Aerospace & Defense. Market Monitor Fall 2016 MOSS ADAMS CAPITAL LLC

Transcription

1 Market Monitor Fall 2016 MOSS ADAMS CAPITAL LLC

2 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. 2 MOSS ADAMS CAPITAL LLC

3 Suppliers Relationship with Boeing is Changing 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). Source: Aerospace Market News, July Moss Adams Capital research. 3 MOSS ADAMS CAPITAL LLC

4 Single-Aisle Dominates the Backlog Source: Aerospace Market News, July MOSS ADAMS CAPITAL LLC

5 Market Performance EV / EBITDA Bull vs. Bear Debate Impacting Aerospace Valuations 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 10% 5% 0% -5% -10% S&P 500 4% Small / Mid Cap Aerospace -3% Boeing -7% 13.0x 12.0x 11.0x 10.0x Small / Mid Cap Aerospace Down 0.5x S&P 500 Up 0.9x Boeing Up 0.6x -15% 9.0x -20% -25% 8.0x -30% 7.0x 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. 5 MOSS ADAMS CAPITAL LLC

6 Small/Mid-Cap Aerospace Firms: Valuations ($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 $ % 5.4% 4.7% 2.4x 11.3x 2.3x 10.8x TransDigm Group Incorporated / ,124 23,756 3,106 1, % 12.2% 14.7% 7.6x 17.0x 6.8x 14.9x Spirit AeroSystems Holdings, Inc / ,790 6,189 6, % 0.8% 17.0% 0.9x 6.9x 0.9x 5.9x Hexcel Corp / ,146 4,814 1, % 7.4% 12.9% 2.5x 11.2x 2.3x 10.0x Esterline Technologies Corp / ,185 2,833 1, % 3.6% 31.4% 1.5x 12.2x 1.4x 9.3x Teledyne Technologies Inc / ,667 4,287 2, % 0.9% NA 1.9x 12.0x 1.9x NA Triumph Group, Inc / ,545 3,058 3,820 (148) NA (4.9%) NA 0.8x NA 0.8x 6.8x Moog Inc / ,157 2,881 2, % 2.4% (1.5%) 1.2x 8.9x 1.2x 9.1x Curtiss-Wright Corporation / ,968 4,552 2, % 1.8% 9.5% 2.1x 11.5x 2.1x 10.5x HEICO Corporation / ,363 5,065 1, % 12.0% 11.0% 3.9x 16.5x 3.5x 14.9x AAR Corp / , % 5.9% 19.9% 0.5x 7.8x 0.5x 6.5x Astronics Corporation / ,082 1, % 1.0% 0.1% 1.8x 10.3x 1.8x 10.3x Ducommun Inc / % (3.8%) 49.9% 0.7x 10.7x 0.7x 7.1x LMI Aerospace Inc / % 1.3% 30.4% 1.0x 9.3x 1.0x 7.1x Median $3,673 $2,042 $ % 2.1% 13.8% 1.6x 11.2x 1.6x 9.3x as of August 17, 2016 Average $4,796 $2,263 $ % 3.3% 16.7% 2.1x 11.2x 1.9x 9.5x 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. 6 MOSS ADAMS CAPITAL LLC

