The Aerospace & Defense Forum Arizona Chapter August 11, 2015 - - PDF document

The Aerospace & Defense Forum Arizona Chapter August 11, 2015 1

8000 Towers Crescent Drive Suite 1200 Tysons Corner, VA 22182 703.442.1400 www.kippsdesanto.com

THERE’S NO SUBSTITUTE FOR EXPERIENCE.

AEROSPACE / DEFENSE AND GOVERNMENT SERVICES MARKET OVERVIEW

AUGUST 11, 2015

CONFIDENTIAL THERE’S NO SUBSTITUTE FOR EXPERIENCE.

KIPPSDESANTO & CO. OVERVIEW

The Aerospace & Defense Forum Arizona Chapter August 11, 2015 2

CONFIDENTIAL | 3 THERE’S NO SUBSTITUTE FOR EXPERIENCE.

FOCUS AREAS

• KippsDeSanto is a premier investment bank focused on middle-market transactions solely in the

aerospace / defense and government technology solutions industries

• We are predominantly a sell-side M&A advisory firm, with approximately 90% of our revenue generated

from sell-side engagements

KippsDeSanto Introduction

• Deep Industry Expertise

– 61 closed transactions in the past 6 years – Most active firm in our industry in the U.S.

• In-Depth Market Intel

– Knowledge of market drivers, key deal points, and the industry’s “moving pieces” – Extensive market presence and relationships – Senior level relationships with all major industry players

• Independent Advisor

– No potential conflicts of interest from outside

• wnership or influencers
• Consultative Methodology

– Customized strategies / nothing off-the-shelf – Exceptional transaction execution – Optimal results Aerospace Defense Govt. Technology Solutions Strategic Consulting Underpinning Sell-Side M&A Advisory (~90%) Buy-Side M&A Advisory (~5%) Private Financing / Capital (~5%) SERVICES OFFERED KEY DISCRIMINATORS

CONFIDENTIAL | 4 THERE’S NO SUBSTITUTE FOR EXPERIENCE.

was acquired by an entity controlled by

Innovative Capital Holdings

has been acquired by Advanced Systems Line of Business of has been acquired by has been acquired by has been acquired by Clear Lake Operations a United Technologies

• Corp. business

has acquired has been acquired by and has been acquired by the management of

BAI, Inc.

has been acquired by a subsidiary of has been acquired by has been acquired by has been acquired by has been acquired by

Recent Completed Transactions

has been acquired by a portfolio company of has been acquired by

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CONFIDENTIAL | 5 THERE’S NO SUBSTITUTE FOR EXPERIENCE.

Market Snapshot

INDUSTRY TRENDS

• Commercial aerospace – strong backlogs and production rates, driven

by increased airline profitability and passenger traffic

• Defense and government services – more stable, sense that market

has bottomed and may now resume modest growth, but general feeling of unpredictability remains due to

• verall

challenged procurement environment

CAPITAL MARKETS

• Commercial aerospace public valuations are at cyclical highs, but share

price increases have moderated given sentiment that we’re at top of cycle

• Defense and government services valuations have rebounded from

cyclical lows given solid execution and expectation that worst is over

• Ample and cheap private and public financing underpins deal activity

M&A TRENDS

AND ACTIVITY

• Healthy M&A environment across sectors
• Commercial aerospace especially has been active – most robust volume

and valuations for these companies across the supply chain

• Defense and government services activity has rebounded and more

focused on high priority sectors (C4ISR, health, unmanned, etc.) and platforms / customers

CONFIDENTIAL | 6 THERE’S NO SUBSTITUTE FOR EXPERIENCE.

• Defense budget pressures started during 2008 (Great Recession combined with beginning
• f drawdowns in Iraq and Afghanistan)

Operating Environment

DEFENSE BUDGET

($ IN BILLIONS)

AIRCRAFT DELIVERIES

950 1,061 1,047 1,103 1,274 1,336 1,393 1,444 200 400 600 800 1,000 1,200 1,400 1,600 2008 2009 2010 2011 2012 2013 2014 2015 $480 $513 $526 $527 $530 $495 $496 $496 $187 $146 $163 $159 $115 $82 $85 $64 $0 $100 $200 $300 $400 $500 $600 $700 $800 2008 2009 2010 2011 2012 2013 2014 2015

Base OCO

$667 $659 $689 $686 $645 $577 $581 $560

• Commercial aircraft build rates have grown consistently since 2008 low point; OEMs

sitting on 7+ years of production backlog (but how solid?)

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CONFIDENTIAL | 7 THERE’S NO SUBSTITUTE FOR EXPERIENCE.

