ACGSD November Program M&A in AEROSPACE & DEFENSE: JW Hill - - PowerPoint PPT Presentation

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

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Steve Alexander

General Manager Bandy Manufacturing

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John Hill

Managing Partner

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Neal Nordstrom

Operating Partner

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November 2017 Strictly Private & Confidential

SD: ACG and A&D Forum M&A in Aerospace & Defense

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(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.

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

• 0.5

1.0 1.5 2.0 2.5x

• 5.0

10.0 15.0 20.0x 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 / Revenue Ev / EBITDA EV / EBITDA EV / Revenue

9,292 3,074 4,214 7,566 2,326 3,013 3,545 4,442 11,705 7,011 9,254 2,791 13,068 20,690 25,567 6,093 13,987 2,643 6,219 23,082 16,690 1,026 11,703 68 74 66 84 57 77 58 86 74 86 61 86 75 83 86 69 80 55 61 75 53 61 58

• 20

40 60 80 100

• 5,000

10,000 15,000 20,000 25,000 $ 30,000 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 Number of Deals Disclosed Deal Value ($mm) Deal Value Number of Deals

AEROSPACE & DEFENSE M&A ACTIVITY

Total Sector M&A Activity Sector Valuation Trends

(1) (1) (2) (2) (3) (3)

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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

• 0.5

1.0 1.5 2.0 2.5 3.0 3.5 4.0x

• 2.0

4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0x 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 / Revenue Median EV / EBITDA Median EV / EBITDA Median EV / Revenue

1,375 1,859 1,182 572 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 27 22 15 22 18 21 16 25 16 22 17 21 17 27 31 18 21 13 17 16 13 19 15

• 5

10 15 20 25 30 35

• 1,000

2,000 3,000 4,000 5,000 6,000 $ 7,000 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 Number of Deals Disclosed Deal Value ($mm) Deal Value Number of Deals

AEROSPACE & DEFENSE PRIVATE EQUITY ACTIVITY

(1) Few meaningful data points in 3Q 2017. Note: Includes buy and sell side deal activity. Sources: Capital IQ, MergerMarket.

Private Equity Activity Private Equity Valuation

(1) (1)

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TRENDS GOING INTO 2018

Sources: Capital IQ, MergerMarket, press releases, and equity research.

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 § 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 § 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

Ø Build-To-Print Difficult Business Model Ø Supply Chain Issues Building Ø Defense and New Space Adding energy to the A&D Arena

§ Partnering for Success § Automotive style buying § Pure structures tough § Increasing build rates § On-time delivery § Changes in Washington, D.C. § Sequestration era concluding § B-21 § ULA challengers thriving

Target Acquirer

§ EV / LTM EBITDA: 15.3x § EV / LTM EBITDA: 22.6x § EV / LTM EBITDA: 13.3x § 26% of all parts are late

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4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0x 1990's 2000's 2010's 2017 EV / EBITDA

M&A MIDDLE MARKET PRACTITIONERS VIEW

4.5x 6.0x 7.0x 8.0x 6.0x 7.0x 9.0x 8.0x 5.0x 6.75x 8.75x 7.5x 6.25x 7.5x 10.5x 8.75x Average Deals Low Quality Deals High Quality Deals

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SHIFTING VIEWS ON INDEPENDENT SPONSORS

“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.”

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