KAL Capital Q3 Newsletter

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Dear Friends,

We had an extremely busy quarter at KAL Capital both in terms of transaction activity as well as changes at the firm.

On the transaction front, we were pleased to announce three transactions:
Hypergiant a provider of AI-enabled, cloud-based command and control services has been acquired by Forward Slope.

Stack Metallurgical and Lake City Heat Treat, both providers of heat treating and Hot Isostatic Pressing services, have signed an agreement to be acquired by Bodycote plc for $145mm.
Cyclone Manufacturing, a provider of machining and fabrication services for the aerospace industry has signed an agreement to be acquired by Mubea.

Each of these transactions are covered in greater detail in the pages to follow, but suffice to say, we are extremely proud to be associated with each of these deals. From our perspective, the M&A market has shown continued, gradual improvement over the course of 2023. The most positive tailwinds are around debt financing as the availability of credit continues to increase, albeit at increased all-in-pricing. As usual, we will add our usual caveat that the M&A activity within the A&D industry sees less volatility than other sectors. Case in point, we expect A&D transaction activity to finish the year down 15 – 25% for the full-year 2023. This would mark a significant out performance compared to the broader market.

Within our sub-sectors, aerospace continues to be plagued by ongoing production ramp challenges, particularly for the Boeing and Pratt & Whitney supply-chains as quality issues continue to emerge. Unfortunately, these portions of the supply-chain continue to be in the uncomfortable position of strong demand signals from end-users that can not be met due to underlying chaos within the industrial base.
For the defense sub-sector, we are now witness to another devasting conflict, now in Israel. In addition to the ongoing war in Ukraine, this conflict will serve as a critical test to see if the US will be funding national security requirements despite a politically divisive environment within the US House.

In case you missed it, we are thrilled to announce the re-hiring of Trevor McKinnon to lead a new addition to KAL’s core service offering. The new practice area will focus on advising businesses developing emerging critical technologies within the DoD ecosystem and will broaden our service offering to include growth capital raising. We are beyond excited!


Trevor Bohn & Ryan Murphy

Stack Metallurgical & Lake City HT Sign Agreement with Bodycote

Bodycote, the world’s leading provider of heat treatment and specialist thermal processing services, announces a number of strategic steps to enhance and drive further growth in its Specialist Technologies business, through the expansion of the Group’s Hot Isostatic Pressing (HIP) footprint and scale in the US.

Acquisition of Lake City HT and Stack Metallurgical Group

On 6 October 2023, Bodycote agreed to acquire two specialist technology focussed businesses:

  • Lake City HT based in Warsaw, Indiana, a leading Medical market HIP and vacuum heat treatment business primarily supplying the orthopaedic implant market as well as Civil Aerospace customers.
  • Stack Metallurgical Group based in the Pacific Northwest of the US, a key provider of HIP, heat treatment and metal finishing services primarily for the Civil Aerospace, Defence and Energy markets.

The businesses are highly complementary to Bodycote’s existing operations and will both expand our geographic footprint in North America and provide additional customer reach. The businesses comprise two HIP and three heat treatment sites, which will be integrated into Bodycote’s existing Specialist Technologies business and Aerospace, Defence and Energy classical heat treatment business respectively.

The combined gross consideration for the acquisitions is $145m (£119m) on a cash and debt free basis and will be subject to customary closing adjustments. After expected tax benefits worth at least $15m, the net economic consideration is approximately $130m (£106m). The combined acquisition multiple is less than 9x expected 2024 EBITDA, taking into account tax benefits and synergies.

The businesses delivered strong growth in H1 2023, with revenues rising by 29%. A broadly similar rate of growth is expected for H2 2023, with FY 2023 forecast revenues expected to be around $45m (£36m). This growth reflects the ongoing recovery in the Civil Aerospace market, strong growth in the Medical market and new customer wins, which provide a solid foundation for the future.

Completion of the acquisitions is subject to regulatory clearance and will be funded out of existing Group credit facilities. They will be accretive to Group margins and earnings per share from the first year post completion and are expected to exceed Bodycote’s cost of capital in 2025. Post acquisition, the Group’s leverage will be comfortably within our target range, providing continued balance sheet strength to support the execution of the Group’s strategy.

Stephen Harris, Group Chief Executive of Bodycote plc, commented:

“These investments are an important and exciting enabler of our strategy to further enhance and grow our Specialist Technologies businesses. In addition, they will also expand our footprint in Aerospace and Medical heat treatment on the West Coast and in Indiana in the US. The acquisitions will enhance group margins, are accretive to earnings per share and allow us to further capitalise on the structural growth opportunities in the Space, Civil Aerospace and Medical markets.

The proposed new HIP plant in greater Los Angeles will allow Bodycote to take advantage of the burgeoning HIP market in Space and Civil Aerospace in the region. It will require only modest investment as it utilises an existing Bodycote site and existing HIP vessels that are immediately available for installation.

Optimal allocation of capital to drive shareholder value remains a top priority for the Group and these investments reflect this.”

Lazard acted as exclusive financial advisor to Bodycote on the acquisition of Lake City HT and Stack Metallurgical Group.

About Lake City Heat Treating (Lake City HT)

Lake City HT, currently owned by the Davis family, operates out of a single site in Warsaw, Indiana. The site provides HIP and associated heat treatment services. The business predominantly serves the medical orthopaedic implant market but also encompasses aerospace related business.

About Stack Metallurgical Group (SMG)

SMG, currently owned by a group of private investors, operates a HIP plant in Albany, Oregon and heat treatment plants in each of Portland, Oregon, Spokane, Washington and Salt Lake City, Utah, in the US. The business focusses on the aerospace market and has additional sales in the energy and general industrial markets.

About Bodycote

With more than 165 accredited facilities in 22 countries, Bodycote is the world’s largest provider of thermal processing services. Through Specialist Technologies and classical heat treatment, Bodycote improves the properties of metals and alloys, extending the life of vital components for a wide range of industries, including aerospace, defence, automotive, power generation, medical, oil & gas, construction, and transportation. Customers in all of these industries have entrusted their products to Bodycote’s care for more than 50 years. For more information, visit www.bodycote.com.


The acquisition constitutes a Class 2 transaction for the purposes of the UK Financial Conduct Authority’s Listing Rules. During the full year ended 31 December 2022, the businesses generated combined revenues of $35m and combined EBIT of $6m, and the business had combined gross assets of $46m.

This announcement contains inside information for the purposes of Article 7 of Regulation 2014/596/EU which is part of domestic UK law pursuant to the Market Abuse (Amendment) (EU Exit) Regulations (SI 2019/310) (“UK MAR”). Upon the publication of this announcement, this inside information (as defined in UK MAR) is now considered to be in the public domain. The General Counsel of Bodycote is the person responsible for making this disclosure.

This announcement contains forward-looking statements based on current expectations and assumptions. Various known and unknown risks, uncertainties and other factors may cause actual results to differ from future results or developments expressed or implied from the forward-looking statements. Each forward-looking statement speaks only as of the date of this document. Bodycote plc accepts no obligation to revise or update these forward-looking statements publicly or adjust them to future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

Cyclone Mfg. Signed Agreement to be Acquired by German Firm, Mubea

We at KAL Capital are thrilled to have represented the Sochaj family in the sale of Cyclone Manufacturing to Mubea.  We have known the Sochaj family for over a decade and have witnessed them grow Cyclone to the largest independent aerostructure business in North America.  We believe Mubea is the perfect buyer for Cyclone and is now officially a significant player in the world of commercial aerospace machining and fabrication.  We believe this is the largest aerostructure transaction completed post-COVID and is an important signal that this sub-sector of the market is back!

Cyclone Manufacturing is a vertically integrated, full-service provider of 3-5 axis machining, sheet metal, fabrication, tube bending, welding and structural assemblies of aerospace structural components. Headquartered in Mississauga, Canada, Cyclone operates four plants in Ontario, Canada and one plant in Kraśnik, Poland with around 700 employees. Cyclone’s comprehensive and advanced manufacturing capabilities enable it to manufacture geometrically complex, mission-critical components for the aerospace industry, ranging from prototype to low and high-rate volume production.

“With Cyclone, Mubea continues to develop into a global supplier in the aerospace industry. This allows us to offer our customers not only the reliability of a strong family-owned company, but above all technological expertise and global availability. “, says Dr. Thomas Muhr, CEO and General Partner of Muhr und Bender KG. In addition, he states, “I look forward to working with Cyclone’s highly motivated employees in the future and welcome them to the Mubea family.”

Mubea is an international partner to the automotive, and now the aerospace with the acquisition of Cyclone, industries, providing innovative, lightweight, high-strength spring components and related products. With 50 production, sales and development locations around the world, Mubea is one of the largest, privately held manufacturing businesses.

Hypergiant Acquired by Trive Capital

Trive Capital, a Dallas-based private equity firm, announces the acquisition of AI defense platform and solutions company Hypergiant Industries, to complement its current portfolio company Forward Slope. The acquisition is a natural partnership for the two organizations who believe in the future of next-generation, AI-enabled technology solutions to secure both America’s defenses across all military domains and critical infrastructure. Mike Betzer, CEO of Hypergiant, will continue leading the company into its next phase of accelerated growth.

Over the past five years, Hypergiant has emerged as a leader in AI-enabled, cloud-based command and control technologies and deployed solutions. The company created a world-class core geospatial data visualization and actions platform, Command Center. In addition to ingesting large amounts of information, this platform applies real-time threat analysis, makes AI-generated recommendations, and delivers intelligent insights and actions across all domains. Hypergiant has won numerous innovation awards for its AI-enabled defense solutions and is now focused on scaling this joint-all domain spatial intelligence and actionable command center software package.

David Stinnett, Partner at Trive Capital, commented, “Hypergiant’s unique geospatial data visualization capability have positioned the Company at the leading edge of C5ISR technologies that address mission-critical defense priorities. In an increasingly complex battlespace, Hypergiant is capable of rapidly delivering actionable insights to the warfighter. We are thrilled to partner with Mike and the Hypergiant team to support the Company in its next chapter of growth, and to formalize a longer-term partnership with our current portfolio company, Forward Slope.”

Hypergiant has also garnered strong market recognition for its futuristic inventions, including award-winning AI-enabled projects such as the Hypergiant Eos Bioreactor,Hypergiant Project Orion, then Hypergiant Disaster Mapping System, the Hypergiant Chameleon prototype constellation, Project Argus in partnership with Amazon among others. These various innovations focused on expanding the company’s capabilities, adding to its common operating picture platform from autonomous vehicles, to mobile command centers, to various heads up display implementations. 

Included among the company’s select customers are the U.S. Air Force, U.S. Space Force, the Department of Homeland Security, National Aeronautics and Space Administration (NASA), the U.S. Army, the National Reconnaissance Office, Boeing, and Booz Allen Hamilton.

“Space, defense, and American critical infrastructure all face similar challenges and need AI-enabled common operating pictures for quick and informed decision making. Our approach is to take government-funded projects, where we are building highly performant and secure, battle-ready solutions, and bring that technology to the private sector with mission specific customization,” said Hypergiant CEO Mike Betzer. “We are excited to partner with Trive as a long-term partner who truly understands the sector and can help accelerate adoption of our platform and offerings to an even broader set of private and public sector clients.”

“Mike Betzer has shown great integrity in his leadership and has continued to deliver on the company’s long-term vision of bringing next-gen AI assisted insights to the core groups that preserve and enable our way of life,” shared Hypergiant founder and now CEO of Colossal Biosciences Ben Lamm. “I am excited to see the company continue to scale its technologies that enable superiority on the battlefield through the Trive acquisition and Mike’s leadership.”

Hypergiant was founded in 2018 by technology entrepreneur Ben Lamm with a goal to bring an AI-enabled approach to an advanced visual multimodal to help organizations across space, defense and critical infrastructure. Hypergiant has over 195 employees and contractors and investors include lead investor Align Capital along with GPG, Perot Jain, Beringer Capital, and Capital Factory. The acquisition comes on the heels of Hypergiant’s most recent expanded $60M+ contract award from the USAF around its command and control platform offering.

Hypergiant Industries is an AI company focused on developing world-changing technologies to solve the world’s biggest problems in the areas of space, defense, and critical infrastructure.

KAL Capital acted as an advisor to Trive Capital for this transaction.


KAL Capital – Defense Innovation Ecosystem Overview

Defense Innovation Ecosystem Report (PDF)

Dear Friends,

We are pleased to share with you our team’s analysis of active trends shaping the defense innovation ecosystem.

The US National Defense Strategy calls for a “broad and deep change in how we produce and manage military capability”. A key component of driving this change includes adapting and fortifying our defense innovation ecosystem with an emphasis on private sector collaborations – specifically with contractors, investors, and the broader early-stage technology start-up sphere. Properly resourcing the founders building and integrating critical and emerging technologies for the DoD is paramount for immediate national security concerns and contesting strategic geopolitical threats.

In the report we cover new motions from a top-down perspective, including RDT&E appropriations, traditional and non-traditional funding programs, and fast-growing interest from private sector investors and strategic acquirers – particularly with earlier-stage businesses than the market has ever witnessed. Additionally, the report discusses growing advisory needs (capital raise, M&A, strategy) from founders currently navigating the rising complexities of the defense innovation ecosystem.

We welcome your thoughts and look forward to hearing from you.


KAL Capital Markets team

KAL Capital FY23 Q2 Newsletter

KAL Capital FY23 Q2 Newsletter

Dear Friends,

Happy 4th of July!

We are encouraged by recent developments in both the A&D industry as well as the broader M&A market. For aerospace, we spent several days busily catching-up in-person with financial sponsors and industry participants at the Paris Air Show.  The tone of those meetings was encouragingly positive as conviction around the recovery of OEM build-rates continues to grow. The consensus view is that aerospace is squarely in a strong up-cycle despite well-publicized challenges with supply-chain and availability of labor. This optimism underpins a strong M&A appetite to find opportunities to deploy capital within the supply-chain. Activity levels are picking up significantly and we expect the second half of this year to be quite busy.