80 100 120 140

Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Aerospace Defense Primes Government Services S&P 500

• Aerospace stock prices have moderated after the markets have priced in the sector’s

strong visibility and build rates

• With greater budget / funding clarity, defense and government services shares have

recently outperformed the broader market

Public Company Share Price Performance

(1) Aerospace Index includes: AIR, BEAV, HEI, HXL, LMIA, PCP, SPR, TDG, TGI, and ZC (2) Defense Primes Index includes: BAE, GD, LLL, LMT, NOC, and RTN (3) Government Services index includes: BAH, CACI, EGL, ICFI, KEYW, LDOS, MANT, NCIT, SAIC, VEC, VSEC Source: Capital IQ and Company filings; indices are equal weighted

(1) (2) (3)

D: 23.8% GS: 11.6% S&P: 13.4% A: 3.9% CONFIDENTIAL | 8 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Aerospace Defense Government Services

• Strong build rates have driven commercial aerospace multiples to cyclical highs,

although valuations have topped out – sense that we’re at a cyclical peak with more downside than upside risk

• Defense and government services valuations have steadily rebounded from multi-year

lows; companies have re-aligned and delivered to expectations

Public Valuation Trends

ENTERPRISE VALUE / NTM EBITDA

A: 6.4x D: 8.3x GS: 9.6x A: 11.6x D: 10.0x GS: 9.1x

(1) Aerospace Index includes: AIR, BEAV, HEI, HXL, LMIA, PCP, SPR, TDG, TGI, and ZC (2) Defense Primes Index includes: BAE, GD, LLL, LMT, NOC, and RTN (3) Government Services index includes: BAH, CACI, EGL, ICFI, KEYW, LDOS, MANT, NCIT, SAIC, VEC, VSEC (4) Pricing as of June 30, 2015 Source: Capital IQ and Company filings

(1) (2) (3) (4)

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CONFIDENTIAL | 9 THERE’S NO SUBSTITUTE FOR EXPERIENCE. 68 91 100 103 143 68 90 73 77 62 66 47 99 90 107 65 79 39 257 254 284 230 288 154 50 100 150 200 250 300 350 2010 2011 2012 2013 2014 YTD 2015 Aerospace Defense Government Services

M&A Environment

(1) As of July 3, 2015 Note: Figures represent announced deal activity Source: Company filings and press releases

BUYER TYPE DEAL SIZE M&A TRANSACTION VOLUME

Annualized ~260

(1)

< $15M 14% $15M - $100M 70% $100M - $500M 6% > $500M 10%

• Overall

activity

• n
• rder
• f

~250 transactions per year

• Middle-market dominated:

~85% of deals are <$100 million in size – Sizable M&A targets are scarce; “size premium” for big deals

• Private equity is an active buyer group,

~25% of transactions

Public 43% Private 30% PE / PEG- Backed 23% Other 4%

Nearly 85%

• f deals

are <$100 million in size

CONFIDENTIAL | 10 THERE’S NO SUBSTITUTE FOR EXPERIENCE.

• Robust financing markets have fueled M&A activity by private equity firms

– 350+ deals by private equity firms and/or their portfolio companies since 2010 – Activity spread across aerospace, defense, and government services – New platforms of $5 million+ of EBITDA with solid management teams

Strong Financial Sponsor Activity

AEROSPACE DEFENSE GOVERNMENT

SELECT RECENT PRIVATE EQUITY TRANSACTIONS ( ) ( )

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CONFIDENTIAL | 11

What’s Driving Strategic Value in Today’s Aerospace / Defense / Government Services M&A Market

BUYER TARGET DATE VALUE Apr 2015 $1.9B 25.3x Mar 2015 $500M 13.3x Mar 2015 $658M 10.6x Mar 2015 $1.5B 13.1x Feb 2015 $725M 12.1x Feb 2015 $4.75B 9.3x

RECENT MARQUEE DEALS CHARACTERISTICS OF COMPANIES W/ STRATEGIC MULTIPLES

(1)

Source: Capital IQ and Wall Street research (1) Represents Enterprise Value and EV / EBITDA

• Larger size / scale
• Proprietary technology / products
• Priority end-market or platform

position (Intel, C4ISR, new aircraft)

• Strong backlog with clear revenue

visibility (long-term contracts / agreements)

• Above average profitability
• Entrenched customer position and

relationships

• Transformational, addressable

market opportunities

• Quality management team and

skilled / technical employee base

CONFIDENTIAL THERE’S NO SUBSTITUTE FOR EXPERIENCE.

APPENDIX

The Aerospace & Defense Forum Arizona Chapter August 11, 2015 7

CONFIDENTIAL | 13 THERE’S NO SUBSTITUTE FOR EXPERIENCE.

• Mr. Misantone is a Managing Director at KippsDeSanto &

Co., with extensive experience in the aerospace/defense and government services industry.

• Mr. Misantone has a broad base of experience advising

companies, Boards of Directors, and management teams in the aerospace/defense and government services industry, including buy- and sell-side M&A transactions, fairness

• pinions, IPOs, and private and public equity and debt
• placements. Prior to joining KippsDeSanto & Co. in 2008,

Mr. Misantone was in the M&A group at Wachovia Securities. Previously, Mr. Misantone was with Jefferies Quarterdeck, the aerospace/defense group of Jefferies & Co. Prior to joining Jefferies Quarterdeck, Mr. Misantone worked in the M&A group at Credit Suisse First Boston, and the Debt Capital Markets group at Goldman Sachs. With respect to aerospace/defense companies and M&A trends, Mr. Misantone has been a frequent speaker and quoted in various publications, including Mergers & Acquisitions, Washington Technology, and The Washington Post.

• Mr. Misantone was an Echols Scholar at the University of Virginia, where he

earned Bachelor of Arts degrees in Economics and Spanish, Phi Beta Kappa. He also earned a Master of Business Administration degree with a concentration in Finance from the University of Chicago Booth School of Business. He is registered with FINRA as a General Securities Registered Representative (Series 7, 63).

Michael J. Misantone

703-442-1410 mmisantone@kippsdesanto.com

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