Aerospace, Defense and Government Services Quarterly Industry Update First Quarter 2013

Transcription

1 Aerospace, Defense and Government Services Quarterly Industry Update The McLean Group 7900 Westpark Drive A320 McLean, VA

2 Quarterly Industry Snapshot Industry News Quarterly Summary On March 1, President Obama issued an order putting sequestration into effect. Shortly after, the House and Senate agreed to a continuing resolution (CR) to fund federal agencies through September 30, 2013, maintaining the cuts from sequestration but avoiding a government shutdown. The CR extends the federal civilian workers pay freeze for a third consecutive year and specifies funding for several key agencies respective appropriations bills. Congress now turns its focus to the FY 2014 budget. President Barack Obama signed an executive order, titled Improving Critical Infrastructure Cybersecurity, aiming to strengthen the nation's critical infrastructure through cross-sector information-sharing. Secretary of Defense Chuck Hagel announced plans to bolster US missile defenses in response to "irresponsible and reckless provocations" by North Korea, which last week threatened a pre-emptive nuclear strike against the US. Secretary Hagel s plans included deploying 14 new anti-missile interceptors at Fort Greely, AK and a second missile-defense radar in Japan. On February 12, Italian police arrested Finmeccanica Chairman and CEO, Giuseppe Orsi on allegations that while heading the Company s AugustaWestland unit he bribed Indian officials to secure the sale of 12 helicopters, a deal valued at a $753 million. After a series of embarrassing malfunctions including an onboard fire stemming from battery issues, the Boeing 787 Dreamliner fleet was grounded globally by aviation authorities on January 16. Solutions to the problem are currently undergoing testing. The CEOs of CACI and Spirit AeroSystems were replaced by former Lockheed Martin executives. In February, CACI s board replaced Dan Allen with Ken Asbury after just one year and in March, Spirit announced that Larry Lawson would replace Jeff Turner. Notable Quarterly M&A Activity ManTech acquired Alta Systems (1/9/13) Triumph Group acquired Goodrich Pump & Engine Control Systems from United Technologies (3/18/13) DC Capital Partners acquired CompSec (1/29/13) Teledyne acquired Reson A/S (3/1/13) Arlington Capital Partners acquired MB Aerospace Holdings (3/18/13) Ericson Air-Crane plans to acquire Evergreen Helicopters (3/19/13) Capital Markets % Change 4 Weeks Q Weeks Defense Prime Index 7.0% 3.3% 6.7% Government Services Index 6.9% 15.6% 15.6% Defense Systems Index 1.5% 6.0% 5.3% Middle Market D&G Services Index 11.8% 14.0% 15.5% Large Cap Aerospace Index 5.8% 11.9% 13.4% Mid Cap Aerospace Index 7.4% 13.0% 5.4% Small Cap Aerospace Index 2.8% 9.3% 4.8% S&P % 10.0% 11.4% Source: Public Filings; Capital IQ as of 03/31/13 1

3 M&A Analysis TMG tracked 29 announced Defense and Government Services sector transactions and 27 Aerospace transactions during 2013 s first quarter. Transaction activity in both sectors declined significantly vs. Q4 2012, when an unusually high level of activity reflected companies race to close transactions before 2013 tax hikes took effect. Continued market uncertainty, exacerbated by Sequestration, also dampened deal volume vs. prior quarters. During Q1 2013, financial buyers accounted for 36% of Aerospace, Defense, and Government Services M&A activity vs. 29% in The decrease in transaction volume, lack of material share repurchase or special dividends as well as an increase in financial buyer activity suggest that in Q1 strategic buyers were largely holding onto dry powder. The Defense and Government Services sector saw considerable Q international deal activity as strategics sought to buy growth outside the US due to US budgetary constraints and a weaker domestic economy. Both Cubic and Teledyne acquired internationally with respective purchases of Australia based, PS Management Consultants and Denmark based Reson A/S. J.F. Lehman was a very active financial buyer, announcing two acquisitions: IMECO, Inc. and, through portfolio Company Drew Marine, Alexander/Ryan Marine & Safety Co. Inc. Aerospace sector activity was most noteworthy for Curtiss-Wright s and Moog s Q announcements of two acquisitions each. Meanwhile, Arlington Capital s acquisition of MB Aerospace represented its first foray into the sector. Arlington Capital plans to operate MB Aerospace as a global platform in aerospace manufacturing, engineering and supply chain management, with future acquisitions likely. Defense and Government Services Transaction Activity ??? Q1 Q2 Q3 Q4 Quarterly Aerospace Transaction Activity Q Q Q Q Q Source: InfoBase; Capital IQ as of 03/31/13 2

