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Second Quarter 2016
Industry News Quarterly Summary
The Department of Defense announced that it will withdraw a request for legislation to increase focus on proposed mergers’ impacts on national
security. The DoD’s announcement came in response to a joint statement by the FTC and the Department of Justice reiterating focus on innovation
and competition for defense contractors. The DoD previously lobbied for such legislation following continued consolidation among defense industry
prime contractors, notably Lockheed Martin’s acquisition of Sikorsky in 2015.
The Senate Appropriations Defense Subcommittee approved a new spending bill for 2017 allocating a $515.9 billion base budget for the
Department of Defense and $58.6 billion for the OCO budget. While the committee recommended cuts in several areas, the bill recommends
increased funding for aircraft and ship procurement, as well as additional funding for readiness and maintenance.
Navy officials released plans to build 38 new ships over the next five fiscal years, including nine new Virginia-class submarines and 10 new guided
missile destroyers, to achieve a total fleet size of 308 ships by 2021.
As an alternative to Lowest Price Technically Acceptable (LPTA) source selection, the DoD introduced a new approach called Value Adjusted Total
Evaluated Price (VATEP), that identifies minimum and maximum thresholds for performance requirements and quantifies price increases for
measurable performance along a scale.
Lockheed Martin announced a new partnership with MIT to collaborate on research projects focused on autonomous robotics systems.
Orbital ATK, a large commercial partner for NASA, tested its upgraded Antares rocket vehicle at the Mid-Atlantic Regional Spaceport in Virginia,
priming the upgraded system for commercial cargo flights to resupply the International Space Station this year.
% Change
Jun-16 Q2 2016 TTM
Defense Prime Index
2.7% 7.3% 13.0%
Defense Systems Index
2.6% 8.8% 10.7%
Diversified Government Services Index
(1.5%)
(1.8%)
13.2%
Middle Market Government Services Index
3.4% 12.5% 7.6%
Large Cap Aerospace Index
1.2% 2.0%
(7.7%)
Mid Cap Aerospace Index
(3.5%)
4.8%
(16.9%)
Small Cap Aerospace Index
(5.5%)
(2.1%) (14.1%)
International Aerospace Index
(3.9%)
(5.7%) (12.0%)
S&P 500
(0.2%)
1.3% 1.0%
Notable Quarterly M&A Activity
Capital Markets
Arlington Capital Partners acquired EIOR Technologies, Inc. from
The White Oak Group for an undisclosed amount.
Transdigm Group, Inc. will acquire Data Device Corporation, a
portfolio company of Behrman Capital, for $1 billion.
Smiths Group will acquire the Morpho Detection unit of Safran for
$710 million.
OSI Systems, Inc. agreed to purchase American Science &
Engineering, Inc. for $187 million.
KLX, Inc. acquired Herndon Aerospace & Defense, LLC, a portfolio
company of HCI Equity Partners, for $210 million.
KBR, Inc. will acquire Wyle Laboratories, Inc., a portfolio company of
Court Square Capital Partners, for $570 million.
Quarterly Industry Snapshot
Source: Public Filings; Capital IQ as of 06/30/16