace Business

Manufactures extruded plastic interior parts for the commercial aerospace industry

Commercial Aerospace Recent M&A Activity

Alcor Aerospace Technologies

Certain Assets of Arizona Faclity

16


Selected Leadership Changes in 2015

Company Announcement

November 11, AAR Corp. names Michael Sharp as CFO

September 26, Eaton announces Craig Arnold as President and COO, who will also succeed current Chairman and CEO Alexander Cutler when he retires in 2016

January 21, Parker Hannifin names Thomas Williams as CEO and Lee Banks as President and COO

November 11, Rockwell Collins announces that CEO and President Kelly Ortberg was elected to the additional role of Chairman of the Board

January 6, Senior PLC announces David Squire as CEO

June 8, Spirit AeroSystems announces John Pilla as SVP of Engineering and CTO

April 2, TransDigm announces Terrance Paradie as EVP and CFO

April 8, Triumph Group names Richard Ill as President and CEO, Ralph Eberhart replaced Ill as Chairman of the Board December 29, Triumph Group appoints Daniel Crowley as President and CEO

17


Equity Market Conditions

18


2015 U.S. Equity Market Backdrop

Major Indices Negative For 2015; Dow Breaks 6 Year Streak

Sector Equity Returns

Pockets of Volatility Becoming the New Normal

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

J F M A M J J A S O N D

VIX

Inde

x Va

lue

VIX Index

v

S&P 500 Intraday Movements

Sector P / E Valuations

U.S. New Issuance Decreased Year-Over-Year U.S. IPOs

U.S. Follow-ons

U.S. Convertibles

267 149

2014 2015

# of Deals

656 615

2014 2015

124 76

2014 2015

Source: Capital IQ. FactSet.

Source: Capital IQ. ThomsonOne.com. Source: Dealogic ECM Analytics.

2016 S&P 500 Estimate: +6.9%

(15%)

(10%)

(5%)

0%

5%

10%

15%


% C

hang

e

S&P 500 Dow Jones Russell 2000 NASDAQ

(23.6%) (4.7%) (3.5%) (1.7%)

1.2% 4.3% 4.6% 10.3%

(5.7%) (2.2%) (0.7%)

5.7%

EnergyIndustrialsFinancials

TelecomReal EstateTechnologyHealthcareConsumer

Russell 2000Dow JonesS&P 500

Nasdaq

78

81

118

82 88

109

66 52

39

37

56 34

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0


Issu

ance

($bn

)

CONV FO IPO

Russell 2000 Intraday Movements

28.0x

21.3x

18.0x 16.6x 17.4x

13.9x 12.5x

28.0x

18.5x 16.8x 15.9x 15.8x

12.9x 12.2x

LTM NTM

(400bps)

(200bps)

0bps

200bps

400bps

11/6 11/18 12/1 12/18 12/31

(400bps)

(200bps)

0bps

200bps

400bps

11/6 11/18 12/1 12/18 12/31

19


Debt Market Conditions

20


$2.0 $2.1

$(1.8) $(1.4)

$(0.5)

$0.4

$(3.5) $(3.8)

$(1.3)

$0.1

$(0.8)

$(5.0)

$(4.0)

$(3.0)

$(2.0)

$(1.0)

$-

$1.0

$2.0

$3.0

$233.6

$375.3

$465.5

$606.7

$527.5

$420.7 $419.7

$-

$200

$400

$600

$800

2010 2011 2012 2013 2014 2015 LTM1/8/16

Institutional Pro Rata

$97 $89

$14

$1 $4 $12

$54

$83

$95

$0

$20

$40

$60

$80

$100

$120

2006 2007 2008 2009 2010 2011 2012 2013 2014

Leveraged Capital Markets Backdrop

Leveraged Loan Volume Average Secondary Spreads

2.18%

1.63%

Leveraged Loan Mutual Funds Flow and CLO Issuance

L+402

5.80%

($Billions) ($Billions)

$(2.4) $(1.5)

$(7.1)

$0.7

$2.2

$0.7

$(0.2) $(0.8)

$(1.2)

$0.5

$(2.3)

$(8)

$(6)

$(4)

$(2)

$-

$2

$4

L+300

L+350

L+400

L+450

L+500

L+550

L+600

L+650

L+700

BB Corporate B Corporate

BB Corp. Loans: L + 420

B Corp. Loans: L + 702

$(0.3) $(0.3)

$(0.7) $(0.4)

$(0.6)

$(2.0)

$(1.2)

$(0.8) $(0.6)

$0.9 $0.8

$2.3

$0.9

$2.6 $2.3

$1.4

$- $-

$(2.5)

$(1.5)

$(0.5)

$0.5

$1.5

$2.5

$3.5

Series1 CLO Issuance

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

Mar

-14

Jun-

14

Sep

-14

Dec

-14

Mar

-15

Jun-

15

Sep

-15

Dec

-15

Broad Market Index BB Index B Index

Secondary Market Performance High Yield Volume High Yield Mutual Funds and ETF Flows

($Billions) ($Billions) Broad Market Index: 8.91%

BB Index: 6.21%

B Index: 9.10%

$218.3

$344.8 $323.6 $317.3

$262.4 $260.2

$-

$100

$200

$300

$400

2011 2012 2013 2014 2015 LTM1/8/16

Recent Leveraged Loan Market Trends

Recent High Yield Market Trends

Source: S&P (LCD News) and Thomson Reuters LoanConnector.

21


Jefferies Aerospace & Defense Team Investment Banking

Nick Fazioli Senior Vice President Aerospace & Defense

(212) 336-7269 [email protected]

Josh Araujo Vice President Aerospace & Defense


Chris O’Geen Managing Director Aerospace & Defense


Tim Alden Managing Director Aerospace & Defense


Katya Brozyna Associate Aerospace & Defense


Jack Goldstein Analyst Aerospace & Defense


Booey Ghani Analyst Aerospace & Defense


22

jefferies aerospace & defense group...jefferies llc / february 2016 2015 defense &...

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