For the M&A market generally, the recovery has been more mixed. Larger deals remain hampered by risk-adverse capital markets and a lending universe that is now dominated by private credit funds. The Wall Street Journal provided an accurate description of the current state of affairs when it discussed how “smaller” deals have taken over as the core of the M&A market. While total private equity deal value has declined ~50% YoY, the total number of deals is only down 4% illustrating a dramatic shift towards deals closer to $100mm of value. The number of total deals completed year-to-date is the third highest in 30 years! We have witnessed this shift in every M&A process as buyer behavior remains strongly aggressive and larger equity groups have come down market to pursue transactions in the $50 – $200mm value range. This dynamic has forced multiples (at least in A&D) to remain at or above 2021 levels. 

For the second quarter, we are pleased to announce two transactions. Both are described in greater detail in the subsequent pages, but they are illustrative of core sub-sectors that KAL has spent a great deal of time in. First, we represented International Water-Guard in their sale to Arcline Investment Management. IWG offers a suite of highly engineered, proprietary products to the business jet and commercial aerospace industry. Businesses that own their Intellectual Property and both the OEM and aftermarket revenue streams are commanding all-time high valuations. Secondly, we continue to grow our practice in the world of government contracting, particularly focused on those businesses sitting at the intersection of software and next-generation needs of the warfighter. We were pleased to advise Fregata Systems on their sale to Rotor Capital.  Fregata offers a unique set of software-enabled services that fit into JADC-2 and its related initiatives.


Trevor Bohn & Ryan Murphy

KAL Capital Advises International Water-Guard

SURREY, British Columbia, June 13, 2023 – Arcline Investment Management (“Arcline”), today announced that it has acquired International Water-Guard (“IWG” or the “Company”), expanding Arcline’s portfolio of highly engineered systems and components businesses for aerospace applications.

IWG is a leading provider and servicer of proprietary potable water systems and components for use in business and commercial jet applications, protecting both passengers and crew from the risk of waterborne illnesses. The Company’s comprehensive product portfolio ranges from water treatment units to components such as pumps, on-demand water heaters, tanks or structural details, and complete water systems, including control technology. IWG’s products have been factory-installed or retrofitted on over 4,000 aircraft worldwide.

Arcline commented, “IWG has established an exceptional reputation over its 35-year history as a technology and performance leader in the aircraft water systems space. The Company’s steadfast commitment to its customers through design innovation, customer service, and aftermarket support underpin this reputation and provide a strong base for future growth. We look forward to partnering with the IWG management team to support the exciting opportunities that lie ahead.”

“At IWG, our mission is to develop innovative, market-leading products that protect, control, and monitor water in aviation applications,” said Steven Bis, President of IWG. “We are confident that this partnership with Arcline and its portfolio of aerospace-focused businesses will enable us to better serve our customers and accelerate the achievement of our vision of IWG on every plane.”

KAL Capital acted as the sell-side advisor to International Water-Guard for this transaction.

About International Water-Guard
IWG is focused on developing innovative solutions to the issues surrounding on-board water supply and is the world’s leading provider of flight-certified potable water treatment units, on-demand water heaters, aircraft water pumps, compact water modules, and other innovative potable water components. The Company’s world-class team of aviation water professionals has close working relationships with the world’s leading aircraft manufacturers and completion centers and have had their proprietary products factory-installed or retrofitted onto over 4,000 corporate, VIP, and military transport aircraft worldwide. Founded in 1989, IWG is based in Surrey, British Columbia. For more information visit https://www.water.aero/.

KAL Advises Fregata Systems Transaction

FR Capital has acquired Fregata Systems, LLC, a Saint Louis, Missouri-based provider of innovative C5ISR technologies solving vital needs of the defense and intelligence communities. Fregata’s capabilities include multi-level secure cloud applications, communications & networking and UAV related services which enable the warfighter to access advanced intelligence architectures.

Mike Twyman will become CEO of Fregata Systems. He previously led Northrop Grumman’s Defense Systems Division and was the President of Cubic Mission Solutions C5ISR business. The acquisition of Fregata represents the initiation of FR Capital’s focused investment in the Aerospace & Defense industry and the firm plans to make several strategic acquisitions in the C5ISR area over the next 36 months.

Richard Keller, Managing Partner of Rotor Capital, stated: “Fregata is a nimble, innovative company with an impressive pedigree of success. We plan to build upon its strong foundation to create a market leading company in the C5ISR sector. Given persistent tense and uncertain geopolitical realities, investments like this can protect our warfighters and will enable the U.S. to keep pace with the near peer threats facing our nation. Fregata provides the best available solutions for our soldiers, sailors, airmen, marines, and guardians.”

KAL Capital acted as a sell-side advisor to Fregata Systems.


KAL Capital Q1 2023 Newsletter

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Dear Friends,

We are pleased to have turned the corner on what was a difficult winter both in terms of the rainy Southern California weather as well as the environment for M&A. Entering Spring, we have seen the environment for aerospace & defense M&A remain remarkably resilient though not with out its challenges.

From a macro-level, the industry continues to have strong tailwinds with some exceptions. For commercial aero, inflationary pressures and supply-chain struggles continue to be the major themes. The guarded optimism around ambitious OEM build-rate ramps was unchallenged by the recent news of quality issues. On the defense side, the multi-year trend of bipartisan consensus to address threats from near-peer threats is intact, but the recent conversations regarding the debt ceiling bring back to focus the challenge of growing defense spending despite the consistent march higher of competing, mandated entitlement programs. While we believe that this most recent breach of the debt ceiling will ultimately be resolved (like so many before it), it does serve as a reminder of the possibility of a return to an austere budgetary environment or even sequestration.

For our practice, we have closed three M&A transactions thus far in the year and continue to be bullish on the market environment for many of the end-markets that our clients serve within the supply-chain. From both our closed and live deals, we have observed an M&A market that has evolved to reflect the current reality of both an inflationary and a more challenging debt financing environment. First, the aerospace OEM supply-chain is undeniably building towards a full recovery and M&A valuations are reflecting that welcome new reality. We have closed and have several transactions in the market that are benefitting from expanding build-rates of both commercial and business jet programs and have been active participants in transacting at valuations that would require a recovery to pre-COVID financial performance to justify price. There was a multi-year window where commercial aerospace OEM transactions were available for discounted values; we can officially state that those times are over! Secondly, MRO transaction activity will likely approach peak levels before the year is complete. With good reason, Heico’s acquisition of Wencor is grabbing most of the headlines, but it belies significant transaction activity at a smaller scale as both the engine and component MRO segments have high-quality businesses that will be announcing transactions before the year is out. Strategic buyers with access to cash and existing debt facilities will continue to have the upper hand.

We will be headed to the Paris Airshow and would love to see you in-person.


Trevor Bohn & Ryan Murphy

KAL Capital Advises Kittyhawk, Inc.’s Acquisition by Trive Capital

Trive Capital (“Trive”), the Dallas-based private equity firm, is excited to announce its recent investment into Kittyhawk, Inc. (“Kittyhawk” or the “Company”), a leading provider of Hot Isostatic Pressing (“HIP”) services for a variety of industries including space, commercial aerospace, defense, and medical applications.

HIP is an integral service that improves the strength and metallurgical properties of casted and additively manufactured parts. Kittyhawk specializes in servicing parts for high-temperature, high-pressure, and high cost of failure applications such as rocket and jet engine componentry.

Founded in 1981, Kittyhawk is a leading provider of HIP services on the West Coast from its locations in Garden Grove, CA, and Canby, OR. The Company is trusted by many of the largest aerospace, defense, and space OEMs to increase the performance and safety of their most iconic platforms.

KAL Capital served as a financial advisor, and Perkins Coie served as legal counsel to Kittyhawk. Haynes & Boone LLP served as legal counsel to Trive Capital.

KAL Capital’s Q+A Regarding Kittyhawk Acquisition

What made Kittyhawk such an attractive asset?

Murphy: The business was incredibly well received by the market and had strong interest from both strategic and private equity buyers.  The basis of that interest was anchored around the fact that Kittyhawk serves a growing, attractive niche with incredibly high barriers to entry. The primary growth vectors of the business are 1) the recovery of the commercial aerospace supply-chain and 2) the increased tempo of space launch driven by SpaceX, Blue Origin and emerging launch providers.

Bohn: The core service offering, Hot Isostatic Pressing, is a highly specialized type of heat treatment that requires substantial upfront capital investment and highly skilled operators.  Additionally, while this service has traditionally been used as a mission-critical piece of the aerospace casting process; HIPing has now emerged as a requirement for any flight critical 3D printed part.  The implications for our M&A process were profound, as opportunities with true exposure to 3D-printing are few and far between.

What is next for the aerospace heat treating industry generally and Kittyhawk specifically?

Murphy: Our perspective is that buyers will continue to aggressively pursue assets within the heat treating sector.  The financial profile of the businesses is generally attractive due to the tolling nature of the model plus the remaining providers have generally achieved a level of scale that gives them the ability to maintain attractive margins.  The sector remains relatively fragmented which means that private equity will predictably look to provide capital to consolidate.  We believe that this transaction will be the first of several aerospace heat treat and HIPing transactions over the next several years.

Bohn: For Kittyhawk, my guess is that Trive Capital will be looking to insistently consolidate not only the HIPing sector but expand into logical adjacencies.  Part of what made Trive attractive to our client was their pedigree and track-record of successful roll-up strategies within the aerospace supply-chain, namely Valence Surface Technologies.  Our belief is that Trive will be looking to repeat aspects of that successful investment including aggressively looking for additional M&A targets to expand geographic reach and offer additional services to the existing customer base.

What broader trends within aerospace & defense M&A does this transaction illustrate?

Murphy: For me, this illustrates the consistent energy of the private equity community for assets within our sector.  The growth story of Kittyhawk was relatively straightforward to communicate as its core customer base of aerospace casting providers were increasing activity based on commercial aerospace build-rates plus the new space sector continued to expand at an aggressive rate.  The sponsors were able to underwrite an attractive investment case based on the expected growth and were then able to pursue the opportunity aggressively.

Bohn: It’s as simple as quality and scarcity value will always command premium multiples, regardless of market conditions. Kittyhawk offers a highly unique solution that commanded the attention of strategic and financial buyers.  On top of that, we had a great management team that wanted to remain with the business. It’s a great outcome for all participants.


FY2022 Newsletter

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Dear Friends,

For many, 2022 represented a year of challenges as inflation and rising interest rates caused significant disruption that was reflected in declining public equity valuations, choppy credit markets and ultimately reduced M&A activity. While the A&D sector was not totally immune, we repeat our sentiment from the last several quarters that M&A activity within our industry has outperformed by a massive factor. The reason is simply that both the commercial aerospace and defense end-markets are not only recession resistant but are growing at rates that would be attractive in any macro-environment. 

As so often the case, public headlines tend to over dramatize the reality of the current M&A environment.  While its true that total M&A volume has declined ~37% YoY, this is off a clearly unsustainable 2021 and is inline with 2019 & 2020 activity levels. A&D outperformed the broader M&A market with more modest declines (-4.3%) as the hardest hit sectors were early-stage, low-profitably businesses within tech and healthcare. Perhaps the easiest illustration of the root cause of this discrepancy can be seen in the public equity performance of key defense companies like Northrop (+41%), Lockheed (+34%), Raytheon (+18%) all of which not only outperformed the S&P500 but ended the year well up!

Within A&D, we saw the momentum of the sector improve in 2H 2022 as several large transactions were announced or completed including Parker’s acquisition of Meggitt and Audax’s take-private of Maxar.  This large-scale activity continues to be amplified amongst our core clientele of Tier II/III businesses as transaction activity within several sub-sectors of the supply-chain has picked up, most notably in the aerostructure and aero-engine sectors which have been amongst the last to recover post-COVID. 

For 2023, we expect activity levels to be flat to slightly up with continued outperformance versus the broader market as the ongoing strength of commercial and defense end-market demand continues to attract private equity and strategic consolidators looking to deploy capital in growing, recession-resistant industries. Ideally, the debt markets adjust to a new higher-rate environment and provide supportive levels of credit availability to assist private equity groups in closing transactions at seller-friendly valuations. 

For KAL Capital, we are proud to have continued to assist our clients in achieving great results from their M&A processes and ultimately achieved a new annual record for the firm of seven closed transactions, which brings our total since our founding in 2017 to over 40 closed deals! We have great expectations for 2023, continue to add to our team, and look forward to bringing several exciting transactions to market in Q1.


Trevor Bohn & Ryan Murphy


2023 Aerospace and Defense M&A Outlook

As inflation continues to reduce the value of each dollar and fears of a recession loom, many sectors are already seeing retractions in the mergers and acquisitions marker. In aerospace and defense M&A, things are more complicated. A&D is its own unique world, and broader trends don’t always land here the way they do in other industries. For instance, the COVID-19 pandemic was a boon to many industries, but commercial aviation saw stunning losses. Anticipating trends can help players in this sector remain agile. Here are five trends that we predict will affect A&D M&A in the coming year. 

Decreased Access to Capital 

It’s a simple rule, with profound implications: higher interest rates make capital less accessible. Coupled with inflation and a recession, buyers just don’t have as much cash on hand as they did even a year ago.This may slow M&A, mean that buyers are more discerning, and reduce valuations. 

Ongoing Regulatory Challenges

Aerospace and defense face an increasingly tight regulatory climate. DoD has expressed concerns about the potential for monopolies to form as the industry consolidates, and has promised to carefully scrutinize all deals with even theoretical national security implications. This may slow down deals, and even be the death knell for some particularly large deals. 

Mitigating Supply Chain Risks 

Supply chain issues were already becoming a problem at the beginning of the COVID-19 pandemic. The pandemic, a tight labor market, and international upheaval from the Russian invasion of Ukraine have made things even tighter. Key players may make a shift from global to regional sourcing, especially of parts and raw materials. This may change pricing schemes and budgets, and alter the manufacturing process. Thoughtful A&D companies should create as much visibility into their supply chains as possible, so that they can anticipate and mitigate emerging supply chain risks before they become crises. 

