What We’re Reading

Content Summary

In this April edition of our Aerospace, Defense & Government Services Industry Update, we review recent articles and developments impacting our target end markets. We also provide perspective on recent trends within the public markets as well as the M&A markets.

The MRO M&A Market Is Like a Game of Poker

“In many ways, MRO mergers and acquisitions constitute their own form of industry-predictive maintenance and how it affects the health of the sector. An intelligent deal involves gathering data and looking at what might happen, not only for MRO providers but for aviation as a whole. In the words of former Apple CEO John Sculley: ‘The best way to predict the future is to invent it.’”

MRO Network

Why OEMs Keep Joining the Race for MROs: Dassault Acquires ExecuJet

“Dassault’s acquisition of Luxaviation subsidiary, ExecuJet — on Monday this week — comes as the most recent in a trail of business maneuvers being made by aircraft manufacturers today. Typically, OEMs (original equipment manufacturers) have delivered aircraft. And despite always having a close relationship with MRO (maintenance, repair and overhaul) companies — either through authorized service center agreements or equity investments — acquiring maintenance facilities has never looked more lucrative.”

Corporate Jet Investor

Six Defense Budget Issues to Watch

“When U.S. President Donald Trump submitted his defense budget request to Congress, the reaction was lukewarm at best. Democrats dismissed it as “dead on arrival,” and it even had Republicans scratching their heads. The request for $750 billion to fund the Pentagon sets up a series of battles—some of which fall along partisan or parochial lines, others pitting lawmakers against the executive branch.”

 Aviation Week

The Navy Wants to Shrink Its Aircraft Carrier Fleet

“Visiting the USS Gerald R. Ford two years ago, U.S. President Donald Trump extolled the importance of an enlarged naval force featuring a dozen aircraft carriers—including the Ford, the most expensive ship ever built. Having 12 of these behemoths—sometimes accompanied by a half-dozen other ships—would send an international signal of U.S. resolve and restore the fleet to its post-Cold War size during the 1990s. The Pentagon's latest budget proposal, however, seems to do the opposite.”

The Straits Times

Perspective on Public Marketsa,b,1

screen_shot_2019-04-10_at_1.22.56_pm.png

screen_shot_2019-04-10_at_1.23.39_pm.png

 Recent M&A Transactions2

screen_shot_2019-04-10_at_1.25.02_pm.png

screen_shot_2019-04-10_at_1.25.26_pm.pngIndicates disclosed enterprise values in millions USD, unless denoted with “B” (billion)

a. Current stock prices in USD as of 3/31/19

b. Aircraft OEMs: BA, BBD.B, EADS, ERJ

         Aerospace Supply Chain & Aftermarket Support: AIR, ARNC, ATRO, B, BBA, DCO, HEI, HRX, HXL, KAMN, MAL, MGGT, MOG.A, ROLL,
         SAF, SNR, SPR, TDG, TGI, WAIR, WWD

         Diversified Industrial: AME, CR, CW, ETN, GE, HON, PH, RR, TXT, UTX

         Defense Prime Contractors: BA, BAE, EADS, GD, HO, HII, LMT, NOC, RTN

         Defense Technologies: AVAV, CHG, CMTL, COB, CUB, ESLT, FLIR, HRS, KTOS, LLL, MRCY, TDY, ULE

         Government Services: BAH, CACI, KEYW, LDOS, MANT, SAIC, VEC

         Diversified Services: ACM, BAB, FLR, GIB, ICFI, JEC, KBR, SRP

1. FactSet

2. Mergermarket

 

The information and views contained in this report were prepared by Harris Williams LLC (“Harris Williams”). It is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities or financial instruments or to participate in any particular trading strategy. The information contained herein is believed by Harris Williams to be reliable but Harris Williams makes no representation as to the accuracy or completeness of such information. Harris Williams and/or its affiliates may be market makers or specialists in, act as advisers or lenders to, have positions in and effect transactions in securities of companies mentioned herein and also may provide, may have provided, or may seek to provide investment banking services for those companies. In addition, Harris Williams and/or its affiliates or their respective officers, directors and employees may hold long or short positions in the securities, options thereon or other related financial products of companies discussed herein. Opinions, estimates and projections in this report constitute Harris Williams’ judgment and are subject to change without notice. The securities and financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Also, past performance is not necessarily indicative of future results. No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams’ prior written consent.

Harris Williams LLC is a registered broker-dealer and member of FINRA and SIPC. Harris Williams & Co. Ltd is a private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number 07078852). Harris Williams & Co. Ltd is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. Corporate Finance Advisors GmbH is registered in the commercial register of the local court of Frankfurt am Main, Germany, under HRB 107540. The registered address is Bockenheimer Landstrasse 33-35, 60325 Frankfurt am Main, Germany (email address: hwgermany@harriswilliams.com). Geschäftsführer/Directors: Jeffery H. Perkins, Paul Poggi. (VAT No. awaited). Harris Williams is a trade name under which Harris Williams LLC, Harris Williams & Co. Ltd and Harris Williams & Co. Corporate Finance Advisors GmbH conduct business.