Aerospace, Defense & Secur Rising geo-political tensions and intra-national conflicts in Q2 2017 paired

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  • Strategic Market Insights – Q2 2017 Report

    Aerospace, Defense & Security

  • www.g2cap.com 2

    Rising geo-political tensions and intra-national conflicts in Q2 2017 paired with a looming historic global

    military build-up boosted outlook for the Aerospace, Defense & Security industry.

    • M&A Market – M&A activity within the global industry remained solid in Q2, maintaining the 2017

    outlook. Transactions will continue to be predominantly focused within the North American middle

    market, with volumes moderately strengthening due to increased government spending and a

    rebounding commercial sector.

    • Pentagon Activity – A proposed acquisition plan could create nearly a dozen new offices within the

    Pentagon in an effort to better manage today’s needs while developing technologies to meet those

    of tomorrow. If Congress approves the plan, the Pentagon’s methods and procedures in

    researching and procuring equipment would be revamped to focus on continued development of

    technology rather than incentivizing quick deployment.

    • U.S. Defense Budget – The House passed the annual defense policy bill for increased military

    spending in 2018. At $696B, the bill exceeds current spending caps but has bipartisan support due

    to international concern over terror attacks inspired by the Islamic State and recent aggression by

    North Korea.

    • Paris Air Show – Industry sentiment remained bullish at the 2017 Paris Air Show, with sizable

    order backlogs at key OEMs, higher ordering activity, and favorable airline traffic. As one of the

    largest aviation and space industry events, The Paris Air Show brought some of the highest order

    commitment levels of recent shows - roughly $115B new commitments to Boeing and Airbus.

    • Commercial Aerospace and Air Travel – Strong airline traffic in partner with airline inventory

    growth brought robust performance to the category in the first half of 2017. Airline capacity is

    projected to increase by 7.0%, and passenger traffic growth estimates were revised upward to

    7.4% for the back half of 2017. Narrow-body demand remains solid, while cuts in wide-body

    production levels challenge supply chains. Additionally, a shifting mix in fleet age accelerated

    aftermarket growth, with growing demand for spare parts and services.

    G2 Insights

    Source: PWC, DefenseNews, Mesirow Financial

    Aerospace, Defense & Security

  • www.g2cap.com 3

    Aerospace, Defense & Security Technology Corner

    Agile Sensor Technologies is a Canadian-based manufacturer of Synapse, an electronic speed

    controller (“ESC”) designed for military and industrial UAV drone manufacturers.

    Source: Company website and management

    How does Agile Sensor Technologies set itself apart from competition?

    Synapse is a centralized system that delivers improved power efficiency to enable more time in the air; that

    means increased revenue for end users. It collects and stores propulsion system data that enables

    optimized maintenance, thereby reducing costs to manufacturers and end users. It also delivers the data to

    ground-based operations to help identify potential issues and thereby reduce accidents. We expect that

    regulators will eventually require such capabilities, so in a sense we’re “future-proofed”.

    Field Oriented Control allows Synapse

    to reuse energy usually lost during

    deceleration, resulting in up to 10%

    more air time.

    Detailed motor data and a modular

    design allow users to make smart

    decisions and optimize maintenance

    intervals.

    A unique, compact, single board hub

    compresses the functionality of up to

    eight ESCs, saving vehicle weight

    and space

    What is the biggest challenge the Company faces today?

    Our biggest challenge right now is financing our plan for aggressive market entry and

    growth. It’s well known that the Canadian scene is far different than that in the U.S.

    There are very limited investment sources in our province, and nearby investors are

    mostly focused on software and “traction”. We’re seen as a hardware company. We

    have a number of manufacturers who’ve paid for a system that they’re evaluating for

    potential inclusion in their drones and anticipate large orders to solidify in the near term.

    What is next for Agile Sensor Technologies??

    We’re delivering product to a group of manufacturers and working with them to ensure that we meet their

    requirements so that we’ll get our first volume orders. Our marketing team is pursuing a number of new

    leads that we’ve developed through inbound enquiries, advertising and trade shows. We’re also working

    with partners on a project that will result in an exciting new product based on Synapse.

    What has enabled the Company to achieve its current level of growth?

    We’ve had great support from the local start-up ecosystem. We also managed to raise

    equity capital from local angels and supplement that with a good amount of non-

    dilutive provincial and federal funding in support of R&D and market development.