Managing Labor Shortages 

Labor shortages have proven catastrophic for industries across the globe. A&D is no exception, especially because of the ways in which these shortages affect manufacturing. These shortages may increase budgets and erode value. They may mean that everything takes longer. A&D companies should assume that the labor shortage is here to stay, not a temporary disruption. The time to begin developing a long-term strategy for nurturing, recruiting, and retaining top talent is here. For many A&D businesses, automation and artificial intelligence are becoming pillars of the strategy for managing labor shortages. 

What can your business do to be the most attractive place in your industry to work? Do it now. Because a business’s people are key drivers of its value during M&A. 

Adopting Sustainable Practices 

Consumers and governments are increasingly concerned about carbon emissions and reining in unsustainable manufacturing practices. Some contracts may even require sustainability benchmarks. Sustainable aviation fuels are becoming mainstream, and renewable electricity may also offer a viable alternative. To remain competitive, A&D companies must develop sustainability policies that reduce their dependence on fossil fuels and ensure that A&D can continue to thrive into the future. 


KAL Capital Q3 2022 Newsletter

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Dear Friends,

We hope that everyone enjoyed a great Thanksgiving with their families. 

Apologies for the delay with our Quarterly Industry Review, but we have been quite busy with both closed transactions as well as gearing up for several new deals to launch in Q1 2023.  In the second quarter we advised on two great transactions both as bolt-on’s to existing platforms of blue-chip private equity sponsors.  First, we advised Stroco Manufacturing, a provider of precision machined and fabricated structures, on its sale to Novaria Group (a portfolio company of KKR).  Our second transaction was with Airport Terminal Services (ATS) which completed a transaction with Alliance Ground International, a portfolio company of Greenbriar and Audax.  Both of these transactions were family-owned businesses that had experienced tremendous growth and had a multitude of seller-friendly options available as a result of the a KAL process.

These transactions were done despite a market environment that has made an abrupt transition from seller-friendly to one that requires thoughtful consideration to process design and timing.  Rising interest rates are the primary culprit as the subsequent and forecasted impact on the macro economy has caused lenders to be more conservative with both the availability and cost of capital available for use in M&A events.  Notably, our niche of A&D continues to be amazingly insulated as well-priced transaction activity continues, albeit at a pace below 2021.  The reason for this resilience is based on the strength of both the commercial aerospace as well as defense end-markets.  We have seen both private equity and strategic buyers rotate towards the A&D markets as they are two industries seen as “safe havens” in what potentially could be a global recession.  This notion is being reflected in our M&A processes as we have seen private equity sponsors submit offers that either rely on pre-existing debt facilities at portfolio companies or simply contemplate a completely equity financed transaction.  This aggressive posture has allowed us to continue running seller-friendly processes through the second half of 2022.  Looking ahead, we are hopeful that the debt financing environment improves; we would expect the recovery to be led by non-traditional lenders that rely on LP-committed capital versus traditional commercial banks which will likely have cautious outlooks well into 2023.

We expect to have a full deal plate in 2023 as we have a number of transactions that are ready to come to the market.  Our Q1 deals will include transactions in the engine MRO, aerostructure, proprietary fluid control and metal finishing industries; please reach out if you have any questions!


Trevor Bohn & Ryan Murphy


How Aerospace and Defense Firms Can Overcome Supply Chain Bottlenecks

The world of A&D M&A is facing a number of pressures: increased consolidation that has led to increased regulatory oversight, as well as supply chain shortages and bottlenecks with the capacity to impact production and profitability. This, coupled with skilled labor shortages, can affect mergers and acquisitions in an increasingly uncertain market. And for some companies, these challenges may actually be a reason to sell, to avoid continuously dealing with uncertainty. The right A&D investment banking firm can guide you as you manage supply chain bottlenecks. 

Whether you’re hoping to get out now, planning a future sale, or just hoping to increase profitability while you assess what comes next, here are some strategies for protecting against supply chain bottlenecks. 

Embracing New Technology 

New technology can build redundancies into your manufacturing process, making the steps simpler and more easily replicable. It also makes it easier to measure cycle time, quality, and productivity—all key steps for getting through supply chain shortages. A&D firms should explore options for using technology to make manufacturing more reliable and efficient. 


Automating as many processes as possible, along with working with manufacturers that use automation, makes manufacturing easier and reduces vulnerability to supply chain and labor shortages. The costs of automation have decreased significantly, making automation an increasingly viable investment. Moreover, automated processes tend to be more reliable than human beings, and are a great way to avoid safety issues and other potential liabilities. 


The physical distance a supply chain spans is a major predictor of its reliability. Manufacturers who moved to offshore plants in recent years are finding these plants aren’t as attractive as they once were, and pose many reliability concerns. The changing tides of international relations and long distances products must travel can both lead to supply chain disruptions. 

In-shoring and near-shoring are the new trends in supply chain management. Locally manufactured products can be more expensive, but they also offer greater security. Firms usually can’t return all manufacturing to the U.S., but moving even a portion of your supply chain to more local manufactures can act as an insurance policy against some of the most common supply chain bottlenecks. 

Consider a Strategy Shift 

Some companies have foregone localization in favor of shifting manufacturing south. Mexico is an increasingly attractive destination for manufacturing because of its closer proximity, low prices, and skilled labor. Owners shouldn’t be afraid of the unknown. Instead, consider experimenting with moving one aspect of operations south of the border, then assessing the results. A combination of transferring some operations to Mexico and some back home can offer greater insurance than any single strategy would on its own. 

As is always the case in A&D, firms willing to innovate stand to win big as the economy shifts and continues to recover from the global pandemic. The pandemic showed that companies who are willing to innovate and pivot quickly to new ways of doing business can thrive even in uncertain times. The next chapter of the A&D economy will likely be written by companies that find ways to overcome supply chain bottle necks. 

KAL Capital Advises Airport Terminal Services, A Ground Handling Leader

KAL Capital is excited to announce its role as M&A advisor to Airport Terminal Services (ATS) in its acquisition by Alliance Ground International (AGI), a portfolio company of Greenbriar and Audax. 

ATS offers a full-range of ground handling services including passenger, ramp, cargo handling, aircraft refueling and de-icing as well as lounge and concierge services.  ATS has more than 5,500 employees and services a blue-chip set of US and Canadian airlines.  Founded in 1975 and based in St. Louis, Missouri, ATS operates across the US and Canada.

“We are excited to be a small part of the ATS story.  The management team has built a tremendous ground handling operation based on excellent customer services.  We enjoy seeing family-owned businesses grow and ultimately find a home with a great strategic buyer like AGI,” said Trevor Bohn, Partner at KAL Capital.

“This transaction represents our third closed deal in the ground handling space and a continuation of our efforts in the aviation services sector.  We expect that private equity-backed consolidators will continue to add scale, capabilities and customers in this niche of the A&D market,” commented Ryan Murphy.

KAL Capital Acts as Sole Sell-Side Advisor to Stroco Manufacturing

Novaria Group, a leading manufacturer of specialty hardware for the aerospace and defense industries, announced today it has signed an agreement to acquire Stroco Manufacturing, Inc. Upon closing, the acquisition will be Novaria’s ninth since June 2020.

Founded in 1963, Stroco Manufacturing serves the defense and aerospace industries in both the military and commercial sectors. Its customers include Boeing, Lockheed Martin, Northrop Grumman, Bombardier and Gulfstream. Stroco specializes in an array of product offerings, including shims, brackets, nut plates and terminal boards.

Stroco, based in Hazelwood, Missouri (St. Louis), will continue operations under leadership of Kris Welhart, the current owner. KAL Capital, which provides aerospace and defense M&A advisory services, represented Stroco on the transaction.

“We are delighted to add Stroco as Novaria further bolsters its product and service offerings, specifically in the defense market,” said Novaria CEO Bryan Perkins.  “Stroco’s products are complementary to several of our business units and enable us to offer more complete packages to customers. They are a respected name and growth supplier in the industry, making this deal an ideal fit.  I’ve also known Kris for over a decade, and we’re excited to add him to our experienced management team.”

“We take pride in exceptional delivery, quality products and excellent customer service,” Welhart said. “We know Novaria shares these values, and we are pleased to enter into this partnership with an organization committed to maintaining the core values while at the same time providing the resources to begin the next phase of growth at Stroco.”

The transaction is expected to close this month, subject to the satisfaction of customary closing conditions.  Specific terms of the acquisition have not been publicly disclosed.

About Novaria Group

Novaria Group is a privately held business focused on precision component companies that deliver optimum performance and sustainable growth with the aerospace and defense marketplace. For more information on Novaria’s business units, please visit www.novariagroup.com.


KAL Capital Q2 2022 Newsletter

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Dear Friends,

We hope that everyone is enjoying a great start to their summer!

During the second quarter, we witnessed financial markets realize that the inflationary
pressures (both labor and raw material) could no longer be dismissed as transitory and that a
more restrictive monetary policy would be required to tame the price pressures exacerbated
by COVID supply chain disruptions and the war in Ukraine This shift in policy has had a
negative impact on public equity valuations, particularly on areas that had witnessed the
steepest increases such as cryptocurrency and early stage technology companies These
equity valuation declines reflect a significant risk that the US economy is now or will shortly
be in a recession.

All that being said, the impact on aerospace M&A activity and valuation trends has been
extremely limited KAL Capital has witnessed that first hand with three closed transactions
in the quarter (a new record for the firm!) we dive into these great outcomes later in this

The reality is that the end markets that our clients serve are the least likely to be impacted by
a recession and should continue to grow despite any broader economic malaise On the
defense side, we continue to see incredibly strong M&A appetite by the buyer community as
optimism around the sustainability of growing DoD budget trends is as strong as ever The
last quarter witnessed several landmark transactions including Carlyle’s acquisition of
Mantech but for us we continue to see a consistent drum beat of activity further down the
supply chain as private equity backed strategic buyers lead the way.

Commercial aerospace activity continues to be generally positive but remains well below pre
COVID activity levels This is primarily due to challenges in the Boeing supply chain as
MAX and B 787 production continue to disappoint supply chain participants That said, the
astounding rebound in air travel is the best leading indicator for an industry on its way to
recovery The recent, well publicized challenges with on time performance will surely get
better over time.

In summary, we continue to believe the aerospace/defense M&A markets will be insulated
from broader economic pressures assuming the financing market remains somewhat

We are headed to the Farnborough Airshow and would love to meet up in person!


Trevor Bohn & Ryan Murphy

KAL Capital Advises Hitemco Acquisition by Lincotek

Global contract manufacturer Lincotek is announcing today that it has closed the acquisition of Hitemco, emphasizing the strong focus of Lincotek on the US market. The scope of the transaction is a 100% ownership stake and comprises all the services and processes offered by Hitemco at the facility located in Old Bethpage, NY, starting from high-velocity oxygen fuel (HVOF), thermal plasma spray, diffusion coatings and coating development through to custom engineering and grinding/surface finishing.

Established in the US as a private, family-owned company in 1974, Hitemco offers an array of special coating and surface finishing processes, spanning multiple industries. The business has developed a particular expertise in diffusion coatings – offering silicide, aluminide, chromide, and platinum – while the thermal spray capabilities encompass HVOF and most plasma processes. Hitemco has become a key coating and surface finishing provider in the aerospace, ground-based turbine, nuclear and hydrogen fuel cell industries, realizing an impressive customer portfolio in both commercial and military sectors.

Lincotek Surface Solutions is a global leader in offering industrial OEMs – mainly in gas turbine and aerospace – a vertically integrated solution for the special processes required after the casting and machining of turbine blades and vanes. Its integrated approach has evolved over the years into an unparalleled set of offerings, with the ability to provide an end-to-end solution, from Additive Manufacturing to surface treatments and market-ready solutions. The primary coating processes offered by Lincotek Surface Solutions are HVOF, vacuum plasma, air plasma, and diffusion coatings. The company also provides a wide range of surface finishing and post-coating services, such as laser and EDM cooling hole drilling, welding, heat treatments and brazing.

As a result of the acquisition, Lincotek will find itself uniquely placed to offer the aerospace and IGT markets the most complete set of services to date. This competitive advantage will be supported by an additional 80,000 sq ft plant and a 110-strong workforce with the ability to offer these unique services close to its core customers, securing shortest turnaround times. Recognizing the quality of the Hitemco management team and the work they have done, Lincotek has confirmed their continuation to ensure a seamless transition.

Hitemco is uniquely positioned due to its broad customer mix and product qualification base across multiple industry segments. The acquisition serves as a platform for Lincotek Surface Solutions to instantly expand beyond turbine engine surface treatments. With the purchase of Hitemco, Lincotek is excited to offer integrated solutions for landing gear components, pistons and actuators, rocket thrusters for military and commercial satellites, hydrogen fuel cells and nuclear.

OEMs are set to benefit from the combined strength of Lincotek Surface Solutions and Hitemco, which will offer a high level of valued customer-centric service, with a complete offer, enhanced lead times and impressive levels of quality and reliability. Relying on these service capabilities, customers can focus on their core business. The acquisition will position Lincotek at the forefront of service providers in the United States.

“This is another vitally important acquisition for us,” says Winfried Schaller, the CEO of Lincotek Group, “as we are always looking to enhance our offering and provide the best possible partnership for OEMs. Hitemco has an outstanding service reputation across many industry segments and we are delighted to be able to integrate the company’s diffusion coating and thermal spray capabilities with our own. Customers will be assured of the highest possible quality and best possible service.”

“With our acquisition by Lincotek, I am excited that we are joining a company that complements Hitemco in many ways including strong customer focus, high quality offerings, and quick turnaround processes,” says Tom Hammond, President of Hitemco. “The combination with Lincotek will bring additional capabilities, financial strength and a broader geographic footprint to our combined customer base, as well as, strong teaming capabilities in providing advanced solutions to our customers’ requirements.”