4 Industry Trends (Defense and Gov. Services) Sequestration dominated the headlines in 2013 s first quarter while remaining the fundamental issue influencing government contractors today. On March 1, President Obama issued an order putting sequestration into effect. Shortly after, the House and Senate agreed to a continuing resolution (CR) to fund federal agencies through September 30, 2013, maintaining sequestration but avoiding a government shutdown. The CR extends the federal civilian workers pay freeze for a third consecutive year and specifies funding for several key agencies respective appropriations bills. Congress now turns its focus to the FY 2014 budget while agencies face a continuing challenge: cut costs to meet sequestration imperatives. As a result, nearly every agency will face furloughs of unknown scope and scale. Meanwhile, equity markets are thriving in the post-sequestration economy. Since sequester cuts began on March 1, our Defense Prime, Government Services and Middle Market custom indices have risen 7.0%, 7.2% and 10.8%, respectively and 15 of our 21 custom index companies have outperformed the S&P s 3.6% gain. Our Government Systems Index our sole S&P underperformer rose 1.5%. From an operating perspective, corporate earnings reflected a difficult business environment. Most of our custom index companies reported flat or declining YOY CY2012 revenues. Only our Middle Market index reported substantial growth. Additionally, with the exception of Government Services, our custom indices median operating margins all declined YOY. Looking forward, budget discussions will continue to influence government contractors. In addition, escalating threats by North Korea likely will impact missile defense discussions and budgeting. The US recently demonstrated its commitment to missile defense on several fronts, including its deployment of a THAAD anti-missile defense system in Guam, reaffirming its ability and its determination to deploy funding rapidly in response to geopolitical exigencies. Stock Performance Company Since Feb 28 YTD 3.7% 1.8% 6.1% 5.6% 9.7% 4.6% 6.8% 3.8% 7.7% 2.1% 5.0% -3.4% 14.0% 5.2% 2.5% 22.9% 8.3% 3.6% 14.6% 19.7% S&P % 10.0% Operating Performance YOY Revenue Operating Margin 2 Index Change 1 CY2011 CY2012 Defense Prime (1.4%) 11.6% 10.5% Gov. Services 0.9% 6.4% 7.0% Def. Systems (0.6%) 11.8% 11.7% Middle Market 5.5% 6.0% 5.8% 1 Calculated on total index revenue of CY2012 & CY Displays the median operating margin of the index Source: Public Filings; Industry Newswires and Capital IQ as of 03/31/13 3

5 Industry Trends (Aerospace) Drones continued to dominate headlines this quarter. Controversy surrounding the use of lethal drones swirled during nomination hearings of newly appointed CIA Director John Brennan. In the wake of those hearings, the CIA s lethal targeting program likely will be transferred to DoD. Most recently, the Navy announced the launch of its highly anticipated Unmanned Carrier-Launched Airborne Surveillance and Strike (UCLASS) system. The Navy will pay Boeing, General Atomics, Lockheed Martin and Northrop Grumman to provide the technical specs for their respective designs for a stealthy, jet-powered, lethal drone designed to be deployed from aircraft carriers and to fly alongside the latest manned fighters. The winning design, scheduled to be announced in 2015, will serve as the program s backbone. Conversely, the market for smaller surveillance drones continues to decline, hobbled by a shrinking US military presence in the Middle East, decreased defense spending and a limited domestic market. AeroVironment, once the Pentagon s top drone supplier, saw its share price fall 20.0% during Q1 due to poor Q4 earnings results and its severe dependency on federal spending. X-47 Phantom Ray Sea Avenger Sea Ghost In the civilian space, Airbus closed 2012 with an industry record setting backlog of 4,583 aircraft valued at more than $638 billion (based on list prices). Sales largely were driven by 1,734 bookings in Airbus single aisle A320 family along with sales of 58 A330s, 27 A350s and 9 A380s. Airbus has maintained its momentum in 2013 by winning the largest order in aircraft industry history: a $24 billion, 234 aircraft purchase by Indonesia's Lion Air. Company Orders as of Unfilled Orders by Aircraft Model Total Orders /31/2013 3, ,445 3/31/2013 A320 Family A330/A340/A350 A380 3, ,948 Boeing began 2013 by reclaiming the title of World s No. 1 Airplane Manufacturer from Airbus for the first time in a decade, having delivered 585 commercial jets in During 2012, Boeing s backlog swelled to more than $390 billion. Despite its great start to 2013, Boeing took a hit when defective lithium ion batteries in its new 787 Dreamliner grounded the aircraft worldwide. Boeing s new battery system has been tested successfully under normal and non-normal flight conditions and Boeing has yet to witness 787 cancelations. Meanwhile, Boeing 737 sales witnessed continuing growth in 2013 when it signed a huge, 200 plane order with Ireland s Ryanair, valued at $18 billion. 4

6 Raytheon Most Recent Quarterly Financial Results (Defense and Gov. Services) Most Recent Quarterly Earnings Suprise % VSE NCIT Kratos Revenue CSC Raytheon Northrop Booz FLIR Harris CACI KEYW ICF SAIC ITT Exelis Teledyne Company Quarter Ending Revenue EPS 12/31/ % -26.5% 12/31/ % 6.1% -9.0% 12/31/ % 8.4% -4.9% L-3 Most Recent Quarterly Earnings Suprise 1 Lockheed 12/31/ % 22.3% 12/31/ % 23.1% 12/31/ % 8.6% VSE Booz ManTech Teledyne 12/31/ % 3.0% 12/28/ % 24.2% Revenue Harris SAIC FLIR CACI L-3 KEYW ICF GD Exelis -9.0% EPS 9.0% -30.0% Lockheed 12/31/ % -19.1% 01/31/ % 5.9% 12/31/ % -32.9% 12/31/ % 0.0% 12/31/ % 4.0% 12/28/ % 4.2% VSE ManTech GD 30.0% Kratos CSC Northrop Raytheon -30.0% Booz ITT Cubic VSE DRCO FLIR Harris SAIC EPS Teledyne Booz 30.0% Kratos CSC Raytheon Northrop Defense Prime Index Defense Systems Index Government Services Index Middle Market ITT Index Teledyne Source: Harris Public Filings; SAIC FLIR Capital IQ as of 03/31/13 CACI L-3 12/30/ % 8.3% 12/31/ % -66.7% 12/31/ % 0.0% 12/31/ % 0.0% 12/30/ % 25.0% 12/31/ % 36.4% 12/31/ % 7.0% 1 Earnings Surprise is calculated as the difference of a Company s most recent quarterly financial results from Capital IQ analyst consensus estimates 5

