Download pdf - Aerospace, Defense & Securityg2capitaladvisors.com/wp-content/uploads/2017/10/ADS-Q2-2017.pdf · Rising geo-political tensions and intra-national conflicts in Q2 2017 paired with

Strategic Market Insights – Q2 2017 Report

Aerospace, Defense & Security

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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


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Aerospace, Defense & SecurityTechnology 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 TechnologiesBrian 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.

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FY 20171 LTM2

SectorNumber 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 & SecurityKey Trading Statistics

Aerospace, Defense & SecuritySelected 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 outliers2 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.

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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

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Aerospace, Defense & SecurityRecent Deal Activity – Pending & Closed

EV in Millions USD (converted where necessary)


Diversified Industrial (Aerospace)

Government Services

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Public Trading Metrics – Aerospace Equipment & Structure


Size figures in Millions USD (converted where necessary)

Charts show average daily multiples for each year (* YTD 2017)


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Public Trading Metrics – Aircraft OEM





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Public Trading Metrics – Defense Prime Contractors





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Public Trading Metrics – Defense Technologies





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Public Trading Metrics – Diversified Industrial (Aerospace)





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Public Trading Metrics – Government Services





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Public Trading Metrics – MRO





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Trends

Last 5 Year EV / LTM EBITDA Trend by Industry


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

Economic Index Trends

The Aerospace and Defense Industry has outperformed the S&P 500 index over the last 5 years

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

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Aerospace, Defense & SecurityM&A Activity – Middle Market

M&A transaction multiples are the median North American M&A activity independent of target / acquirer industry and enterprise

value. The dataset has been restricted to multiples between 0.0x and 30.0x EBITDA; sourced through Pitchbook’s 2017 Q2 Report.

The U.S. Middle Market as shown in this chart has been defined as companies with an enterprise value between $25MM and

$1,000MM, and headquartered in the United States.

M&A Transaction Multiples

M&A Activity by Acquirer Type

Data sourced through PitchBook 2017 Q2 Report

Total deal activity has remained steady since Q2 2013; overall deal multiples remain strong. Though

there has been some pullback in M&A, debt remains a strong driver of transaction valuations.

6.1

x

4.1

x

4.9

x

5.7

x

4.9

x

5.2

x

4.0

x 5.8

x

4.7

x

5.7

x

5.9

x

6.2

x

4.9

x

4.8

x

5.8

x

5.4

x

5.9

x

4.3

x

2.6

x

3.8

x 3.6

x

3.7

x

3.4

x

4.2

x

4.0

x

4.7

x 4.3

x

4.8

x

3.3

x

5.0

x

4.8

x

5.7

x

4.7

x

3.9

x

10.4x

6.7x

8.8x9.3x

8.6x 8.6x8.2x

9.8x9.3x

10.0x10.7x

9.5x9.9x

9.6x

11.5x

10.1x9.8x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

2013 2014 2015 2016 2017

Mu

ltip

les o

f E

BIT

DA

Debt/EBITDA Equity/EBITDA Valuation/EBITDA

1,2

72

1,1

49

1,1

13

1,4

28

1,1

21

1,1

29

1,2

29

1,3

09

1,4

34

1,4

07

1,4

95

1,4

47

1,5

66

1,4

95

1,4

94

1,5

30

1,3

85

1,3

50

976

1,5

33

1,3

85

1,0

56

3,4

35

3,3

38

3,3

17

3,6

46

3,4

72

3,2

78

3,4

19

3,5

02

4,1

22

4,2

07

3,8

20

3,6

41

4,3

90

4,1

54

4,4

05

4,2

83

4,0

87

3,1

65

2,1

58

3,6

90

4,0

87

2,4

82

0%

5%

10%

15%

20%

25%

30%

35%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2012 2013 2014 2015 2016 2017

% S

ponsor-

Backed

To

tal D

eal C

ount

Sponsor-Backed Corporate M&A % Sponsor-Backed

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▪ Project Horizon – G2 is currently advising on the sale of a

contract manufacturer of critical components and

assemblies for numerous well-known commercial and

defense platforms. The Company maintains entrenched

relationships with leading aerospace engine OEMs in the

U.S. and globally.

