ACGSD November Program M&A in AEROSPACE & DEFENSE: JW Hill Capital's Acquisition of Bandy Manufacturing from GKN Aerospace SPEAKERS: John Hill - Managing Partner, JW Hill Capital Neal Nordstrom - Operating Partner, JW Hill Capital Paul Weisbrich - Managing Director, DA Davidson Steve Alexander - General Manager, Bandy Manufacturing MODERATOR: Ed Lake - CFO, Merlin GlobalServices; San Diego Chapter Chair, Aerospace & Defense Forum SPONSORS:
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Paul Weisbrich Managing Director DA Davidson Private and Confidential | 3
Steve Alexander General Manager Bandy Manufacturing Private and Confidential | 4
John Hill Managing Partner Private and Confidential | 5
Neal Nordstrom Operating Partner Private and Confidential | 6
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Strictly Private & Confidential SD: ACG and A&D Forum M&A in Aerospace & Defense November 2017
A EROSPACE & D EFENSE M&A A CTIVITY Total Sector M&A Activity $ 30,000 100 Disclosed Deal Value ($mm) 86 86 86 83 86 84 25,000 77 80 75 80 74 Number of Deals 61 20,000 74 75 58 68 69 60 66 53 61 61 58 15,000 57 55 40 10,000 20 2,326 3,013 3,545 4,442 3,074 4,214 5,000 2,791 2,643 9,292 7,566 11,705 7,011 9,254 13,068 20,690 25,567 6,093 13,987 6,219 23,082 16,690 1,026 11,703 - - (1) (2) (3) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014 2015 2016 2017 Deal Value Number of Deals Sector Valuation Trends 20.0x 2.5x 2.0 15.0 EV / Revenue Ev / EBITDA 1.5 10.0 1.0 5.0 0.5 9.5x 5.0x 7.7x 10.8x 9.2x 8.4x 12.4x 12.7x 17.0x 11.3x 9.9x 5.3x 9.4x 12.4x 14.9x 15.6x 16.4x 9.0x 9.0x 8.6x 10.2x 9.2x 13.6x - - (1) (2) (3) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014 2015 2016 2017 EV / EBITDA EV / Revenue (1) Excludes the $38B Berkshire Hathaway acquisition of Precision Castparts. (2) Includes the $10B Avalon acquisition of C2 Aviation Capital and Rockwell Collins $8.6B acquisition of B/E Aerospace. (3) Excludes the $31B United Technologies acquisition of Rockwell Collins. Sources: Capital IQ, MergerMarket. www.dadavidson.com/Investment-Banking Private and Confidential | 9 Page 9
A EROSPACE & D EFENSE P RIVATE E QUITY A CTIVITY Private Equity Activity $ 7,000 35 Disclosed Deal Value ($mm) 31 6,000 30 25 Number of Deals 27 5,000 25 27 22 22 22 21 21 21 19 4,000 20 17 15 17 18 13 3,000 18 15 17 16 16 16 15 13 2,000 10 1,000 5 572 1,375 1,859 1,182 1,854 1,375 1,907 3,685 3,550 5,799 2,089 1,288 2,982 2,741 6,762 1,436 2,082 1,916 192 1,205 6,169 836 205 - - (1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014 2015 2016 2017 Deal Value Number of Deals Private Equity Valuation 18.0x 4.0x 16.0 3.5 Median EV / Revenue Median EV / EBITDA 14.0 3.0 12.0 2.5 10.0 2.0 8.0 1.5 6.0 1.0 4.0 0.5 2.0 8.3x 5.0x 8.5x 10.8x 8.5x 5.9x 4.8x 14.5x 16.8x 11.9x 9.5x 9.6x 10.1x 14.5x 11.8x 10.0x 15.1x 10.3x 5.9x 8.6x 8.7x 8.7x 5.0x - - (1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014 2015 2016 2017 Median EV / EBITDA Median EV / Revenue (1) Few meaningful data points in 3Q 2017. Note: Includes buy and sell side deal activity. Sources: Capital IQ, MergerMarket. www.dadavidson.com/Investment-Banking Private and Confidential | 10 Page 10
T RENDS G OING I NTO 2018 Target Acquirer Ø Largest Deals Flowing § 9/18/17: Northrop Grumman entered into a definitive agreement to acquire Orbital ATK for $9.4 billion. The combination enhances capabilities, innovation and competition for customers. The transaction will be a meaningful shareholder value creation opportunity, driven by strategic fit, revenue synergies from new opportunities, and cost savings. EV / LTM Revenue: 2.1x EV / LTM EBITDA: 15.3x § § § 9/4/17: United Technologies entered into a definitive agreement to acquire Rockwell Collins for $31.0 billion. The combination creates a premier aerospace systems supplier and well-positioned to meet rapidly evolving global customer demands. The transaction enhances innovative systems capabilities and integrated digital product offerings, including avionics, flight controls and data services. § EV / LTM Revenue: 5.0x EV / LTM EBITDA: 22.6x § 4/13/17: Rockwell Collins has completed the acquisition of B/E Aerospace for a total consideration of § $8.6 billion. The acquisition significantly increases Rockwell Collins’ scale and diversifies its product portfolio, customer mix and geographic presence. On a pro forma basis, Rockwell Collins now has nearly 30,000 employees and annual revenue in excess of $8 billion based on calendar year 2016 results. § EV / LTM Revenue: 2.8x § EV / LTM EBITDA: 13.3x Build-To-Print Difficult Business Model Ø § Partnering for Success § Pure structures tough § Automotive style buying Ø Supply Chain Issues Building § Increasing build rates § 26% of all parts are late § On-time delivery Ø Defense and New Space Adding energy to the A&D Arena § Changes in Washington, D.C. § B-21 § Sequestration era concluding § ULA challengers thriving Sources: Capital IQ, MergerMarket, press releases, and equity research. www.dadavidson.com/Investment-Banking Private and Confidential | 11 Page 11
M&A M IDDLE M ARKET P RACTITIONERS V IEW 11.0x 10.5x 10.0 9.0 9.0x 8.75x 8.75x EV / EBITDA 8.0 8.0x 8.0x 7.5x 7.5x 7.0 7.0x 7.0x 6.75x 6.25x 6.0x 6.0x 6.0 5.0x 5.0 4.5x 4.0 1990's 2000's 2010's 2017 High Quality Low Quality Average Deals Deals Deals www.dadavidson.com/Investment-Banking Private and Confidential | 12 Page 12
S HIFTING V IEWS ON I NDEPENDENT S PONSORS “It used to be that money was the ‘gold’ in M&A deals. Today deals are the ‘gold’ and money to fund deals has become the commodity.” www.dadavidson.com/Investment-Banking Private and Confidential | 13 Page 13
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