7 Raytheon Raytheon htriumph UTC LMI excel Most Recent Quarterly Financial Results (Aerospace) Boeing Boeing LMI Revenue Bombardier Astronics HEICO Rockwell Rockwell AAR Ametek PCP Wesco B/E Moog Textron Esterline Spirit Triumph UTC Hexcel 15.0% LMI Curtis-Wright -15.0% Boeing Rockwell AAR ManTech -6.0% 6.0% tis-wright Curtis-Wright EPS.0%-15.0% VSE AVAV evenue EPS Most Recent Quarterly Earnings Suprise 1 Booz AAR FLIR Harris CACI KEYW 30.0% ICF B/E Orbital Spirit Raytheon 6.0% 6.0% Kratos CSC SAIC ITT Exelis Northrop Teledyne EPS L-3 B/E Spirit VSE Digital Globe Company Quarter Ending Revenue EPS CACI 12/31/ % 2.1% KEYW ICF Exelis Revenue KEYW ICF Exelis Revenue 12/31/ % 1.4% -9.0% -9.0% 12/31/ % 8.5% % Lockhe 12/31/ % -9.1% GD VSE Gilat ManTech -9.0% VSE GD Gencorp Revenue ManTech Large Cap Aerospace Index Mid Cap Aerospace Index Small Cap Aerospace Index GD Source: Public Filings; Capital IQ as of 03/31/13 Booz Most Recent Quarterly Earnings Suprise 1 FLIR Harris CACI -30.0% ITT Booz Teledyne SAIC FLIR Harris L-3 Booz SAIC ITT Teledyne L-3 12/30/2012 CSC-2.6% -6.1% 12/31/ % 4.4% Raytheon Northrop 12/29/ % -12.3% 12/31/ % 1.0% 02/28/ % 4.5% 12/31/ % -12.9% ITT Kratos Teledyne 01/25/ % 33.3% 12/31/ % -5.3% Harris SAIC EPSFLIR CACI 12/29/2012 EPS -2.2% L-3-7.4% -30.0% KEYW ICF Exelis 12/31/ % 38.1% 12/31/ % 4.9% 12/31/ % 3.5% 01/26/ % -55.3% 12/31/ % -5.1% 11/30/ % 0.0% 12/31/ % 28.6% 12/31/ % 157.1% 01/31/ % -7.5% 12/31/ % -5.0% 12/31/ % -7.4% 1 Earnings Surprise is calculated as the difference of a Company s most recent quarterly financial results from Capital IQ analyst consensus EPS estimates -30.0% 6

8 Capital Markets: Overview (Defense and Gov. Services) 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% Last 52 Weeks Custom Index Performance 15.6% 15.5% 11.4% 6.7% 5.3% -25.0% Mar 2012 Apr 2012 May 2012 Jun 2012 Jul 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Mar 2013 Defense Prime Index Government Services Index Middle Market Defense & Government Services Index Defense Systems Index S&P 500 Index Index Constituents and Stock Price as a % of 52 Week High Defense Prime Index Government Services Index Defense Systems Index Middle Market Index 95% 99% 100% 98% 99% 70% 92% 97% 77% 99% 81% 85% 96% 89% 100% 61% 98% 98% 81% 61% 95% Source: Public Filings; Capital IQ as of 03/31/13 7

9 Capital Markets: Overview (Aerospace) 20.0% Last 52 Weeks Custom Index Performance 15.0% 10.0% 5.0% 13.4% 11.4% 5.4% 4.8% 0.0% -5.0% -10.0% -15.0% -20.0% Mar 2012 Apr 2012 May 2012 Jun 2012 Jul 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Large Cap Aerospace Index Mid Cap Aerospace Index Small Cap Aerospace Index S&P 500 Index Index Constituents and Stock Price as a % of 52 Week High Large Cap Aerospace Index 100% 100% 99% 93% 97% 98% 95% 99% Mid Cap Aerospace Index 90% 92% 97% 96% 97% 99% 73% 98% Small Cap Aerospace Index 65% 84% 96% 95% 92% 91% 90% 87% Source: Public Filings; Capital IQ as of 03/31/13 8

10 Capital Markets: Stock Performance (Defense and Gov. Services) Last 52 Weeks KEYW 27.1% KEYW 108.1% CSC 22.9% CSC 64.4% Teledyne 20.5% Teledyne 24.4% SAIC 19.7% Northrop 14.8% FLIR 16.6% L % ICF 16.0% S&P % S&P % Raytheon 11.4% L-3 5.6% Lockheed 7.4% CACI 5.2% ICF 7.2% Lockheed 4.6% Harris 2.8% Northrop 3.8% FLIR 2.8% ManTech 3.6% SAIC 2.7% NCI 3.2% VSE 0.7% Raytheon 2.1% General Dynamics (3.9%) VSE 2.0% Kratos (5.8%) Dynamics Research 1.9% CACI (7.1%) General Dynamics 1.8% Cubic (9.6%) Kratos 0.0% Exelis (13.0%) Exelis (3.4%) Booz (21.1%) Booz (3.4%) ManTech (22.0%) Harris (5.4%) NCI (24.3%) Cubic (10.9%) Dynamics Research (38.2%) (20%) (10%) 0% 10% 20% 30% 40% (75%) (50%) (25%) 0% 25% 50% 75% 100% 125% Defense Prime Index Government Services Index Defense Systems Index Middle Market Defense & Government Services Index S&P 500 Index Source: Public Filings; Capital IQ as of 03/31/13 9