7 Recent A&D Transactions with Disclosed Value $ 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. $ /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. $ x Rev 05/24/16 TransDigm Inc. ILC Industries, LLC 05/23/16 KBR Holdings, LLC Wyle Inc. 05/17/16 KLX Inc. (NasdaqGS:KLXI) Herndon Company 03/23/16 Mercury Systems, Inc. (NasdaqGS:MRCY) Microsemi Corp. - RF Integrated Solutions 02/29/16 Albany International Corp. (NYSE:AIN) Blue Falcon I Inc. 02/29/16 J.F. Lehman & Company API Technologies Corp. Manufactures data bus, motion control, and solid-state power controller products for aerospace and defense industries. Provider of specialized engineering, scientific, and technical services to the Department of Defense, NASA, and a variety of commercial customers. Distributes commercial and defense supply chain management solutions to the U.S. Government, domestic, and international companies. Manufactures high-frequency components and subsystem solutions for defense electronics, homeland security, and other government end-use applications. Designs, manufactures and assembles wings, tanks, rotor blades, and airframes for commercial and military aircraft. Designs, develops, and manufactures systems for radio frequency (RF) microwave, millimeterwave, electromagnetic, power, and security applications. $1,000.0 $600.0 $ x Rev; 10.3x EBITDA $ x Rev; 10.7x EBITDA $ x Rev $ x Rev; 15.1x EBITDA 02/25/16 General Atomics Corp. Miltec Corporation Designs, develops, integrates, and tests missile and aerospace systems. $ x 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. $ /08/16 GE Aviation Convergence Fuel Systems, LLC Designs and manufactures fuel systems for commercial aerospace applications $ /21/15 HEICO Electronic Technologies Corp. Robertson Fuel Systems, LLC Develops, manufactures, and markets primary and auxiliary fuel systems for rotary and fixed wing aircraft and ground combat vehicles. $ /19/15 Senior plc (LSE:SNR) STEICO Industries Inc. Manufactures precision tube and welded assemblies for aerospace companies $ x Rev Source: Capital IQ as of 08/17/16. 7 MOSS ADAMS CAPITAL LLC

8 Recent A&D Transactions with Disclosed Value (continued) $ in millions Transaction Announced Acquirer/Investor Target Target Description Value Metric 11/19/15 TransDigm Group Incorporated (NYSE:TDG) Breeze-Eastern Corporation (AMEX:BZC) Designs, develops, manufactures, sells and services engineered mission equipment. $ x Rev; 8.0x EBITDA 10/22/15 Benchmark Electronics Inc. (NYSE:BHE) Secure Communication Systems Inc. Designs and manufactures tactical mission computing products $ /13/15 L-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. $ /25/15 Kolon Glotech, Inc. DACC Co., Ltd 09/23/15 BBA Aviation plc (LSE:BBA) Landmark Aviation, L.L.C. Manufactures carbon / carbon-composites for aircraft brake disks, as well as high temperature jigs and fixtures. Provides end-to-end services for business and general aviation customers. One of the largest FBO networks in the world. $ x Rev $2, x Rev; 18.0x EBITDA 09/22/15 Meggitt (Rockmart), Inc. EDAC Composites LLC Produces composites for the aerospace & defense industries. $ x Rev; 10.6x EBITDA 09/16/15 Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) United Launch Alliance, LLC Provides space launch services. $2, /09/15 Versar Inc. Johnson Controls Security Systems, LLC 08/27/15 The Carlyle Group LP Novetta Solutions, LLC 08/10/15 Berkshire Hathaway Inc. (NYSE:BRK.A) Precision Castparts Corp. (NYSE:PCP) Serves Federal clients by designing, installing and supporting physical security, network security, and facilities management systems. Provides advanced analytics software and solutions to detect threat and fraud, for government and commercial enterprises worldwide. Manufactures and sells metal components and products to the aerospace, power, and general industrial markets. $ x Rev $ x EBITDA $37, x Rev; 13.9x EBITDA 08/07/15 Sunvair Aerospace Aviation Avionics & Instruments, Inc. Aircraft repair company. $ /06/15 Rockwell Collins Inc. International Communications Group, Inc. Designs, develops, and manufactures communications systems and solutions for aerospace & defense industry. $ /30/15 Sensata Technologies Holding NV Custom Sensors & Technologies, Inc. Comprised of sensing product lines and brands, including Kavlico, BEI, Crydom, and Newall. $1, x Rev Source: Capital IQ as of 08/17/16. 8 MOSS ADAMS CAPITAL LLC