▪ Project Tango * – G2 Securities is currently advising on

the recapitalization of an acquisitive aerospace

component and structure manufacturer with a strong

reputation in prototyping and product development. The

Company produces a variety of aircraft structures and

components for OEMs, Tier 1, and Tier 2 customers.

Source: G2 Insights

▪ Client – Project Bay (“Bay”) specializes in training and equipping of foreign militaries and indigenous defense

forces with an entrenched position with U.S. government. As a global program manager in support of military

sustainment services, Bay maintains a demonstrated past performance of placing people and resources in

CONUS and OCONUS locations in support of the U.S. government and coalition partners.

▪ Situation – Following the award of a $42 million U.S. government contract, Bay sought G2’s advisory services to

establish a credit facility to fund operations and support general working capital needs.

▪ Engagement – G2 served as the exclusive financial advisor to Bay with a multi-stage mandate that comprised

initially of helping to strengthen the company’s financial reporting capabilities in preparation for a capital raise

process. Upon completion of the first stage of the engagement, G2 initiated a capital raising process, targeting

non-traditional lending partners that had expertise within government contracting and capability to underwrite a

facility with cross-border complexity in an expedited manner.

▪ Outcome – G2 successfully executed on a debt raise that resulted in the formation of a customized credit facility

for Bay. The facility included a three-party lending group structured to provide Bay with a flexible lending solution

required to satisfy the company’s U.S. government contract requirements and solve for future borrowing needs.

Aerospace, Defense & SecuritySelected Ongoing G2 Projects

Aerospace, Defense & SecuritySelected Q2 Transaction Highlight *

G2 successfully advised on the financing of a specialized training and equipment provider to fund its

working capital and general everyday operational needs.

G2 Securities acted as the exclusive Financial Advisor to:

Project Bay

Project Horizon

Sell-Side

Jet Engine Components

Manufacturer

Sector Summary in Millions USD (converted where necessary)

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

Project Tango *

Capital Raise

Complex Machined

Component Manufacturer

* Securities are offered through Western International Securities, Inc., Member FINRA/SIPC. G2

Securities and Western International Securities, Inc. are two separate and unaffiliated entities.

www.g2cap.com 17

G2 Capital Advisors is pleased to present its Industrials & Manufacturing update for Q2 2017, providing

commentary and analysis on M&A and market trends within the Industrials & Manufacturing industry.

We hope you find this report helpful and encourage you to contact us directly if you would like to discuss

our perspective on the current market environment, trends, or our relevant industry experience.

G2 OverviewInvestment Banking and Restructuring Advisory

THIRTY-FIVE professionals

across SIX offices

FOUR Industry Practice Groups

Transportation & Logistics / Supply Chain

Industrials / Manufacturing

Technology / Business Services

Aerospace & Defense / Security

FIVE Service Offerings

Securities

Sell-Side

Buy-Side

Operational

Restructuring

Financial

Restructuring

G2 offers clients an operational, experience-based approach within

each of its practice sectors.

G2 is focused in four sectors; each practice group headed by a leader with 20+ years of C-level

operating experience. G2’s managing directors have navigated all stages of the corporate lifecycle, from

growth to maturity, and apply that experience to provide advisory services to our clients.