11 Capital Markets: Stock Performance (Aerospace) Last 52 Weeks GenCorp Astronics B/E Aerospace Orbital Sciences Textron Triumph Esterline DigitalGlobe Ametek UTC Boeing Spirit AeroSystems Moog Wesco Aircraft Holdings S&P 500 Rockwell Collins Hexcel LMI Aerospace Gilat Bombardier Curtis-Wright Percision Castparts AAR HEICO AeroVironment (16.6%) (1.6%) (3.0%) 30.3% 22.0% 21.2% 20.3% 20.2% 19.0% 18.3% 15.4% 13.9% 13.9% 11.9% 11.7% 11.4% 10.0% 8.5% 7.6% 7.5% 7.3% 7.2% 5.7% 0.1% 45.4% DigitalGlobe GenCorp Gilat Ametek B/E Aerospace Orbital Sciences Triumph Hexcel Boeing LMI Aerospace UTC S&P 500 Percision Castparts Rockwell Collins Textron Moog Esterline HEICO AAR Bombardier (2.7%) Curtis-Wright (6.2%) Wesco Aircraft Holdings (9.1%) Astronics (14.7%) Spirit AeroSystems (22.4%) AeroVironment (32.4%) 41.1% 34.1% 29.7% 26.9% 25.3% 20.8% 15.4% 14.2% 12.6% 11.4% 9.7% 9.7% 7.1% 6.9% 5.9% 5.2% 0.8% 87.3% 116.7% (30%)(20%)(10%) 0% 10% 20% 30% 40% 50% (60%) (30%) 0% 30% 60% 90% 120% 150% Large Cap Aerospace Mid Cap Aerospace Small Cap Aerospace Index Source: Public Filings; Capital IQ as of 03/31/13 10

12 Short Interest (Aerospace, Defense and Gov. Services) 4.0% Last 52 Week Median Short Interest 3.5% 3.0% 2.5% 2.0% 2.3% 2.0% 1.5% 1.0% Mar 2012 Apr 2012 May 2012 Jun 2012 Jul 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Jan 2013 Feb 2013 Mar 2013 Defense and Government Services Aerospace Short Interest as of March 28, 2013 Defense and Government Services 1.5% 5.3% 2.5% 4.7% 1.9% 1.9% 16.4% 2.0% 9.8% 3.7% 0.3% 2.0% 11.6% 8.3% 0.5% 1.2% 2.1% 1.4% 2.9% 4.4% 2.0% Aerospace 0.6% 0.8% 1.3% 0.0% 0.8% 6.0% 6.3% 1.2% 3.9% 1.3% 1.7% 5.0% 2.3% 2.6% 0.7% 3.7% 4.2% 1.9% 16.6% 2.3% 0.0% 3.7% 1.6% 1.5% Source: Public Filings; Capital IQ as of 03/31/13 11

13 Dry Powder Calculations (Defense and Gov. Services) ($ millions) Defense Prime Index 3x LTM EBITDA $11,208.0 $4,806.0 $15,579.0 $10,920.0 $10,032.0 Less LT Debt 3, , , , ,731.0 Plus Cash 3, , , ,188.0 Dry Powder $10,595.0 $1,502.0 $11,169.0 $10,847.0 $8,489.0 Government Services Index 3x LTM EBITDA $1,572.0 $1,008.0 $5,490.0 $674.2 $2,694.0 Less LT Debt 1, , ,298.0 Plus Cash , Dry Powder $163.2 $339.5 $5,059.0 $609.1 $2,132.0 Defense Systems Index 3x LTM EBITDA $425.3 $2,130.0 $1,100.5 $3,361.8 $990.6 Less LT Debt , Plus Cash Dry Powder $567.0 $1,773.0 $1,174.0 $1,760.0 $478.2 Middle Market Defense & Government Services Index 3x LTM EBITDA $93.0 $269.3 $86.9 $306.6 $52.9 $219.8 Less LT Debt Plus Cash Dry Powder $3.9 $179.0 $2.9 ($295.0) $36.2 $53.0 Source: Public Filings; Capital IQ as of 03/31/13 12