KAL Capital Markets, LLC acted as the Sole Sell-Side Advisor to Hitemco

About Lincotek
Lincotek, headquartered in Rubbiano, Parma – Italy, is a global contract manufacturer for services in niche markets including Industrial Gas Turbines, Aviation and Medical Device applications, as well as a leading manufacturer of industrial coating equipment and one of the most respected producers in the Additive Manufacturing field. The Group is family-owned and has more than 1,500 employees located in 20 production facilities across Europe, North America and Asia.

About Hitemco
Hitemco is a private, family-owned American business, established nearly 50 years ago. It is a leading provider of Diffusion and Thermal Sprayed enhanced surfaces – successfully applied across a range of applications and environments. With customers in both commercial and military markets, the company combines high-quality production with extensive equipment capability, competitive pricing and great customer service.

KAL Capital Advises Custom Microwave’s Acquisition by Vitesse Systems

Trive Capital announced that it has acquired Custom Microwave, Inc. (CMi), which will join the Vitesse Systems platform. Vitesse Systems was launched in 2018 following the acquisition of California Brazing. The platform is focused on mission critical assemblies that enable the advancement of communication, radar and electronic warfare systems.

CMi is a leading provider of high-performance passive antennas that are engineered for critical space and ground applications. CMi’s engineering and testing expertise combined with advanced manufacturing processes such as electroforming and additive manufacturing will enable Vitesse to support a complete range of complex high-performance RF applications.

David Stinnett (Partner – Trive Capital) stated: “The proliferation of military and commercial satellites has resulted in increased demand for high performance antennas. The addition of CMi will enable Vitesse to support a broad range of LEO and GEO satellite programs and related ground-based systems. CMi will also complement Vitesse’s existing thermal management and precision waveguide manufacturing capability.”

Clency Lee-Yow (Owner and CEO – CMi) commented: “Partnering with Vitesse will allow us to gain broader exposure to a more diverse customer set and accelerate growth for CMi. We are excited to be able to support our customers as the demand for next generation communication systems continue to rise.”

Matthew Alty (CEO – Vitesse Systems) explained: “We are excited to have Clency and the CMi team join Vitesse. CMi is not only a fantastic addition to our existing capabilities, but also a great cultural fit; an innovative people-led business with a long-standing track record of delivering antenna solutions that are critical to the security of the USA, enhance space exploration, facilitate earth observation and enable global communication.”

KAL Capital acted as the sole sell-side advisor to Custom Microwave, Inc.

About Vitesse Systems

Vitesse Systems is a leading supplier of complex cooling systems and communication hardware used in radar, electronic warfare, and data transmission applications. Headquartered in Newark, California, Vitesse operates five manufacturing facilities located in California, Colorado, Massachusetts, Maryland, and Nevada. All Vitesse facilities are ITAR Registered and DFARS compliant, serving a broad range of Aerospace and Defense customers.

About Trive

Trive Capital is a Dallas, Texas based private equity firm with more than $4 billion of regulatory assets under management. Trive focuses on investing equity and debt in what it sees as strategically viable middle-market companies with the potential for transformational upside through operational improvement. We seek to maximize returns through a hands-on partnership that calls for identifying and implementing value creation ideas.

The Trive team is comprised of seasoned investment professionals who have been involved in over 100 middle-market transactions representing in excess of $6 billion in revenue across Trive’s targeted industry sectors and situations.

KAL Capital Advises Vanguard Electronic’s Sale to iNRCORE, LLC

iNRCORE, LLC, a premier Family of Brands supplying high reliability magnetics and other components to power the world’s next-generation systems, is pleased to announce the acquisition of Vanguard Electronics, a manufacturer of both catalogue and custom high reliability magnetics for the most demanding applications in the defense, aerospace, space and medical industries. 

As the latest addition to iNRCORE’s exclusive Family of Brands, Vanguard Electronics will continue to operate as a wholly owned subsidiary of iNRCORE with its existing leadership reporting directly to Sarah Harris, CEO and President of iNRCORE. Vanguard Electronics will retain its headquarters in Huntington Beach, California, with an additional manufacturing facility located in Mexicali, Mexico.

“The products and capabilities provided by Vanguard Electronics will solidify iNRCORE and our family of brands as the premier provider of power magnetics, RF, microwave components and custom solutions capable of meeting the most demanding specifications,” says Sarah Harris, CEO & President of iNRCORE. “Together, we will be able to leverage our supply base and vertical integration to accelerate growth across all brands. We are excited about this partnership, and we are confident it will enable us to continue to provide the most challenging component solutions in space, military, commercial, aerospace, and medical applications.”

“Vanguard Electronics is thrilled to be joining the iNRCORE Family of Brands, who shares our commitment to reliability in demanding environments,” said Ryan Kooklan, Vice President of Vanguard Electronics. “Vanguard Electronics has been an industry leader for over 70 years, and we look forward to this next phase of growth with iNRCORE as our partner.”

The acquisition, backed by iNRCORE majority owner The Jordan Company, comes on the heels of the prior acquisition of Gowanda Components Group (GCG), a US-based designer and manufacturer of high-performance electronic components for high-reliability applications. GCG is comprised of several well-known industry brands, including Gowanda Electronics, DYCO Electronics, TTE Filters, RCD Components, and other legacy brands.

KAL Capital Markets LLC acted as the exclusive investment banking advisor to Vanguard Electronics.

For more than 70 years, iNRCORE has designed and manufactured magnetic components that transmit high-speed, mission-critical signals and power in the harshest operating conditions. Designed to the tightest specifications and to military standards, iNRCORE components have operated on the frontlines of defense to the frontiers of space exploration. The iNRCORE Family of Brands include Vanguard Electronics, Gowanda Electronics, DYCO Electronics, HiSonic, TTE Filters, RCD Components, and Bicron Electronics. iNRCORE is ITAR registered and certified to AS9100 and ISO 9001 quality standards.

About Vanguard Electronics
Vanguard Electronics has been an industry leader for over 70 years in the design and manufacture of inductors and transformers. With a reputation for reliability in demanding environments, Vanguard Electronics is a preferred supplier to major contractors in the defense, aerospace, space, medical and down-hole oil and gas industries. Vanguard offers a complete line of RF and Power components ranging from milliwatt chip inductors to 10kVA power transformers. The company is ITAR registered and ISO 9001 & AS9100 certified.

Original Press Release Here.


KAL Capital 2022 Q1 Newsletter

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Dear Colleagues –

The end of Q1 is here and we couldn’t be more excited about the rest of the year, we hope you all share a similar sentiment. We couldn’t ask for a better start to our year with several new team members and record setting deal flow as the aerospace/defense M&A market continues to outperform the broader market. Just as we predicted in our last Quarterly Industry Review, 2022 will likely outpace 2021 in terms of deal volume and size!

While there have been several interesting developments in the commercial aerospace sector, the news and expected follow-on effects of Russia’s invasion of Ukraine have dominated conversations.  Simply put, our view is that Russia’s belligerence has forced a re-evaluation of previous paradigms that assumed a generally peaceful world order with limited real threat of war.  This realization will have both near and long-term implications for the A&D supply-chain as leaders across the world evaluate and invest in strategic deterrents aimed to counter-balance the naked aggression displayed by a nuclear-armed Russia.  KAL’s perspective is that the growth seen in the recent DoD budget is just the tip of an upcoming bow wave of re-investment in capabilities that were previously deemed Cold War-era “relics.”  While the DoD has been focused on pivoting to address “near-peer” threats, we expect further investment across the armed forces with major beneficiaries being the Air and Space Forces. On the program side, we view the major winners to include GBSD, B-21, JSF (over the long-run), NGAD amongst others, particularly offensive and defensive hypersonic capabilities.

Expected growth in long-term funding of major procurement and R&D programs will be a major force in maintaining elevated valuations for businesses with defense end-market exposure.  While defense multiples have remained above historic norms, the recent turn of events materially reduces risk that the progressive wing of the Democrat Party will be successful in slashing DoD budets; thereby, creating a strong tailwind for M&A processes.  On the commercial aero side, the aviation world is benefitting massively from a reduction in COVID restrictions and a continued sharp rebound in both leisure and business air travel. We have seen the first commercial aero OEM transactions coming to life and expect real momentum in the sector in 2H 2022.

As we sit at our desks and plan out the rest of the year, we’re ecstatic about being back on the tradeshow circuit and will be attending MRO Americas, Special Operations Forces Industry Conference, Space Tech Exposition and the International Microwave symposium. If any of these are on your calendar as well, we’d love to connect and meet face to face like the good old days.

Please don’t hesitate to reach out as we’d love to hear your input on Q1 and preview for the rest of the year!


Trevor Bohn & Ryan Murphy

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Anticipating New Challenges in A&D M&A

Most aerospace and defense owners have lived through a range of crises, and are intimately familiar with how the unexpected can affect aerospace and defense mergers and acquisitions. They know that a contingency plan is key, but we’ve seen with the pandemic that some contingencies can never be planned for. That doesn’t mean flexibility and preparation are impossible—just that they require more ingenuity than many owners could have ever imagined. A&D sell-side M&A requires a thoughtful approach to the next crisis, well before it happens. The right A&D investment bank can help you weigh your options for a flexible response. Knowing your own industry and business is also key. 

We’re seeing a handful of new trends that stand to affect A&D M&A. Here’s what you need to know about staying ahead of the curve. 

Russian Invasion

It is not yet clear at all the impact the Russian invasion of Ukraine will have, though we are already seeing higher oil prices. In terms of M&A, companies in the defense sector may benefit from the invasion. That includes higher valuations. At the same time, though, supply chain issues loom large. A&D companies should assume that the invasion will have an effect in the future, and begin planning for that effect now, based on what they know about the most likely outcomes in their sub-sector.  

Supply Chain Issues

Supply chain issues are holistic, affecting everyone, even businesses that experience few direct effects. A&D companies may have already changed the way they buy materials, and may need to continue to do so. Remaining flexible, with multiple back-up plans and strong relationships with good suppliers, is key to thriving in this uncertain environment. A&D businesses now must spend more time on planning and lead times, and may need to roll this additional time into cost and timing estimates. 

Consider that materials are just one aspect of the supply chain crisis. The rising cost of labor makes a steady supply of quality employees more expensive than ever. Ensure you don’t waste time and effort on recruitment by putting a strong retention package in place. 


With a strong trend toward automation, A&D principals who can automate processes should. This may require significant upfront investment, but it also makes a business a more enticing acquisition. It also lends greater flexibility during a tight labor market, and can help mitigate some of the effects of the pandemic (and protect against any future pandemics). 

Regulatory Scrutiny 

A&D deals are facing increased regulatory scrutiny, and DoD recently promised this trend will accelerate. For the largest businesses, certain mergers may no longer be possible when they reduce competition or drive prices higher. Before considering any deal, it’s important to get expert insight to assess how feasible the deal will be in the current regulatory climate. 


KAL Capital Q4 2021 A&D Review

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Dear Friends,

Happy New Year! We hope everyone had a great holiday with their friends and family. For KAL, we were fortunate to celebrate the five-year anniversary of the firm with a tremendous 2021. The year marked several important milestones, including a record-setting amount of transactions activity, both in terms of deal quantity and value. We successfully advised on the sale of some truly amazing businesses, each leaders in their respective niches, owned by high-quality individuals and partnerships. None of this would have been possible without the broader KAL team, which continues to grow every year!

Reflecting back on 2021, the M&A market broke every possible deal quantity record and shattered previous all-time high valuation metrics. Activity was bolstered by owners looking to transact ahead of changes in capital gains tax treatment that was (and still is) a clearly communicated priority of the Biden Administration. This flood of deal activity was met with open arms by buyers of all types, but in particular the private equity community. The exponential increase of capital allocated to both private equity and debt firms has created a competitive environment within M&A processes for quality businesses without historical precedence. In our KAL M&A processes, we have seen buyers compete for businesses not only at valuations that range 30-50% higher than 2015 levels but also coupling eye-watering valuations with abbreviated timelines that give sellers certainty of close months earlier than previously considered market.

Looking into our crystal ball, we expect 2022 to be another terrific year for both KAL as well as the aerospace and defense M&A market. Thematically, we expect commercial aerospace OEM-driven transactions to re-emerge after a two-year hiatus as the B737MAX and B787 get back on track. We have high-hopes for Boeing to reverse the momentum of Airbus on the new orders and production side, and hopefully reduce the excess inventory that has limited the recovery of the supply-chain. On the defense-side, we see 2022 as a continuation of the strength demonstrated by nearly all defense sub-sectors. In our practice, we are big believers in a few different areas including hypersonics, space and the B-21.

Purposefully, we have left any mention of COVID-19 to the very end of these opening remarks. That is really because the M&A market and commercial aerospace both seem to be totally reflecting an acceptance of the permanence of the disease. We see essentially zero disruption in our practice from the latest strain, and our sincere hope for 2022 is that we talk less about COVID and more about amazing outcomes for our clients.


Trevor Bohn and Ryan Murphy


KAL Capital Q3 2021 A&D Review

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Dear Friends,

Unreal. That is simply the only way to describe the M&A market at this point. Just when
we thought there could not be more activity and valuations could not be stretched any
higher, we continue to see non-stop new transaction announcements all at or near all-time
high valuation multiples. Our belief is that the back-half of 2021 will break every record
worth noting from a deal activity perspective. Q4 is sure to continue at the same breakneck
pace as the rush to beat capital gains tax changes continues unabated. As an aside, it appears
that fears of radical, retroactive changes in capital gains tax treatment were overdone.
Unfortunately (or fortunately in this case), it’s a good reminder that material changes in our
tax system and any other regulatory framework are incredibly difficult to effectuate.

For KAL Capital, our Q3 was truly madness with five closed transactions. That pace is
incredible and at times felt a touch unsustainable, but we are grateful to our team and our
clients at this remarkably busy time. Our closed transactions were in many of the most
highly coveted sub-sectors within A&D including hypersonics, cybersecurity and composites.
These businesses were undoubtedly leaders in their respective niches and fetched valuations
that reflected their market leading position as well as buyer pools that are pre-conditioned to
pay nose-bleed level multiples.