Sector-Focused; Experience-Based

Transportation &

Logistics / Supply Chain

Industrials /

Manufacturing

Technology /

Business Services

Aerospace & Defense /

Security

Led by Ron Lentz Led by Jack Shields Led by Matt Konkle Led by Bob Kinder

▪ Freight Forwarding

▪ Trucking / Final Mile

▪ Warehousing / Distribution

▪ Third Party Logistics (3PL)

▪ e-Commerce Fulfillment

▪ Manufacturing / Distribution

▪ Flooring

▪ Plastics / Packaging

▪ Consumer Products

▪ Metals

▪ Tech-enabled Services

▪ BPO

▪ Managed Services

▪ Internet & Digital Media

▪ Business Services

▪ Cyber Security

▪ Defense Robotics

▪ UAV, C4ISR, Hardware

▪ Aerospace Electronics

▪ Aerospace Components

G2 Overview

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G2 OverviewAlex Koblansky, Vice President

Company Title Role

Vice

President

Aerospace, Defense and Government

Services industry expertise specializing

in mergers, acquisitions, and divestures

transactions as well as raising equity and

debt in the public and private capital

markets.

AssociateOriginated structured and securitized

lending solutions for clients.

Analyst

Liaison representative between the

Mayor and international community (City

of Charlotte, North Carolina).

Alex KoblanskyVice President

Aerospace, Defense &

Security

Alex Koblansky brings 10+ years of M&A transaction experience to G2’s Aerospace, Defense & Security

practice group. Prior to joining G2 Capital Advisors, Alex was Vice President in the Aerospace, Defense &

Government Services Industry Group at Stifel, Nicolaus & Company, Incorporated where he supervised and

led on all aspects of transaction execution and due diligence.

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ReferenceContact & Glossary of Terms

For more information about G2, please visit: www.g2cap.com

Our corporate headquarters is located at: 535 Boylston Street, 11th Floor, Boston, MA 02116

Boston | Chicago | Indianapolis | Los Angeles | Naples | San Francisco

The information included in this Presentation is not a complete analysis of all material facts regarding any company, industry,

or security and does not constitute investment advice. Opinions expressed or implied by the materials here presented reflect

only the judgement of its author as of the date of the Presentation and is subject to change without notice. The information in

this Presentation has been obtained from sources which G2 generally considers reliable, but we make no representation or

warranty, express or implied, as to the accuracy or completeness of any information herein. This Presentation has been

prepared for informational purposes only and upon the express understanding that it will be used only for the purposes set

forth in the Section captioned G2 Overview above. G2 expressly disclaims any and all liability which may be based on such

information, errors therein or omissions there from. Securities offered through Western International Securities, Inc. Member

FINRA & SiPC. G2 Securities and Western International Securities are separate and unaffiliated entities.

Term Definition

Revenue

Total revenue from the sale of goods and services rendered during the reporting period, in normal course of

business, reduced by sales returns and allowances, and sales discounts. For banks, this item is defined as net

interest income after loan loss provisions

EBITDAEarnings before interest, taxes, depreciation, and amortization. Calculated as Revenue – Expenses, excluding

interest, taxes, depreciation and amortization

Market CapMarket value of a company using most recently reported basic weighted average shares outstanding.

Calculated as Market Price (as of period end) * Basic Weighted Average Shares Outstanding

Long-Term DebtSum of the carrying values as of the balance sheet date of long-term debt with a maturity beyond one year or

the normal operating cycle, if longer

Net DebtNet Debt shows the company’s overall debt situation by netting the value of debts with cash and other similar

liquid assets. Calculated as Total Debt – Cash & Cash Equivalents and Short Term Investments

Enterprise Value

Enterprise Value represents the combined economic value of a company as of the most recent fiscal year end.

Calculated as Diluted Market Capitalization + Total Debt + Minority Interest + Preferred Stock – Cash and Short

Term investments

P/EA valuation ratio of a company stock price compared to its per share earnings. Calculated as Market Price /

Earnings per Share for the last annual period

Tangible Book Value Total Shareholder’s Equity – Goodwill and Intangible Assets

Bob Kinder, Managing Director Jeffrey Unger, CEO

[email protected] [email protected]

617.918.7940 617.918.7929

Alex Koblansky, Vice President Emily Murphy, Analyst

[email protected] [email protected]

617.918.7971 617.918.7940

mailto:[email protected]