14 Dry Powder Calculations (Aerospace) ($ millions) Large Cap Aerospace Index 3x LTM EBITDA $2,554.0 $1,896.6 $23,550.0 $3,012.0 $6,667.8 $3,213.0 $4,101.0 $29,043.0 Less LT Debt 1, , , , , , , ,221.0 Plus Cash , , , ,819.0 Dry Powder $1,258.2 $449.8 $23,482.0 $503.0 $3,325.4 $2,428.0 $1,484.0 $10,641.0 Mid Cap Aerospace Index 3x LTM EBITDA $656.1 $823.6 $1,071.6 $874.5 $1,025.8 $456.0 $351.3 $2,020.4 Less LT Debt , ,174.9 Plus Cash Dry Powder ($19.3) $55.4 $460.0 $650.5 $418.8 $537.6 ($384.2) $879.0 Small Cap Aerospace Index 3x LTM EBITDA $139.2 $118.6 $186.3 $689.4 $88.9 $577.3 $119.3 $513.1 Less LT Debt Plus Cash Dry Powder $203.2 $95.8 ($381.1) $452.0 $103.6 $341.5 ($137.1) ($64.6) Source: Public Filings; Capital IQ as of 03/31/13 13

15 Selected First Quarter Transaction Activity has acquired has acquired has acquired MRO Business Closed Closed Closed January 2, 2013 January 2, 2013 January 2, 2013 Notes Notes Notes Moog acquired Broad Reach Engineering Company (BRE), a leading designer and manufacturer of spaceflight electronics and software located in Golden, CO. The transaction adds to Moog s space products portfolio and provides a team of experienced individuals. The purchase price was $48.0 million, including $37.0 million in cash, a $6.0 million note payable and a $5.0 million potential earn out payment. Heilind Electronics, Inc. acquired Interstate Connecting Components (ICC), a New Jersey-based distributor of electronic components for the military and aerospace industries. ICC, founded in 1985, sells to leading defense contractors and commercial manufacturers world-wide, serving first-, second-, and third-tier OEMs in the aerospace, shipbuilding, avionics, telecommunications, and broadcast markets. CACI International acquired IDL Solutions, Inc., a leading provider of Information Technology (IT) solutions, applications and mission-critical systems support to healthcare IT clients and other civilian agencies. IDL Solutions has over 100 employees and leverages "big data" analytics to help healthcare organizations gain new insights from large volumes of health data. Source: Capital IQ and InfoBase as of 03/31/13 14

16 Selected First Quarter Transaction Activity has acquired has acquired has acquired MRO Business Closed Closed Closed January 3, 2013 January 3, 2013 January 4, 2013 Notes Notes Notes The Berger Group acquired Hawthorne Services, Inc. Hawthorne Services is a provider of full lifecycle aircraft fuel services and facilities operations and maintenance services across the southeast United States for the Defense Logistics Agency-Energy (DLA-E) and the state of South Carolina. The acquisition follows the 2012 Berger Group acquisition of the enterprises that now form Louis Berger Services, Inc. PRV Aerospace, LLC, a portfolio company of Court Square Capital Partners, acquired all of the outstanding stock of Astro Spar, Inc. Astro Spar is a manufacturer of complex, precision-machined components and assemblies for the commercial and military aerospace industries. The Company s products are manufactured using aluminum alloys and include spars, door beams, stringers, webs, chords, longerons, chines, wing formers and seat tracks. J.F. Lehman announced that certain of its investment affiliates have acquired IMECO, Inc., a leading provider of turnkey marine electro-mechanical solutions for US Government and commercial customers. The Company's integrated maritime solutions include the design, engineering, planning, procurement and installation of HVAC, cargo handling, electric steering, propulsion and fire suppression systems. Source: Capital IQ and InfoBase as of 03/31/13 15

17 Selected First Quarter Transaction Activity has acquired has acquired has acquired MRO Business Closed Closed Closed January 6, 2013 January 7, 2013 January 7, 2013 Notes Notes Notes The Riverside Company acquired Bohemia Interactive Simulations. Bohemia is a developer and provider of games for training technology and interactive simulation systems sold to defense, emergency and missioncritical customers. Bohemia supplies the U.S. Department of Defense, UK Ministry of Defense, Australian Defense Force and a range of other international clients. Vistronix acquired Technology Associates International Corporation. Technology Associates provides IT support services to the Marine Corps, Navy, Air Force, Department of Health and Human Services and U.S. Strategic Command. The Company develops highly specialized geospatial and data visualization software applications and systems. CRGT Inc., a Veritas Capital portfolio company, acquired Guident Technologies, Inc. Guident provides end-to-end data analytics strategy and planning services, along with data warehouse, data management and business analytics solutions. Guident s customers include the EPA, DOT, SEC and the U.S. Patent and Trademark Office. Source: Capital IQ and InfoBase as of 03/31/13 16

18 Selected First Quarter Transaction Activity plans to acquire has acquired has acquired Certain Assets of MRO Business Announced Closed Closed January 7, 2013 January 9, 2013 January 9, 2013 Notes Notes Notes Lockheed Martin announced its acquisition of certain assets of the engine maintenance, repair and overhaul (MRO) business of Aveos Fleet Performance, Inc., located in Montreal, Canada. The assets will provide capabilities to perform a range of services on the CF34 and CFM56 engine families and the Airbus 320 family. Behrman Capital acquired Tresys Technology, a provider of cybersecurity products, services and solutions to government and commercial customers. Tresys offers services and products that address computer network defense, focusing primarily on platform security, assured information sharing and security engineering. ManTech acquired Alta Systems, Inc., an IT and professional services company with applications in healthcare systems and capital planning. ALTA provides a broad range of IT and professional services to government and private industry in three major practice areas: capital planning and investment control; system design, development and operation; and fraud detection and statistical analysis. Source: Capital IQ and InfoBase as of 03/31/13 17