Despite building to a crescendo in Q4, we are beginning to now transition towards
conversations centering around on what 2022 is going to look like; essentially, the question
on everyone’s mind is will there be some sort of pause in M&A activity given the frenetic
pace of the last 18 months. Our perspective is that overall activity levels only have one
direction to go from here if only because the entire M&A ecosystem is at risk for burn-out
due to going all out for nearly a year. That said, we expect EBITDA multiples to continue to
maintain or drift higher. We have been amazed at how easily the buyer community has
absorbed the incredible amount of supply (deal activity) with no adverse impact on
valuations. In particular, we have seen and experienced a seemingly unlimited appetite from
existing sponsor-backed businesses for smaller, complimentary acquisitions or so called
“bolt-on’s.” While this has always been an important avenue in the processes we run, we
have never seen this category of buyers so prepared to out-bid public-strategic buyers. This
development has created an advantageous, structural change for our clientele that is allowing
businesses in our target zone ($20mm – $250mm Enterprise Value) to generally have
multiple options to sell to sponsor-backed businesses at valuations that are multiple turns
higher than we have witnessed. Anyways, it’s unequivocally a great time to be in the
aerospace / defense M&A ecosystem. Fingers crossed that the good times keep rolling.


Trevor Bohn and Ryan Murphy


PE Sets its Sights on Aerospace and Defense

In the wake of COVID-19’s disruption of the aviation sector, many aerospace and defense companies are not looking for capital investments or weighing a divestment. PE has plenty of idle capital available for compelling opportunities. This interest convergence means an increase in M&A will likely drive a deal bonanza in the sector. 

Commercial aerospace will continue to emphasize shoring up a lagging supply chain, while defense technology innovation will attract the interest of PE. Here’s what you need to know about the market factors affection A&D in the coming year or two. 

Recovering from the 2020 Slowdown

The 2020 slowdown meant that many companies delayed deals, and PE did not use much of its available capital. As the economy begins to revive, there’s plenty of money available to fund deals, and plenty of dealmakers looking for synergistic investments. Low interest rates will persist through 2022, potentially encouraging dealmakers to take the plunge. 

PE hit a low in 2020, but is surging back. We expect this trend to continue. However, A&D valuations are still lagging behind overall market returns. 

Low Valuations

Continued low valuations will entice PE investors to spend on diamonds in the rough. Buyers will be looking to get a deal, spurring a burst of activity. Airlines have already seen  an increase in business, and a more substantial recovery is on the horizon. Original equipment manufacturers are still working through their backlog of undelivered aircraft, while awaiting new orders. 

The supply chain must also complete with large inventories of new parts and used materials that will take time to burn through. Those recovery lags will continue to keep valuations low, but may eventually help spur an increase in valuations as we head into 2022. 

What Will We See in 2022? 

Other sectors are witnessing a huge increase in M&A, though A&D has been lagging behind. We expect A&D will begin to see an influx in PE capital and deals as we move out of the pandemic and into a recovery period. 

In 2020, there was an increase in deal activity in commercial aerospace because other financial sponsors faced greater financial constraints. This trend should continue through 2022. 

Prior to the pandemic in 2022, large commercial aerospace companies were reluctant to sell off operating units. The long downturn has meant that many of these non-essential assets are now driving solvency. Companies may now be eager to divest of some of these assets. 

While the challenges of 2020 continue to persist, dealmakers are increasingly optimistic thanks to the faster-than-anticipated recovery and apparent slowdown of the pandemic. Both sides of a transaction now have reason to believe in a better future. 

Thanks to this optimism, valuations have increased from pandemic lows, pushing companies to strengthen their balance sheets via consolidation. This new environment increases the likelihood of successful recoveries for companies across the sector. 

Kemco Aerospace Manufacturing Acquired by Crestview Aerospace

KAL Capital Markets (“KAL”) is pleased to announce its role as sell-side investment banking advisor to Kemco Aerospace Manufacturing (“Kemco” or the “Company”) in its acquisition by Crestview Aerospace (“Crestview”), a portfolio company of American Industrial Partners. 

Kemco is a manufacturer of complex machine components and assemblies of varying complexity from wide-range of materials including aluminum, titanium and other exotic metals.  The Company has established long-standing relationships with aerospace and defense OEMs including Bell, Boeing and Lockheed Martin. Headquartered in St. Louis, MO, Kemco is housed across two state-of-the-art facilities totaling 90,000 square feet.

“Our clients at Kemco have built an exceptional business that is truly a best-in-class defense-focused machining business,” commented Trevor Bohn, Partner at KAL Capital. “The business is well invested, has exceptional financial controls and content on a variety of well-funded DoD programs.  We are exceptionally proud to be a small part of the Kemco story of success.”

“For KAL Capital, this transaction represents our third A&D precision machining and fabrication M&A transaction over the past twelve months.  We have developed a strong track-record of robust sell-side processes and exceptional outcomes within the aerospace and defense machining industry and look forward to continuing that momentum,” said Ryan Murphy, Partner at KAL Capital.    

KAL Capital Advises Karman Missile & Space’s Acquisition of Systima Technologies

The senior leadership team of Systima Technologies, Inc. (“Systima”) has partnered with Karman Missile & Space Systems (“Karman” or the “Company”) backed by Trive Capital (“Trive”), the Dallas-based private equity firm. The addition of Systima represents another acquisition that expands the core competencies, customer base, and platform content in a strategic way to enable Karman to deliver more comprehensive solutions to its customers in the space and hypersonic markets. The leadership team of Systima will continue as equity holders and senior leaders of Karman. The acquisition of Systima represents the fifth transaction Trive has completed in the last 12 months in building the Karman platform, a purpose-built strategy dedicated to space and hypersonic system infrastructure.

Systima is one of the only companies in the world that can integrate energetic and mechanical systems into the structural design of mission critical space or hypersonic systems. Energetic technology utilizes specialized materials, such as propellants, to create separation and deployment in space launch vehicles and hypersonic platforms. In addition, one of the fastest growing product lines for Systima is high performance composite structures using high temperature materials for missile and launch platforms. Systima employs the most advanced composite manufacturing techniques and utilizes novel and proven resin formulations, fibers, and ply materials. Systima works closely with its OEM customers to design, engineer, prototype, test, qualify, and manufacture for full rate production on dozens of platforms across space, missile, and hypersonic end markets. All of these capabilities come together in order to produce a complex system like a hypersonic shroud for our customers.

“We have been watching the Karman business come together over the past year and believe with conviction that the strategic rationale of investing in the space, missile, and hypersonic supply chains is absolutely critical. The vast set of differentiated capabilities, capacity, talented team, and incredible complementary fit of Systima with Karman gave us confidence that this was the right home for Systima and its employees. We know that joining forces with Karman will only accelerate the opportunities for Systima and better equip us to be responsive to the needs of our customers,” commented Tom Prenzlow, President and former owner of Systima.

“This is another big milestone for Karman,” said Tony Koblinski, Chief Executive Officer of Karman. “Systima’s robust engineering capabilities allow Karman to work collaboratively with our customers at an earlier stage of a platform’s development to identify the ways that Karman can add value.”

“With this acquisition, Karman can now address highly engineered content from tip to tail of a rocket. We have sole sourced content from the nose cone or shroud at the front of rockets and hypersonics, to motor and nozzle assemblies at the back, and composite and metallic structural components in between,” commented David Stinnett, Partner at Trive. “We believe our ability to attract such industry leading talent and pedigree to Karman is further validation of this thesis. The alignment of what Karman is building with the industry need is resonating with business owners and being reinforced by incredibly positive feedback from our customers.”

KAL Capital Markets, LLC was the sole sell-side advisor to Systima Technologies.

About Karman

Karman Missile & Space Systems (www.karmanmss.com) is one of the largest independently owned suppliers of mission critical flight hardware and complex sub-assemblies to the space, missile, and hypersonic markets. The Company provides design & engineering, precision machining, large part forming, high temperature and structural composite material processing, and sub-assembly services, while actively adding new capabilities in collaboration with customers.

About Trive

Trive Capital is a Dallas, Texas based private equity firm with approximately $3.6 billion in assets under management. Trive focuses on investing equity and debt in what it sees as strategically viable middle-market companies with the potential for transformational upside through operational improvement. We seek to maximize returns through a hands-on partnership that calls for identifying and implementing value creation ideas.

The Trive team is comprised of seasoned investment professionals who have been involved in over 100 middle-market transactions representing in excess of $6 billion in revenue across Trive’s targeted industry sectors and situations.

KAL Capital Advises Forrest Machining’s Acquisition by Endeavour Capital

Based in Valencia, CA, FMI Aerostructures is a leading manufacturer of critical structural components and assemblies for the aerospace and defense industry. With 230,000 square feet under roof and over 130 active spindles, FMI Aerostructures is one of the largest independent A&D manufacturing businesses in North America. The Company specializes in hard metal components, large aluminum structures, and complex assemblies and is proud to serve key A&D customers such as Lockheed Martin, Northrop Grumman, Boeing, Spirit AeroSystems, PPG Aerospace, and many more.

“FMI presents a unique opportunity to partner with an industry leader in a critical link of the aerospace supply chain. By continually investing in new capabilities, capacity, and its workforce, Forrest is well positioned to build off its longstanding reputation as a key solutions provider to its customers,” commented Derek Eve, Principal at Endeavour Capital. “Our mission is to create a stronger supply chain for critical structures through value added partnerships with our customers and delivering the best overall value in terms of quality, delivery, and service. We are honored and excited to advance the legacy that Bob and Joanne Butler and the employees at FMI have built over the past 30 years,” added Tim Mickael, CEO of FMI Aerostructures.

The new ownership group is committed to operational excellence through continuous improvement, developing and engaging its workforce, and investment in state-of-the-art equipment and systems. As part of the transaction, Tim Mickael joins the company as CEO and all other managers have been retained.

About Forrest:

Founded in 1978, Forrest has a long reputation as a key supplier for the aerospace and defense industry. With over 240 employees, Forrest’s full-service capabilities include complex machining up to 6-axis and parts up to 160 feet, advanced assembly, sheet metal fabrication, and forming. Forrest has invested in the latest programming and inspection equipment and performs in-house rapid prototyping, NC programming, complex tooling design and build, CMS, and laser calibration and inspection.

About Endeavour:

Endeavour Capital was founded in 1991 to be a patient source of capital and long-term partner to leading private businesses and management teams. Today, Endeavour Capital is investing its eighth fund and has offices in Los Angeles, Portland, Seattle, and Denver. Endeavour invests in Western U.S. based, companies in partnership with founders, family owners and executives. The firm acts as partners and stewards, to help companies and their owners realize their potential, while preserving legacy and culture.


How New Cybersecurity Rules Could Shape DoD Contractor M&A

Cyber threats continue to pose a major risk to international security, and companies that fail to heed these threats may be at a significant advantage when bidding for contracts with the Department of Defense. Whether you’re contracting directly or as a subcontractor, all manufacturers must be mindful of the new rule, which went into effect in November 2020. This new rule mandates that DoD subcontractors and contractors complete detailed cybersecurity self-assessments. Ultimately, this rule could affect M&A activity in the sector. 

The interim rule amends Defense Federal Acquisition Regulation Supplement (DFARS) to require the addition of a DoD Assessment Methodology and Cybersecurity Maturity Model Certification (CMMC) framework. The goal here is to protect the security of unclassified data at all points in the DoD supply chain. 

As of November 30, all prime contractors and subcontractors must complete an assessment before renewing their DoD contract. As contract renewals approach, more and more companies will be doing this. Specifically, under DFARS clause 252.202-7012, companies must implement 110 security controls the National Institute of Standards and Technology Special Publication 800-171 outlines. There is also a new assessment requirement for any DoD procurements awarded after November 30 with values in excess of $10,000. 

This marks the first year of a give-year roll-out for the CMMC. Eventually, the CMMC framework will apply to all DoD subcontractors, suppliers, and contractors. Third-party assessment organizations will eventually perform cybersecurity assessments under the rule. 

The goal here is to reduce intellectual property theft, which the Federal Register estimates to cost $570 billion to $1.09 trillion. This theft is a major threat to U.S. industry and security, yet many A&D contractors have not kept on top of the threat nor implemented appropriate cybersecurity controls to mitigate the risk. 

We are already seeing how this new DoD requirement could impact M&A. The costs of implementing these new requirements is not small, particularly for small contractors and subcontractors. Moreover, these businesses will lose clients if they do not comply. Thus many are opting to put their companies on the market rather than invest in a cybersecurity strategy that may not increase revenues. Larger companies are gobbling up these smaller entities in an attempt to expand their portfolios, streamline operations, and otherwise become more competitive. 

We anticipate this will continue as the full requirements of CMMC continue to expand. Sellers may have attractive businesses that can easily be brought into compliance with the help of larger entitles. And buyers may be able to get access to new IP and other valuable property when smaller competitors simply can’t keep up with increasing cybersecurity requirements. 

KAL Capital Advises Sentek Global Transaction

Deloitte announced today it has acquired substantially all the assets of Sentek Consulting, Inc. (Sentek Global), a San Diego-based systems engineering and cybersecurity firm primarily serving the U.S. Navy.

“The acquisition of Sentek Global’s business will expand Deloitte’s existing presence in San Diego, while also bolstering our current mission-focused systems engineering capabilities and cyber offerings to other military branches and federal agencies,” said Mike Canning, US Government & Public Services Industry leader and principal, Deloitte Consulting LLP.

Heather Reilly, Deloitte’s Defense, Security and Justice sector leader and principal, Deloitte Consulting LLP, added, “Deloitte is focused on delivering mission-relevant, complex and technology-enabled engineering, analytics and transformation solutions to our clients in the Department of Defense (DoD). The addition of Sentek Global’s capabilities expands our complement of skilled system engineering and cybersecurity professionals that will enhance DoD’s ability to accelerate its engineering and acquisition processes to ensure effective and reliable systems for our warfighters.  And, it enables us to welcome those Sentek Global professionals who are former members of the Armed Forces into our existing veteran workforce.”