9 Recent A&D Transactions with Disclosed Value (continued) $ in millions Transaction Announced Acquirer/Investor Target Target Description Value Metric 07/28/15 TransDigm Group Incorporated (NYSE:TDG) PneuDraulics, Inc. Develops and manufactures precision hydraulic components for the aerospace industry. $ /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. $ x 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. $ x EBITDA 07/20/15 Lockheed Martin Corporation (NYSE:LMT) Sikorsky Aircraft Corporation Designs, manufactures, and services commercial and military helicopters. $9, x Rev; 13.0x EBITDA 06/30/15 H-D Advanced Manufacturing Company Firstmark Corporation Manufactures and sells components and sub-assemblies for aerospace and defense applications. $ /29/15 Ballard Power Systems Inc. Protonex Technology Corporation Manufactures power management products. $ x Rev 06/19/15 Astro-Med, Inc. RITEC Corporation Designs and manufactures computer and related peripheral products for the military and aerospace industries. $7.4 06/09/15 Global Defense & National Security Systems, Inc. STG Incorporated Provides a variety of services including cyber security and intelligence solutions. $ x Rev; 9.0x EBITDA 06/01/15 Handy & Harman Group Ltd. JPS Industries, Inc. Manufactures materials for highly engineered products. $ x Rev 06/01/15 Apollo Global Management, LLC OM Group Inc. Develops and manufactures magnetic materials, chemicals, batteries, and battery management systems. $1, x 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. $ x Rev:12.0x EBITDA 05/28/15 L3 Communications Holdings, Inc. CTC Aviation Group Ltd Operates as an airline training organization. $ x Rev 05/26/15 Veritas Capital StandardAero Business Aviation Services, LLC Provides MRO services and custom solutions for aircraft and rotorcraft engines. $2, x Rev; 11.9x EBITDA Source: Capital IQ as of 08/17/16. 9 MOSS ADAMS CAPITAL LLC

10 Recent A&D Transactions with Disclosed Value (continued) $ in millions Transaction Announced Acquirer/Investor Target Target Description Value Metric 05/21/15 Cyberit Ltd. NICE Systems Ltd., Cyber and Intelligence Division Provides cyber and intelligence solutions. $ x Rev 05/15/15 Magellan Aerospace Corp. Euravia Engineering & Supply Co. Ltd Operates as an aviation company that provides repair and overhaul services for a range of gas turbines, and engine and airframe components. $ x Rev 05/18/15 Ametek Inc. Global Tubes Manufactures precision engineered tube products. $ x Rev 04/30/15 TransDigm Group Incorporated (NYSE:TDG) Pexco LLC, Aerospace Business Designs, fabricates, and delivers custom plastic extrusion products for specialty uses in industries including aerospace and defense. $ x Rev; 10.0x EBITDA 04/28/15 ManTech International Corporation Welkin Associates, Ltd Provides systems engineering and technical assistance support (SETA) to the US government and commercial clients. $ x Rev 04/23/15 API Technologies Corp. Aeroflex/Inmet Inc. and Aeroflex / Weinschel, Inc. A portfolio of aerospace parts manufacturers and test equipment. $ x Rev 04/14/15 Sparton Corp. Hunter Technology Corporation Provides electronic design and manufacturing services for a variety of industries, including A&D. $ x Rev 04/09/15 Insitu, Inc. 2d3 Inc. Provides science solutions for industrial, defense, and entertainment applications. $ x 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. $ x 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. $ x 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. $ x Rev; 9.4x EBITDA Deal Revenue EBITDA Size Multiple Multiple Transactions Represented Median $ x 10.6x Mean $1, x 11.3x Source: Capital IQ as of 08/17/ MOSS ADAMS CAPITAL LLC

11 Moss Adams at a Glance: Leadership through Experience and Results Moss Adams Capital LLC Full-service investment banking and strategic advisor services Dedicated industry specialists Focus on privately owned and family-held companies Mergers and acquisitions Private debt & equity placements Mezzanine capital Due Diligence preparation & advisory Moss Adams LLP 100+ years old Founded in 1913 Largest accounting firm headquartered in the western U.S. 2,400 employees in 29 locations Fully integrated accounting, tax, and business advisory firm Middle-market specialists The Moss Adams Advantage: Discrete, highly leverageable transaction resources and services International Presence Major market affiliates throughout the U.S. and more than 100 countries around world 11 MOSS ADAMS CAPITAL LLC

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14 Contact Us Aerospace Team: Harman Wales Managing Director (206) Richard Anderson Managing Director (949) Kurt Lippmann Partner (425) Wiley Kitchell Managing Director (206) Scott Porter Vice President (206) Daniel Seubert Analyst (206) Moss Adams Capital LLC 2040 Main Street Suite 900 Irvine, CA Third Avenue Suite 2800 Seattle, WA MOSS ADAMS CAPITAL LLC