19 Selected First Quarter Transaction Activity plans to acquire has acquired plans to acquire Announced Closed Announced January 10, 2013 January 10, 2013 January 14, 2013 Notes Notes Notes EIT, LLC announced its acquisition of Suntron Corp s Methuen, MA manufacturing facility. The facility, which has an aerospace certification, represents the last of Suntron s manufacturing capability. The sale allows Suntron to better focus on its high reliability and mission and safety critical customers in key industries including defense, aerospace, and medical devices. The addition of the facility will add to EIT s manufacturing capabilities and grow its presence in the Northeast. Web Industries acquired CAD Cut, Inc. Based in Vermont, CAD Cut utilizes the latest in computer controlled laser and knife cutting systems and specializes in providing composite ply kits to aerospace, aviation, defense, and industrial markets. Synergies are especially strong in the aerospace sector, where Web is a recognized leader in providing precision composite slit tape for automated manufacturing. Source: Capital IQ and InfoBase as of 03/31/13 Curtiss-Wright Corp. announced its acquisition of German based Phönix Group in a $106 million cash deal. Founded in 1910, Phönix Group is a leading designer and manufacturer of high performance valves and related support services to global chemical, petrochemical and power markets. Phönix will become part of Curtiss-Wright's Flow Control segment and expand Curtiss- Wright's severe-service valve franchise into new markets. 18

20 Selected First Quarter Transaction Activity plans to acquire has acquired has acquired PS Management Consultants Pty Ltd Announced Closed Closed January 15, 2013 January 18, 2013 January 21, 2013 Notes Notes Notes Cubic Defense Australia, the Australian-based defense systems business of Cubic Corporation agreed to acquire PS Management Consultants Pty Ltd (PSMC), an Australian defense firm with strong ties to the training, simulation, communications, and range safety customers. This was Cubic s second training and simulation acquisition in a month (it acquired NEK Special Programs Group on December 17 th 2012). The Atlas Group, a portfolio company of PE firm Graham Partners, acquired Brenner Aerostructures, LLC. Brenner specializes in bonding metals, anodizing of phosphoric acids, and stretch-forming for the aerospace industry. The bolt-on acquisition is expected to help Atlas win new business, in-source production, and streamline complex assemblies. AtHoc, Inc. acquired Alerting Solutions, Inc., (ASI) a provider of warning systems for homeland security and infrastructure protection used by national, state and local governments around the world. The ASI acquisition extends AtHoc s product offerings, which combine the latest advances in mobile, cloud, multi-media and social networks to enable unified emergency communications for the defense, homeland security and government markets. Source: Capital IQ and InfoBase as of 03/31/13 19

21 Selected First Quarter Transaction Activity & has merged with has acquired has acquired Closed Closed Closed January 23, 2013 January 23, 2013 January 24, 2013 Notes Notes Notes Network Designs, Inc. (NDi) announced that it has successfully completed a merger with cyber security experts, BitSec Global Forensics. Beginning immediately, BitSec will operate as a division of NDi, expanding NDi s cyber solutions to the commercial and government market. BitSec Global Forensics is a worldwide leader in digital forensics, electronic discovery, data breach investigations, and training. The merger brings almost two decades of combined experience to NDi. Greenwich AeroGroup, Inc., a Berkley Capital portfolio company, acquired Aero Precision Industries, LLC. Aero Precision is based in Livermore, CA and is a leading supplier of aftermarket original equipment manufacturer (OEM) parts, systems and custom logistic support services for military aircraft operators worldwide. The acquisition expands AeroGroup s capabilities in international military and government markets. Source: Capital IQ and InfoBase as of 03/31/13 Kidd & Company, LLC (KCO), in collaboration with Centerfield Capital Partners, acquired Imaginetics, Inc. Based in Auburn, WA, Imaginetics manufacturers precision metal components and assemblies for the aerospace industry. The Company s current customer base includes Boeing Commercial Airplanes, Boeing Defense Services, Hexcel Corporation, Spirit Aerosystems and Zodiac Aerospace, among others. 20

22 Selected First Quarter Transaction Activity has acquired has acquired has acquired Martinic Engineering, Inc. Closed Closed Closed January 28, 2013 January 28, 2013 January 31, 2013 Notes Notes Notes TriMas Corporation acquired Martinic Engineering, Inc. for $19 million. Founded in 1978 and located in Stanton, California, Martinic manufactures highlyengineered, precision machined, complex parts for commercial and military aerospace applications, including auxiliary power units, as well as electrical, hydraulic and pneumatic systems. Martinic generated approximately $13 million in revenue for DC Capital Partners acquired Computer Security Solutions, Inc. (CompSec). CompSec is an IT solutions provider based in McLean, VA supporting the Intelligence Community (IC) and Washington DC based agencies. The deal is expected to expand CompSec s customer base through relationships with existing companies in D.C. Capital's portfolio. The McLean Group served as the exclusive M&A advisor to CompSec. Source: Capital IQ and InfoBase as of 03/31/13 Carlyle Group portfolio company, Dynamic Precision Group, acquired Paradigm Precision Holdings (PPH) from American Capital Ltd. PPH is a Massachusetts based provider of highly engineered components for turbine engines serving the commercial aerospace, defense and energy end markets. PPH s manufacturing capabilities include a diverse range of turbine engine products, close tolerance parts and multi-level, highly complex assemblies. 21