Mark Nace, Deloitte Risk & Financial Advisory’s Government & Public Services leader for the Cyber & Strategic Risk practice and  principal, Deloitte & Touche LLP, said, “As cyber threats to all organizations — particularly U.S. federal agencies — continue to proliferate and become more complex, we’re investing to help our clients prevent, detect and remediate those emerging threats.  The addition of Sentek Global’s capabilities allows us to do just that.”

In addition to providing systems engineering and cybersecurity to the Defense, Security and Justice sector, Sentek Global also offers program management and integrated logistics services. 

Eric Basu, CEO and founder, Sentek Global, added, “Sentek Global and Deloitte share many common values, not the least of which is providing high quality services and solutions for the agencies that serve our country.  We are joining Deloitte to help our government clients solve complex systems engineering and cybersecurity challenges, while also accelerating the scaling of our services for defense, security and justice sector organizations.”

KAL Capital acted as the sell-side advisor for Sentek Global. View the article here.


KAL Capital Q2 2021 Newsletter

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Dear Friends,

Hope everyone’s summer is off to a great start with some rest and recovery in your near-term future.  For us at KAL, our summer vacations (thankfully, no complaints here!) have been deferred to next-year as the M&A market for A&D businesses is operating at a pace that we have never witnessed.  While the increase of businesses for sale (due to changes in capital gains treatment) is not a surprise, the aggressive posture of the buyside has been amazing to witness as valuations and deal structures are firmly above pre-COVID levels and any historical precedent.   The supportive environment, already in motion during Q4 2020, has benefitted from COVID restrictions being lifted as well as natural momentum that has both private equity and strategic buyers pursuing transactions aggressively.  While we at KAL are grateful for our sell-side mandates as well as the overall M&A market, our experience (maybe cynicism) makes us all too aware that these conditions will not last forever. In the mean-time, it’s a great time to be a seller and we expect 2H 2021 to be the most active period for M&A in the sector in the last 20 years.

In the market, we have seen a few macro-themes develop over the course of 2021.  First, the recovery in commercial aerospace has exceeded expectations of even the most optimistic market participant.  Generally, the pick-up in air traffic that began in Q1 2021 accelerated dramatically in Q2 with the lifting of COVID restrictions expediting the pent-up demand for leisure travel.  The pace of the recovery provided a positive demand-shock to a supply-chain desperate for good news but generally unprepared, particularly from a labor stand-point, to support an increased operating tempo. Like we predicted earlier this year, this pick-up is now translating into a much firmer demand picture for the commercial OEM supply-chain.  Domestic airlines have taken this opportunity to place massive orders and take delivery for the many white tail B737MAX that have been built-up over the past several years.  While the recovery has been largely focused on narrow-body aircraft, we expect that that international travel will be bouncing back shortly as vaccination rates in Europe and Asia start to trend towards US-levels.  This has the supply-chain getting ready for an increase in build-rates on narrow-body programs for the first time in almost three years.

On the defense and space side, early signals from the Biden Administration around defense budget have largely been in line with expectations of 1) “flattish” total spending and 2) a pivot towards building weapon systems to defend against threats from near-peer nation states.  While the SPAC craze has subsided a bit, we expect the M&A market to focus on growing niches such as space launch, military LEO and programs like the B-21 and the T-X trainer.


Trevor Bohn & Ryan Murphy


Tips for Secure Aerospace and Defense M&A as COVID-19 Winds Down

COVID-19 has been a disaster for just about every industry. It’s proven especially challenging for the A&D sector, since cyber criminals are perennially eager to gain access to sensitive data and government contract information. Most deals are still happening remotely to at least some extent. This is an important security decision in its own right, since a COVID outbreak in your company could be devastating. But this opens you up to cyber attackers. Cybersecurity must top the list of your concerns, and you must be prepared to invest in cybersecurity well before the deal gets underway. A secure company is a more valuable one, so the investment can help drive deal value. Here are the most important strategies to deploy.

Attack Assessment

Automation is now a key part of most deals, including the assessment of company assets. After all, most businesses are too large for a human to reliably audit all aspects of the business. Before proceeding with automated audits, you must review any potential attack surfaces. Look to the company’s past. Has it ever been subject to an attack before? Did it fix the problem that led to the breach? Not only is this important in preparing for M&A; it’s also a key consideration buyers may weigh when assessing the risk of a specific acquisition. 

Threat Intelligence

You must also remain abreast of industry threats, and be especially knowledgeable about the hidden risks within your own network. The key here is to think like an attacker, rather than to think defensively and ignore risk. 

Intelligence from closed source and open source intelligence can help you better understand how your organization or an organization you’re interested in purchasing could have been a target in the past. This can help you assess the true nature of any and all risks. 

Remote Architecture Issues 

Remote work, in one capacity or another, is likely here to stay. Workers like it and it can reduce costs over time. But for it to be fully effective, you need a total overhaul of your security structure to implement a secure remove environment. Remember that it’s not enough to install the right security software; hard and fast rules for your team are just as important. 

Pre-M&A Steps

Before undertaking an M&A deal, it’s important to take the following steps: 

  • Include cybersecurity experts in the M&A team. 
  • Assess cybersecurity resilience, including by reviewing prior attacks. 
  • Assess regulatory compliance.
  • Undertake a detailed cybersecurity analysis. 

Post Merger Strategies

The emphasis on cybersecurity must continue after the merger, especially since mergers can attract the attention of cyber criminals. Do the following: 

  • Informed by input from cybersecurity experts, refresh and revise operating models with an eye toward security. 
  • Remain vigilant about both companies’ security. 
  • Assess how M&A may affect the workforce, and whether there could be any potential fallout to cybersecurity from these risks. 
  • Seize the opportunity to enhance cyber resilience. 

Aerospace and Defense is Poised for a Comeback

Aerospace and defense are critical to the global economy, with $909 billion in US sales alone in 2019. It’s also a cyclical industry, with broad swings upward and dramatic downturns. 2020 marked one of its worst downturns ever, after a 2019 that promised continued growth. But A&D is poised for a comeback from the global pandemic. 

How the Global Pandemic Changed A&D

The pandemic was especially hard on airlines, who faced a massive drop in domestic and international flights. Manufacturing, too, saw huge declines directly connected to decline sin other industries. Defense contracts offered some security for suppliers with bigger portfolios, and continued to see positive growth. Aerospace suppliers also had a challenging year, with significant declines in both valuations and M&A activity. 

Government support maneuvers helped support the supply chain, preventing significant structure disruption. But now, the question is what the recovery will look like. Most analysts are primarily concerned with how quickly suppliers can ramp up to support the recovery. 

A Recovery Ahead? 

The recovery is already showing signs of becoming a reality. But it may take a few years for air travel to rise to the same level as in 2019. We anticipate that there will be major shifts across the supply chain, as well as in the way companies transport goods. 

Domestic and leisure travel should recover first, while international and business travel will likely take longer. 

Suppliers and manufacturers are already in preparations for ramping up production of single-aisle aircraft. We anticipate an increase in revenue in Q3 as compared with 2020. The recovery should continue to improve in 2022, leading to more consolidation, an increase in research and development, and movement toward the next generation of aircraft in 2025. 

Global deal volume is becoming healthier. The US has seen significant increases in M&A, but in Europe, deal activities are still fairly slow. Global deal size in 2020 was roughly half that of 2019. 

What the Future Holds 

Restructuring and divestiture carve-outs will likely dominate the M&A market in 2021 and 2022. Valuation multiples continue to be relatively high, and overall confidence in the industry is good. But the security of any specific deal depends on the viability of the companies involved. A number of strategies can increase value and support successful dealmaking: 

  • Review your products: Consider whether alternative sectors or customers might offer a wider audience for your products. 
  • Gain control of cash and liquidity: Maintain steady operations and strong relationships with suppliers and customers, with a focus on timely delivery, as well as quality and cost controls. 
  • Examine your people strategy: Work to retain key talent, recruit new talent, and keep your teams working at optimal productivity. 
  • Look beyond the immediate future: In the wake of a pandemic, it’s tempting to focus only on the immediate recovery. But the most successful businesses keep one eye on the future beyond 2022 or 2023. This empowers innovation and industry leadership, and will ultimately offer significantly more value than a reactive, immediate future-focused stance. 

Antitrust Enforcement: What Does it Mean for Aerospace and Defense M&A?

Congress has set its sights on tech antitrust enforcement. The primary goal is targeting the big tech companies like Google and Amazon, but no matter how large your business is, tech antitrust enforcement could have major reverberations, especially for M&A. In the world of govcon, the number of competitors is decreasing rapidly, and many mergers may draw the attention of federal regulators. 

The Federal Trade Commission on June 30, 2020 issued new guidelines it would use to evaluate mergers and acquisitions. While targeted to tech businesses, all companies must be mindful of the sorts of transactions that may come under the purview of the Vertical Merger Guidelines and Commentary. 

Antitrust Considerations During M&A

Buyers must consider the target’s business, and whether it is likely to gain antitrust scrutiny. Ecommerce, social media, search, and online advertising are particularly likely to get the attention of the FTC. 

Some triggers for increased oversight include: 

  • a transaction that merges horizontal competitors 
  • a transaction that combines businesses in a vendee-vendor relationship 
  • transactions bringing together companies in a diagonal relationship 

The key consideration is whether the transaction will give greater market power, which usually means the ability to greatly raise prices for a long period of time. FTC guidelines specifically note that most mergers between competitors do not create this kind of market power. That extends to the aerospace industry. 

How the FTC Might Get Involved 

One recent Antitrust Division inspection involved the 2020 merger of Plaid with Visa. The Department of Justice alleged that Visa has a monopoly among online debit service providers, with market share of about 70%. Plaid was the first direct competitor to emerge in many years, and the DOJ alleged that Visa intended to corner the market by taking over plaid. It also cited an unprecedented multiple of more than 50 as evidence that Visa intended to create a monopoly. Ultimately, the parties abandoned the merger. We are increasingly seeing regulators who either outright prohibit such mergers, or who create such significant barriers that the parties voluntarily abandon the contract. While this was in a different sector, it’s easy to see how similar concerns might arise in A&D. 

What Are the Hallmarks of an Illegal Merger? 

While many different types of mergers can trigger increased FTC scrutiny, regulators tend to focus on certain classes of mergers. If yours falls into one of these categories, you may end up having to answer more questions, or even abandon or modify the merger: 

  • Prevents or deters competitors from entering the market. 
  • Creates an anticompetitive environment. 
  • Reduces access to information, such as when two social media companies merge and control the flow of information. 
  • Discourages innovation, or removes innovative products or drugs from the market. 

It doesn’t matter if your intent is not to reduce competition in the marketplace. The FTC is interested in the actual effects of the merger. Meeting with the right deal side team can help you anticipate potential challenges from the DOJ. It may also help you structure the deal in a way that reduces the likelihood of deal-slowing FTC involvement. 


What Can A&D Learn From the COVID Pandemic?

It’s been six decades since the space race began in earnest, and these missions continue to inspire awe and public excitement. But rather than focusing on the brave people of NASA, industry start-ups tend to figure prominently. Many A&D companies have an important role in the public consciousness, as well as a strong reputation for inspiring progress. Yet many A&D companies have faced serious hurdles during the coronavirus pandemic. One of the biggest obstacles we consistently see with these companies—both as they grow and when they enter the M&A process—is that their recruitment and talent strategies have failed to keep up with the current market demands or with their needs. 

The post-pandemic recovery is an ideal time to evaluate your talent strategy. Investors want to see that you have the right people at the helm, as well as exceptionally competent staff working below them. We’re seeing increased competition for digital talent, a push for remote and flexible work, and a hiring landscape that heavily favors companies that value their workers and give them strong incentives. We further anticipate that both tech skills and strong social skills will become critical in the next few years. Here’s what you need to know as you prepare your talent strategy to meet whatever comes next. 

The Headwinds Are Changing 

Despite many positive trends in A&D, we’re seeing some changes that can make attracting the right team challenging. For instance, engineers want to oversee a program from start to finish, while companies might require focus on a single project within a larger program. This adds to the perception of bureaucracy slowing things down. 

The A&D reputation for innovation has also weakened, so it’s critical to communicate the specific value you offer, and show team members how they can become part of important innovations. You must also offer highly competitive salaries, lest you lose the most promising team members to Silicon Valley. 

Recurring A&D Talent Challenges

Some of the most common issues we see with A&D companies include: 

  • a weak talent pipeline
  • an older, more tenured workforce that is moving toward retirement
  • less willingness to put employees in digital roles 
  • poor diversity and equity work, and in some cases, a hostile or discriminatory environment 

Managing Workforce Challenges

The top A&D talent will be in high demand for the foreseeable future, so if you want to hire a diverse range of qualified people, you must be prepared to compete. These tips can help you do just that: 

  • Tell a compelling story about life in A&D generally, and life at your company specifically. 
  • Expand the talent pipeline via strategic partnerships and investments in new skills for your team. 
  • Know that diversity, inclusion, and equity are not optional. Companies with ethnically diverse leaders are simply more successful, and better equipped to anticipate challenges their peers miss. Gender diversity, too, creates a better work environment, and ensures you get the top talent—rather than missing out on 51% of the workforce. 

Aerospace M&A Deal Effectiveness: Three Strategies

Recovery from the COVID-19 pandemic is likely to lead to a boom in A&D M&A, as companies look to acquisitions to propel growth. This growth can help fill the revenue gap, and offer better service to customers. Doing M&A right matters. There is a close correlation between approach to M&A and ultimate deal outcome. These three keys to M&A effectiveness increase the odds of a successful transaction and a smooth post-closing integration. Here’s what you need to know as you plan your post-pandemic recovery. Keep in mind that a skilled A&D investment bank should figure prominently in your plan. 

Making M&A Central to Your Strategy 

Incidental M&A is much less likely to be successful than that which is made central to a company’s growth strategy. This requires a major capital investment, but that investment pays off. Larger acquisitions offer larger rewards, though they also pose some risks: more extensive vetting, and a more challenging integration. These investments also require some shareholder oversight, which may slow down the process. But ultimately, they tend to be worth more. So consider how M&A figures into your larger strategy, rather than making a few acquisitions here and there. 