    We’ve been told that we’re capital efficient in getting to product. We managed to

    recruit a great team of enthusiastic and dedicated engineers and marketing/sales staff,

    including highly talented VPs.

    Q&A with Brian Terry, Co-Founder and CEO of Agile Sensor Technologies Brian began his career as a software developer in the marine technology sector. He co-founded his first tech

    start-up in 1986 and a second in 1993. In 2006, he became a technology commercialization officer with Genesis

    Group, Memorial’s tech transfer office, which led to the creation of Agile Sensor Technologies.

  • www.g2cap.com 4

    FY 20171 LTM2

    Sector Number of

    Companies

    Median Enterprise

    Value (MM)

    Median

    Revenue

    Growth

    Median

    EBITDA

    Growth

    EV /

    Revenue

    EV /

    EBITDA

    Aerospace Equipment & Structure 11 6,201 4.4% 3.2% 2.3x 11.3x

    Aircraft OEM 6 56,165 0.1% 11.2% 1.1x 12.3x

    Defense Prime Contractors 9 50,472 6.0% 10.6% 1.3x 12.0x

    Defense Technologies 13 4,842 2.2% 3.1% 2.0x 12.8x

    Diversified Industrial (Aerospace) 10 24,274 1.0% 4.5% 2.2x 12.4x

    Government Services 10 2,967 (4.0%) 3.6% 1.0x 11.4x

    MRO 3 1,283 4.0% 14.6% 0.9x 9.7x

    Aerospace, Defense & Security Key Trading Statistics

    Aerospace, Defense & Security Selected Q2 2017 Industry Deals

    Sector Summary in Millions USD (converted where necessary)

    Data sourced from S&P Capital IQ on June 30, 2017

    1 Compared with LTM 6/30/2016; Excludes outliers 2 LTM Multiples as of June 30, 2017; Excludes outliers above 20.0x

    ▪ Guavus to be acquired by Thales (Pending) – On May 1, 2017, Thales announced its intent to

    acquire Guavas in an all cash transaction for $215MM, or 7.2x EV/Revenue. Guavus is a leader in

    real-time big data processing and analytics. Thales provides technology-enabled decision making

    support to an aerospace, defense, security, space, and ground transportation customer base.

    Together, Guavas will greatly enhance Thales’ digital strategy. The transaction is expected to close

    in Q3 2017.

    ▪ B/E Aerospace acquired by Rockwell Collins, Inc. (Apr 2017) – On April 13, 2017, Rockwell Collins,

    Inc. acquired B/E Aerospace in a cash and stock transaction for $8.3B, or 13.3x EV/EBITDA and

    2.8x EV/Revenue. B/E Aerospace is a leading designer and manufacturer of cabin interior products

    for commercial aircrafts. Rockwell Collins, Inc. designs, produces, and supports communications

    and aviation systems for the global market. The transaction will diversify Rockwell Collins’ portfolio

    across the OEM, aftermarket, and airline markets.

    ▪ Delta Microwave, LLC acquired by Mercury Systems, Inc. (Apr 2017) – On April 3, 2017, Mercury

    Systems acquired Delta Microwave for $40.5MM, or 3.2x EV/Revenue, in an all cash transaction.

    The transaction greatly expands Mercury Systems’ scale and breadth in its radio frequency

    microwave and millimeter wave subassemblies and components for military and space markets.

    Source: Capital IQ, Company websites

    Several notable transactions have been completed or announced in the Aerospace, Defense &

    Security industry through 2017 Q2. G2 has outlined select transactions below, followed by a more

    comprehensive list on the following tables.

  • www.g2cap.com 5

    Aerospace, Defense & Security

    EV in Millions USD (converted where necessary)

    Data sourced from S&P Capital IQ on Friday, June 30, 2017

    Recent Deal Activity – Pending & Closed

    Aerospace Equipment & Structure

    Aircraft OEM

    Defense Prime Contractors

    Defense Technologies

  • www.g2cap.com 6

    Aerospace, Defense & Security Recent Deal Activity – Pending & Closed

    EV in Millions USD (converted where necessary)

    Data sourced from S&P Capital IQ on Friday, June 30, 2017

    Diversified Industrial (Aerospace)

    Government Services

  • www.g2cap.com 7