23 Selected First Quarter Transaction Activity has acquired has acquired has acquired Closed Closed Closed February 4, 2013 February 13, 2013 February 15, 2013 Notes Notes Notes Drew Marine, a portfolio company of J.F. Lehman, acquired Alexander/Ryan Marine and Safety Inc. Alexander/Ryan is a manufacturer and distributor of fire, safety and rescue equipment to the Offshore and Marine markets. Alexander/Ryan offers a variety of high quality products and services, including personal protection, lifesaving and firefighting equipment, life raft systems, new survival craft, survival craft refurbishment and technical field services. Laird PLC acquired Nextreme Thermal Solutions, Inc., through its subsidiary Laird Technologies, Inc. Nextreme is a Durham, NC based manufacturer of thin-film thermoelectric modules and subsystems. The Company s defense/aerospace technology applications include thermoelectric cooling for next-generation imaging sensors. Laird will acquire 100% of the equity of Nextreme in an all earn out deal. Source: Capital IQ and InfoBase as of 03/31/13 Precision Castparts Corp. (PCP) cquired Protective Coatings, Inc. (Pro-Coat), a supplier of decorative and protective finishes for aerospace, automotive and other products. Pro-Coat is based in Portland, Oregon and has 300 employees. Over the years, PCP has acquired a number of aerospace subcontractors in the Portland region that were customers of Pro-Coat. The terms of the transaction were not disclosed. 22

24 Selected First Quarter Transaction Activity plans to acquire plans to acquire has acquired Announced Announced Closed February 20, 2013 February 22, 2013 February 23, 2013 Notes Notes Notes The Dewey Electronics Corporation announced that it has signed a definitive agreement to purchase certain assets, rights of manufacture and intellectual property from Goodman Ball Incorporated, a maker of military equipment that is based in Menlo Park, California. The purchase of these assets is part of the ongoing liquidation of Goodman Ball by its parent company, C.E. Niehoff & Co. Tactical Air Defense Services, Inc. (TADF) announced it has entered into an agreement to acquire Air 1 Flight Support, Inc. Air 1 is a privately-held, Florida based provider of aircraft maintenance, refueling, and other support services to the military and commercial aircraft industry. TADF will purchase 100% of the outstanding shares of Air 1 for consideration of 5,000,000 shares of its Series C Preferred stock. Boeing acquired CPU Technology, Inc. s Acalis business. Acalis provides security-on-a-chip defending manned and unmanned aircraft from malware, cloning and other cyber threats to an aircraft's systems. Acalis will be integrated into Boeing Military Aircraft's Global Strike division. The Acalis business employs approximately 40 people and is based in California. CPU Technology was privately-held and terms of the transaction were not disclosed. Source: Capital IQ and InfoBase as of 03/31/13 23

25 Selected First Quarter Transaction Activity has acquired has acquired has acquired Closed Closed Closed February 28, 2013 March 1, 2013 March 4, 2013 Notes Notes Notes Bulova Technologies Group, Inc. announced that it received a significant investment in the form of both equity and debt through NFC III, LLC associated with National Financial Companies, LLC. As part of the transaction, NFC III, LLC will appoint two Directors to the Bulova's Board of Directors. Teledyne Technologies acquired RESON A/S, a provider of highresolution marine acoustic imaging and measurement solutions. RESON s multibeam sonar systems range from portable high-resolution shallow water systems used on autonomous underwater vehicles (AUVs) to full ocean depth vessel mounted oceanographic systems. The transaction marks Teledyne s third acquisition in the last twelve months focused on 3D imaging.. RBC Bearings, Inc. acquired Western Precision Aero, LLC (WPA), a privately-held, Californiabased manufacturer of precision components and gears for aerospace and industrial markets. The transaction was valued at $2.6 million. WPA's 2012 net sales were approximately $5.0 million. The acquisition advances RBC s strategy of expanding its product portfolio into the aerospace and industrial markets. Source: Capital IQ and InfoBase as of 03/31/13 24

26 Selected First Quarter Transaction Activity has acquired has acquired plans to acquire Secure Computing & Communications Division Metallic Rods Business Closed Closed Announced March 4, 2013 March 8, 2013 March 14, 2013 Notes Notes Notes MacAulay-Brown acquired IP and other assets of Luna Innovations Secure Computing & Communications (SCC) division. SCC conducts electronic component R&D and provides technical services on critical US military and National Security applications. SCC and its employees will be integrated immediately MacAulay-Brown s Advanced Technology Group. Parsons acquired First Support Services, Inc., a wholly owned subsidiary of FirstGroup. First Support Services is a leading provider of facility operations and maintenance (O&M) services, logistics support, transportation support, and telecommunications operations services to the US government. First Support Services has more than 175 employees and more than $50 million in annual revenues. Precision Castparts announced its definitive agreement to acquire the metallic rods business of Sweden s SKF Group for $52 million. The metallic rods business, as part of SKF's aerospace segment, includes operations at SKF sites in St. Vallier sur Rhône, France and Monroe, Washington in the US. The acquisition supports PCP s strategy of further developing its composite technology. Source: Capital IQ and InfoBase as of 03/31/13 25