Choose Companies With the Right Business Models

It’s insufficient to merely choose a company that is succeeding. You need to target those with complementary business models. For example, research shows that original equipment manufacturers that acquire service companies fare better than other businesses. Creating the desired synergies hinges on having the right combined approach and assets, so consider which companies can complement or expand your operations with minimal disruption. 

Limit Acquisitions to Reduce Integration Issues 

A Deloitte analysis found that, over the last decade, companies with two or so acquisitions per year outperformed those with a more aggressive acquisition strategy. Companies with 21-40 acquisitions had a much higher acquisition failure rate, suggesting that integration issues may figure prominently. 

A&D companies must prepare for integration challenges. Some common themes include: 

  • Consider operation acquisitions as standalone companies to avoid increased overhead pools. 
  • Be mindful of valuation based on talent, especially in the event that the acquisition is likely to be unpopular with the target’s staff. 
  • Define specific integration objectives. 

Post-merger integration can be challenging even for the most experienced acquirers. Outside expertise is critical for realizing the fulll value of an acquisition. Moreover, the right A& D investment bank can help generate a replicable process you may be able to use in subsequent mergers, steadily building a lucrative M&A strategy and integration model.  


Another Wave of Defense M&A Could Be Coming

According to the National Defense Industrial Association’s Vital Signs report, the industry could be approaching further consolidation as contractors seeking to grow their portfolios use mergers as a growth tool. 

M&A has been a primary tool since the end of the Cold War, and increased dramatically in the 1990s, with the number of primary contractors dropping from 50 to a mere six. While military budgets increased again following the 9/11 terrorist attacks, significant drawdowns since have meant that the number of prime contracts has dropped by nearly 20 percent since the 2011 Budget Control Act. 

In 2015, then-Undersecretary of Defense for Acquisition, Technology and Logistics Frank Kendall expressed concerns that the small number of prime contractors could affect innovation and perhaps even undermine national defense. 

“The trend toward fewer and larger prime contractors has the potential to affect innovation, limit the supply base, pose entry barriers to small, medium and large businesses, and ultimately reduce competition — resulting in higher prices to be paid by the American taxpayer,” he warned.

The large number of high-profile mergers in recent years suggest things may be changing, and another wave of post-COVID-19 consolidations could be just around the corner. Analysts are forecasting a range of scenarios in the new political climate—ranging from a best case of a flat budget to the worst case of a significant decline. New programs may be declined if the latter comes to fruition. 

Downturns have historically brought about big consolidations in the industry. Several other factors also point to a bonanza in mergers and acquisitions: 

  • Intense competition for fewer contracts. 
  • The potential re-emergence of lowest-price technically acceptable contracts. 
  • The increased drive to innovate in spite of budget constraints. 
  • Liquidity challenges and distressed assets that may give rise to a buyer’s market. 

It’s important to note that M&A isn’t an option only for the most powerful companies. Smaller contractors may purchase units from other companies to become more agile. While traditional economic theory suggests a wave of mergers could drive prices higher and reduce competition, many primes push back on this idea, saying that mergers offer greater efficiency while promoting innovation. 

Companies that hope to get in on the consolidation wave have little time to waste. Regulatory scrutiny of mergers can slow things down, and requires significant planning. The largest players have the most support to manage the process, so smaller companies should begin movement now to get ahead of the curve. 


KAL Capital Newsletter: 2020 in the Rearview

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Dear Friends,

Happy belated New Year As we reflect back on 2020 the year was obviously filled with unprecedented challenges to the aerospace and defense sector. However, the more nuanced perspective on the M&A market would be to emphasize 1) the historically seller-friendly market for defense assets and 2) the resiliency of the demand for commercial aero businesses. While the demand for defense assets was somewhat predictable (although the extent was surprising), the M&A environment for commercial aerospace businesses was driven by significant buyer demand, primarily by financial sponsors looking to capitalize on the disruption in the supply chain. That led to a more seller friendly environment than anyone could have predicted as competitive M&A processes have forced buyers to pay “peak” EBITDA multiples off of depressed operating profits.

While we never would have imagined it during 1H 2020, KAL Capital finished the year with a record seven completed sell-side transactions, including four closed deals in Q4. We were fortunate to represent great businesses in the component MRO, composite and space supply-chains. We will describe each of these transactions in the following pages.

Looking into our crystal ball, we expect 2021 to be a historically active year for A&D transaction activity. Our expectations are based on the following assumptions 1) likely changes in capital gains tax treatment, 2) improvements in the commercial aerospace operating environment, 3) near term strength in the DoD budget, and 4) (repeating for emphasis) likely changes in capital gains tax treatment.

The “blue wave” that many business owners within the sector feared has now materialized with all three legislative branches being under Democratic control. We will describe the Biden Administration’s tax plan and funding priorities in greater detail, but the real question is the extent to which slim majorities in both the Senate and House will have on muting the more progressive elements of the Democratic Party. We believe that some level of tax increases for both businesses and capital gains are a foregone conclusion, but we do not expect them to be retroactive for 2021. We feel that this view is rapidly spreading amongst business owners, creating an extremely strong catalyst to initiate liquidity events this year. Potential changes in estate tax treatment including elimination of the step up in basis at death will also nudge tax focused sellers into the market. In conclusion, 2021 will likely be amongst the most active years in A&D M&A history; should be a better ride than 2020!


Trevor Bohn & Ryan Murphy

KAL Capital Advises Sale of Space Launch Structures Business, AMRO Fabricating

Trive Capital (“Trive”), the Dallas-based private equity firm, has partnered with the senior leadership teams of Aerospace Engineering Corp. (“AEC”) and AMRO Fabricating Corporation (“AMRO”) to create Karman Missile & Space Systems (“Karman” or the “Company”). The new platform is one of the largest independently owned suppliers focused on manufacturing complex systems for the space, missile, interceptor and hypersonic markets. The senior leadership teams of both businesses will continue as equity holders and executives at Karman.

Karman operates three centers of excellence in greater Los Angeles, a key market for space and missile manufacturing, and maintains a presence in Washington D.C. and Huntsville, Alabama. The Company’s engineering capabilities and manufacturing footprint benefits from a comprehensive set of OEM approvals and extensive proprietary process IP, which has positioned it on some of the most critical portions of a propulsion system, including engine nozzles, nose cones, iso/ortho-grid body panels, titanium attachment hardware, and heat shields. The platform’s broad suite of capabilities includes upfront design, precision machining, large part forming, corking & bonding, complex welding, composite manufacturing (ablative and structural) and special processing.

The formation of Karman creates a unique and comprehensive set of capabilities dedicated to the space sector, allowing for the Company to handle end-to-end manufacturing of the most complex sub-assemblies on current and next generation launch vehicles, missiles and hypersonics.  The Company is diversified across nearly every major platform and prime in the niche, including Vulcan, GEM-63XL, Artemis, New Glenn, Atlas V, GBSD, GMLRS, THAAD and PAC-3, among many other programs.

“We are excited to form this new partnership with the collective vision to build an integrated supplier of flight hardware and assemblies for the space and missile markets. Working collaboratively with Trive and AEC will allow us to continue growing with our customers, investing in new capabilities and adding capacity to alleviate current supply chain constraints.  Our goal is to build the preeminent Tier 1 systems integrator to the space sector, in a historically fragmented market,” commented Mike Riley, Chief Executive Officer of Karman and former owner of AMRO.

Mark Mahboubi, Chief Technology Officer for Karman and former owner of AEC, added, “Our partnership with AMRO and Trive has already allowed us to accelerate our expansion and play an increasing role in the development and manufacturing of our customers’ most important next generation programs. We are very pleased to offer enhanced solutions to OEMs and support them in the critical years ahead for space and defense.  Moreover, the team plans to continue to invest into new technologies and advanced materials for emerging requirements.”

David Stinnett, Partner at Trive, stated “Karman is well positioned to benefit from rapidly increasing demand for space launch, missile defenses, and hypersonic weapon technologies with substantial content on the leading platforms currently in development. Both AEC and AMRO have established outstanding reputations for high quality and on-time delivery on the most intricate, difficult to manufacture flight hardware and assemblies. We share management’s vision for creating a full-service supplier for these markets and anticipate significant investment to support the capabilities and capacity demanded by customers both now and in the years to come.”

KAL Capital Markets, a Los Angeles-based investment bank focused on aerospace and defense mergers and acquisitions, acted as the exclusive advisor to the shareholders of AMRO Fabricating Corporation.

Karman Missile & Space Systems (www.karmanmss.com) is one of the largest independently owned suppliers of flight hardware and complex sub-assemblies to the space, missile, and hypersonic markets. The Company provides design & engineering, precision machining, large part forming, thermal coating, and sub-assembly services while actively adding new capabilities in collaboration with customers.

About Trive

Trive Capital is a Dallas, Texas based private equity firm managing approximately $2 billion in aggregate capital commitments. Trive focuses on investing equity and debt in what it sees as strategically viable middle-market companies with the potential for transformational upside through operational improvement. We seek to maximize returns through a hands-on partnership that calls for identifying and implementing value creation ideas.

The Trive team is comprised of seasoned investment professionals who have been involved in over 100 middle-market transactions representing in excess of $6 billion in revenue across Trive’s targeted industry sectors and situations.

KAL Capital Advises Mingo Aerospace Transaction

Sunvair Aerospace Group, Inc. (“Sunvair”), a portfolio company of Blue Sea Capital (“Blue Sea”), today announced the acquisition of Mingo Aerospace, LLC (“Mingo” or the “Company”), a provider of component repair services to aircraft operators and leading maintenance, repair and overhaul (“MRO”) providers. Sunvair will support the business’ continued expansion by investing in new capabilities and equipment while maintaining the Company’s excellent track record of customer service.

Mingo, based in Tulsa, OK, is an FAA-certified repair station specializing in cargo loading systems repair and overhaul and thermal spray coatings. The Company has an extensive library of DER and OEM-approved repairs, strong relationships with aircraft operators globally and market-leading turnaround times.

“Mingo Aerospace is excited to join the Sunvair Aerospace Group,” said Brian Emery, Co-Owner of Mingo. “We are united in a vision to deliver exceptional service, value and capabilities to our customers on a large platform.”

“Our combined companies’ history of exceptional customer service and passion for the work we do make this a unique partnership and will further strengthen our continued commitment to our customers,” added Kerry Jarandson, CEO of Sunvair.

“We are thrilled to partner with the Emerys,” said Scott Kirkendall, Partner of Blue Sea Capital and Atkins & Atkins acted as the legal advisor to Mingo. KAL Capital advised on the transaction and financing for the transaction was provided by NXT Capital and Barings.

About Mingo Aerospace (Mingo)

Mingo Aerospace (www.mingoaero.com) was founded in 2000 as a niche provider of cargo system overhaul services. Over the past 20 years, Mingo has continued to develop new repair capabilities, most recently through the addition of thermal spray capabilities in 2017. Mingo is known for its market-leading turnaround times, customer service and quality and is an important partner to its customers across the passenger, cargo and military aerospace sectors.

About Sunvair Aerospace Group

Sunvair Aerospace Group (www.sunvairgroup.com) is a global provider of FAA-certified repair services through bi-coastal locations in California and New York. Sunvair’s subsidiaries specialize in the overhaul of landing gear (www.sunvair.aero) and related components, avionics, flight instruments and pressure sensing components (www.aaic.aero), as well as providing advanced coating services to the OEM and MRO aerospace supply chains (www.aerospaceplating.com). Sunvair has built a reputation among leading aircraft operators for high-quality, responsive customer service, innovative repairs and rapid turnaround times.

About Blue Sea Capital

Blue Sea Capital is a private equity firm based in West Palm Beach, Florida that invests in growth-oriented lower middle market companies valued up to $200 million. The firm has over $750 million in assets under management and invests across three industry verticals: aerospace & defense, healthcare and industrial growth. Blue Sea Capital’s strategy is to partner with talented managers and differentiated companies, typically as the first or the second institutional investor, and deliver strategic and operational value-add that drives growth acceleration, industry outperformance and business transformation.


Defense Firms Must Be More Strategic About M&A

Following years of growth, analysts are predicting flattening or declining defense budgets. This environment demands a balance of modernization, sustenance of legacy equipment, and preservation of force structure. The DoD’s strategic acquisition priorities will inform these difficult choices. To support these changes, the A&D industry must ensure the industrial base can continue to offer a strong technological advantage. World-class talent and financial capital are critical.

Attracting the right resources demands value creation through growth and capital improvement returns. But in a low budget environment, growth is challenging. M&A presents a potent opportunity for generating value and accentuating a portfolio. This proven growth strategy can generate exceptional shareholder returns and bolster corporate resilience.

A&D has witnessed unprecedented consolidation over the past five years, with deals totaling $358 billion between 2015 and 2019. The challenge now is that this wave of consolidation makes further consolidation difficult, with the combined market value of the top five defense hardware players exceeding more than four times that of the next five. Mega-deals are becoming more difficult to execute, highlighting the importance of a more strategic approach.

Programmatic M&A is the solution here. This approach involves a company engaging in two or more small or mid-sized transactions per year, with the goal of an aggregate value in excess of 15 percent of its market capitalization over five years. These deals should closely align with the company’s overall strategy to offer the most value. They must also choreograph around a specific goal, such as integrating vital capacities or scaling.

In the defense and aerospace industries, programmatic M&A should focus on a strategy focused on innovation, lower costs, and improved mission outcomes.

Yet fewer companies are taking a programmatic approach. Among those who did, the returns are undeniable. They outperform their peers by at least 10 percent. M&A was also a major factor in resilience during the last spending downturn of 2007 to 2011.

The current market environment may be a deterrent, given its competition from institutional capital, stretched valuations, and tightening squeeze on mid-tier companies. They are cautious about integrating even smaller companies into their cultures and processes. These complex circumstances demand a bold approach from players who are willing to differentiate themselves from their competitors, align their strategy with national defense priorities, and promote shareholder value. Well-executed programmatic M&A can become a foundation of your growth strategy.