27 Selected First Quarter Transaction Activity plans to acquire has acquired has acquired Pump & Engine Control Systems Announced Closed Closed March 18, 2013 March 18, 2013 March 18, 2013 Notes Notes Notes Greenbriar Equity Group announced its definitive agreement to acquire EDAC Technologies for $104.1 million in cash. EDAC designs and manufactures jet engine parts as well as equipment gauges and special tooling for engine assembly, manufacturing and inspection. Greenbriar is paying $17.75 per share, a 30% premium over EDAC's average closing price during the 90 trading days ending March 15. Arlington Capital Partners acquired MB Aerospace Holdings Ltd from UK private equity group LDC Ltd. MB Aerospace provides supply chain integration services and manufactures and repairs aero engine components. This was Arlington Capital s first overseas acquisition. Transaction terms were not disclosed. Triumph Group, Inc. announced it will acquire Goodrich Pump & Engine Control Systems (GPECS) from United Technologies Corp (UTC). GPECS supplies aerospace fuel systems for commercial, military, helicopter and business jet markets. The sale of GPECS was one of the divestitures required as a condition of UTC s acquisition of Goodrich. Triumph is the second attempted buyer; last month the DOJ blocked a proposed acquisition by TransDigm Group. Source: Capital IQ and InfoBase as of 03/31/13 26

28 Selected First Quarter Transaction Activity plans to acquire has acquired has acquired Announced Closed Closed March 19, 2013 March 20, 2013 March 21, 2013 Notes Notes Notes Erickson Air-Crane announced its definitive agreement to acquire Evergreen Helicopters, Inc. (EHI) from Evergreen International Aviation in a transaction valued at up to $276.3 million. EHI provides cargo- and personnel-related air transport services to government and commercial customers. Erickson will pay $185 million in cash and the balance in promissory notes, preferred stock and earn outs. Resilience Capital Partners acquired Aerospace Products International, Inc. (API) from First Aviation Services, a First Equity Group portfolio company. As a global aviation parts and equipment distribution and supply chain management firm, API s customers include manufacturers, maintenance providers and operators of widely-used military, commercial, corporate and general aviation aircraft. Transaction terms transaction were not disclosed. Moog acquired Aspen Motion Technologies, a subsidiary of Pentair, for $34 million in cash. Aspen designs and manufactures high-performance permanent magnet brushless DC motors, integrated digital controls and motorized impellers. Aspen also specializes in custom motor designs and significant product enhancements in a variety of highperformance industrial applications. Aspen s 2012 revenue was $36 million. Source: Capital IQ and InfoBase as of 03/31/13 27

29 Selected First Quarter Transaction Activity plans to acquire has acquired plans to acquire Honeycomb Company of America, Inc. Closed Closed Announced March 25, 2013 March 27, 2013 March 27, 2013 Notes Notes Notes The Safariland Group acquired Mustang Survival Corp. Based in Canada, Mustang provides lifesaving equipment for recreational, military, law enforcement and industrial users in the marine and aviation environments. The acquisition represents the Safariland s first acquisition in the marine and aviation industries. Terms of the transaction were not disclosed. Overall Capital Partners acquired Honeycomb Company of America, Inc. (HCOA). The Florida-based company manufactures complex, flight-critical, bonded, composite assemblies for US military aircraft platforms. HCOA provided the US Air Force and various other commercial suppliers factory-new, spare parts for maintenance, repair, and overhaul for more than 50 years. True North Logistics announced its agreement to acquire RAMTECH Support Services, Inc. Based in Pennsylvania, RAMTECH is a 500- employee, woman-owned provider of operations and maintenance and systems engineering and technical assistance services, primarily to the Department of Defense and other federal agencies. Transaction terms were not disclosed. Source: Capital IQ and InfoBase as of 03/31/13 28

30 About The McLean Group Founded in 1997, The McLean Group is a national, middle market investment bank with deep expertise in a variety of industry verticals. Headquartered in McLean, VA, The McLean Group is among the largest independent middle market investment banks in the region. Our core advisory services include: Mergers & Acquisitions The McLean Group uses its considerable experience and expertise in the aerospace, defense and government services industry to guide its clients through each stage of the mergers & acquisitions (M&A) process and ultimately identify the most probable and suitable candidates to complete transactions under the most favorable terms. Business Valuation & Litigation Support As a core competency and complement to its M&A business, The McLean Group provides business valuation services, including intangible asset and financial security valuations for a variety of transactions, financial reporting and tax purposes. In addition, The McLean Group has the experience and credentials necessary to support litigation proceedings, including quantifying economic damages and valuing a minority interest in a business. Capital Formation The McLean Group arranges private equity, venture capital, senior debt and subordinated debt to support clients expansions, M&A, refinancings, recapitalizations, leveraged buyouts and other shareholder liquidity objectives. Strategic Consulting The McLean Group's Strategic Consulting business provides transaction, financial and interim management services to companies ranging from start-up entities to publicly-held corporations across an assortment of industries. McLean Securities, a wholly-owned affiliate of The McLean Group, is a registered broker/dealer with the Financial Industry Regulatory Authority (FINRA) and a Member, Securities Investor Protection Corporation (SIPC). 29

31 Recent ADG Advisory Experience 30

32 Contact Information The McLean Group 7900 Westpark Drive, Suite A320 McLean, VA Main: Fax: Aerospace, Defense and Government Services Team Joe Golden Principal Cameron Hamilton Principal Mitch Martin Principal Greg Boucher Managing Director Kathleen Crow Managing Director Brent Lorenz Vice President John Stack Managing Director Harry Ward Director 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. 31