A proactive deal sourcing approach, in-house execution and integration knowledge, holistic diligence, and a strategic approach can help companies transform M&A into a critical capability while mitigating the risks of reactive and ineffective projects. In the increasingly challenging environment the defense industry faces, the market will reward bold action—but only when intelligently undertaken.

KAL Capital Advises Sale of ACPT

Charger Investment Partners (“Charger”) today announced that it has acquired a majority stake in Advanced Composite Products and Technology, Inc. (“ACPT” or the “Company”). Financial terms of the transaction were not disclosed.

Based in Huntington Beach, California, ACPT is a market leading manufacturer of highly engineered composite structures for defense, space, aviation, automotive, marine, industrial machinery and subsea telecom applications. Founded in 1977, ACPT has a long history of excellence and innovation in advanced composites. Today, ACPT is an industry leader with an established reputation for designing, prototyping and manufacturing composite products for blue-chip customers across a variety of end markets and applications. ACPT is particularly well known for its proprietary composite-to-metal bonding capabilities that paved the way for its groundbreaking composite driveshaft products that are used by the United States Armed Forces and commercial customers alike.

“We are thrilled to partner with Ryan ClampittJim Leslie and the talented ACPT management team,” said Aaron Perlmutter, co-founder and Partner at Charger. “ACPT’s impressive track record of organic growth and recent program wins in the composites space serve as an outstanding platform for future growth.  We expect the enduring category tailwinds in composites to provide meaningful growth opportunities for leaders in this industry.  ACPT’s long-tenured management team has built the trust of a blue-chip customer base, and we look forward to supporting the Leslie family’s continued contributions to the composites industry.”

“This is an important new chapter in ACPT’s growth story,” said Ryan Clampitt, President of ACPT.  “We are very excited to partner with the team at Charger as we work to further accelerate ACPT’s leadership position in the composites space.  We believe that Charger brings the expertise, operational insights and a partnership approach to ACPT, all of which will enhance our unwavering commitment to quality and innovation with our customers.  With increasing demand for composite products across a variety of end markets, ACPT will benefit from decades of heritage in the industry and a strong capital partner in Charger.”

Winston & Strawn LLP acted as legal advisor to Charger and KAL Capital Markets served as the investment banking advisor to ACPT.

About Charger Investment Partners

Based in Hermosa Beach, California, Charger Investment Partners is a private equity firm that invests in dynamic small and mid-sized companies primarily in the industrial, services, and consumer industries that can benefit from Charger’s partnership and value enhancement expertise. The firm’s principals have decades of experience successfully building market-leading companies utilizing an operationally focused, flexible capital approach that encompasses a variety of transaction types including ownership transitions, corporate carve-outs, and recapitalizations. For more information, please refer to the Charger website at www.chargerinv.com.


KAL Capital Q3 in Review

Please view our Full Q3 Report Here.

Dear Friends,

Hope you are well. As the general economy and other aspects of everyday life slowly start to
begin to ease towards normalcy (depending on where you are); the M&A market has
orientated itself to a post-Covid reality and has entered into a full-blown “V-Shaped
Recovery.” While that dynamic is very end-market and situation specific, we have seen
private equity and their lending partners revitalized and back into (remote) deal making

As amazing as that buy-side dynamic may seem to outside observers, the supply of
transactions has increased significantly and is close to approximating 2019 levels. While
some of the M&A activity is opportunistic, we have observed a far greater proportion of the
selling coming from family or owner-operated businesses that are seizing the opportunity to
transact ahead of any potential changes in capital gains tax treatment. Both with our
clientele and anecdotally, we have heard multiple examples of private sellers accelerating
their time horizons to prevent potential tax leakage.

For our practice, we are pleased to announce the close of Geodetics to Aevex Aerospace, a
portfolio company of Madison Dearborn Partners. The sale of Geodetics checked many
boxes for potential buyers including proprietary defense electronic products, national
security and clandestine, military customers as well as playing into specific micro trends
around operating in GPS-denied environments. We expect Q4 2020 to be our busiest to
date as we have multiple transactions that we are excited to share.

In this Quarterly Industry review, we will continue to assess the ongoing carnage in
commercial aerospace. While recent deliveries and orders do not point to near-term
recovery, we are hopeful that the upcoming quarter will finally mark a return to service for
the B737MAX and a continuation of the gradual improvement in load factors and passenger
miles. Even in this part of the market, there are multiple high-quality commercial aerospace
businesses in the market that are seeing strong demand for a wide-range of buyers.
Additionally, with the election forefront on everyone’s minds, we attempt to remind
everyone that changes in defense spending tend to be more gradual (regardless of
Administration) than partisan voices account for.

As always, please feel free to reach out to either of us with any questions.


Trevor Bohn & Ryan Murphy

KAL Capital Advises Sale of Geodetics

AEVEX Aerospace announced today its acquisition Geodetics Incorporated. Geodetics Incorporated, headquartered in San Diego, California, designs, develops, and manufactures commercial high-precision positioning and assured navigation products and solutions.

Geodetics builds a suite of low size, weight, and power (SWaP) products for high-precision, assured positioning, navigation, and timing (PNT) that are readily adaptable to any system requiring high-fidelity solutions. Additionally, Geodetics produces application-specific LiDAR mapping and photogrammetry solutions.

“The demand for our solutions is growing dramatically, and a combination with AEVEX is the logical next step for us,” said Dr. Lydia Bock, President and CEO of Geodetics. “AEVEX shares our passion for quality and performance and provides unique insights and access for the continued evolution of our solutions to meet the needs of both civilian and national security customers.”

KAL Capital Markets served as financial advisor and Boyle Law served as legal counsel to Geodetics. Alston & Bird LLP and Crowell & Moring LLP served as legal counsel to AEVEX in support of its acquisition of Geodetics.

About AEVEX Aerospace

AEVEX Aerospace, headquartered in Solana Beach, California, supports the U.S. national security mission around the world by providing full-spectrum airborne intelligence, surveillance and reconnaissance solutions. The company’s capabilities include custom design and engineering, sensor integration and sustainment, aircraft modification and certification, mission operations services, advanced intelligence data processing, exploitation, and dissemination solutions, and tailored hardware and software mission-system tools. With over 600 professionals, AEVEX uses agile and customized approaches to rapidly define, develop and deliver specialized solutions for airborne intelligence requirements to DoD, other government agencies, and commercial businesses. AEVEX has major offices in California, Massachusetts, North Carolina, Ohio, and Virginia.

About Geodetics Incorporated

Geodetics Incorporated is a leading provider of positioning, navigation, and timing (PNT) and sensor fusion technology solutions. Headquartered in San Diego, California, Geodetics has a deep engineering team with decades of experience in solutions design, engineering, prototyping, customization, and production backed by an extensive IP portfolio. Geodetics’ expertise in sensor fusion, inertial/relative navigation, interferometry, mobile mapping, LiDAR electrical/mechanical engineering, artificial intelligence, and fuzzy logic produces high quality, innovative solutions for both commercial and military applications.


When the Merger is Complete, Will It Realize its Full Potential?

Acquirers consistently pursue deals that can address their desire to add new capabilities; either to enhance their existing capabilities portfolio, attract new customers, or enter entirely new end-markets. Done well, these deals can create value and offer greater competitive advantages. However, poorly planned deals can erode value, leading to significant operational disruptions for the newly merged entity and often in the overall market. The hurdles for aerospace and defense are higher than in most other sectors, thanks to the high need for capital and the long development cycle. Every deal is unique, but these strategies can help dealmakers achieve optimal deal value: 

  1. Understand deal value drivers. All value creation opportunities must be explicitly defined, with a plan for maximizing each. This is key to a well-designed acquisition and integration strategy. Value drivers vary between acquisitions, but one thing does not: the need to clearly identify specific drivers and develop a plan for managing each. 
  2. Decide on the appropriate governance structure. There is significant variability between companies in geographical and operational preferences, as well as culture. Striking a balance between the two companies is key. You must preserve the best aspects of both entities. Work with an advisor to assess the right governance structure. Many companies take the traditional approach, organizing functional teams to oversee integration. That can help meet transaction objectives, but it often fails to drive value. A better approach is often to define value creation groups as the core of integration. The right governance model is a significant factor in deal value, because it enables you to distribute risk and manage interdependence in a timely and efficient fashion. 
  3. Create a due diligence clean room. Prior to closing, access to data can be a huge issue. Don’t wait until after closing to delve into the specifics. Instead, use a clean room to accelerate integration. With this strategy, a third party or specific individuals who have no conflicts share data between the two parties. This helps offer strategic insights without leaking sensitive data. For instance, there might be future opportunities the parties are negotiating. If the parties cannot discuss or disclose the impacts of these opportunities, it can trigger significant additional risk and cost. A clean room allows you to assess exposure levels for both parties. 
  4. Create detailed operating models for the final value chain. You must understand each company’s current position in terms of people, systems, assets, and processes. This is key to understanding potential capabilities and realizing future synergies. You must be able to begin planning for your future organizational structure, in addition to anticipating demographic, technological, and culture shifts. 
  5. Perform culture assessments. Cultural mismatch is a significant source of conflict, and can quickly erode deal value. Culture is critical to every aspect of a company, including how decisions are made and whether and how well people collaborate. This is even more true for A&D companies evaluating cross-border targets or novel capabilities outside of their core business model. Cultural mismatch slows everything, and can ultimately be the undoing of your deal. 


The right assistance can help you realize more value. Work with a skilled deal team that has experience in your industry to ensure all factors are maximally aligned for success. 


The Effects of COVID on A&D M&A

The financial and human toll of COVID is difficult to overstate. Businesses have shifted from growth mode to goals of survival. Deals have slowed a lot. While last year marked a banner M&A year for aerospace and defense, 2020 will look quite different. 

While the first quarter of this year witnessed a few large deals, the crisis gripped our consciousness before the end of the quarter. The impact has been colossal, and its long-term effects are not yet certain. Here’s what we know for now. 

Looking Back at the New Peak 

Between 2012 and 2020, M&A increased steadily. Thanks in large part to the merger of Raytheon and United Techologies, 2019 was a standout deal for the sector, with total deal volume in excess of $132 billion. 

EBITDA multiples also peaked in 2019, with strong positive trends in maintenance, repair, and overhaul, logistics, and distribution. There were also some negative trends—in engineering and project management, and in machined and cast parts. 

What Now?

So what does the future hold? The truth is that we just don’t know. M&A activity will be somewhere between slow and silent over the next six months. PE firms must evaluate the effect of COVID on their portfolio companies, weigh whether they can weather the crisis, and consider options for creating more liquidity. Serial acquirers who are well-funded must wait till conditions are better. Then they will likely look for potentially high-value distressed targets. This could ultimate reconfigure the industry landscape. 

For now, even if companies were seeking acquisitions, the challenges of the credit market make such acquisitions difficult. This may continue to be the case even as the economy picks back up. Liquidity is a top priority. Banks will shift their priorities, and debt financing will continue to abate. 

Although large deals in recent times have meant a consistent stream of divestitures, this is winding down. We may still see some activity in tech-related portfolio companies by bigger cash stable firms because smaller players with significant tech assets will begin to struggle. We should look for unplanned purchases as distressed suppliers get absorb by competitors or clients. 

Despite these minor deviations, mergers and acquisitions will continue to slow as the industry turns its attention to more urgent matters and seeks opportunities to rebuild in the coming months. Firms must instead consider the immediate impact of the crisis, how it might affect cash flow, and what specific measures they must implement to ensure the business can survive. 

About KAL Capital Markets:

KAL Capital Markets is an aerospace investment banking company advising middle market clients on mergers, acquisitions, and accessing the capital markets. The firm’s professionals have an exceptional track record, rooted in deep relationships and experience within aerospace & defense manufacturing and aftermarket services sectors. For additional information, please visit https://kalcapital.wpengine.com/.


KAL Capital 2020 Q2 in Review

Please Review our Full Q2 Report Here.

Dear Friends,

Despite it almost being cliché at this point, we hope that you are staying safe and healthy. The past quarter has been a wild ride as we saw COVID-19 emerge as the most important global event of many of our lifetimes.

We are very pleased to announce the sale of Aero Systems Engineering, a portfolio company of Gencap America, to Calspan. ASE is a market leader in the engineering-centric world of engine and wind tunnel testing. The unique capabilities of ASE and its access to next-generation commercial engine programs as well as hypersonic missile development were critical in attracting a strong response from the buyer community. This is our second closed transaction working on behalf of Gencap America; we are grateful for the trust placed in our firm on both assignments.

For KAL Capital, it has been amazing to witness (less so to participate in) the dramatic shifts in M&A sentiment over the past few months. During April and May, we witnessed M&A activity slow to levels below the depths of the Global Financial Crisis. What followed were “green shoots” of activity level that have matured into a very sector-specific recovery. As we had cautiously expected, this improvement has been led by defense-focused businesses. This dynamic is being led by ease of end-market diligence as the defense world has seen suffered very limited virus induced reductions in demand. For our friends in the private equity community, the expectation of “COVID discounts” never materialized in the defense world. While there are certainly lower valuations aplenty in commercial aerospace, the defense sector remains seller friendly.

For our clientele, the major non-COVID, conversation topic has been the upcoming Presidential Elections and the potential effect of a Biden Administration on both defense spending as well as capital gains tax treatment. On defense spending, the nature of many large procurement programs leads to a very broad manufacturing base, supporting well paying employment. One of the few (maybe the only) topics that both sides of the aisle agree on is that manufacturing jobs are critical to the eventual broader economic recovery. To us, reductions in procurement spending seem to fly in the face of that sentiment, but the scale of economic stimulus leads to inevitable questions about corresponding spending reductions and/or tax increases. On taxes, the Biden Administration has been clear on its goal of raising capital gains tax rates to normal income, which would effectively double the tax bill of many of our clients. While avoiding economic theory, we expect these proposed changes to lead to a massive surge in M&A activity as business owners will be looking to transact ahead of any change. We witnessed a similar effect on M&A activity when the Obama Administration increased capital gains tax treatment by a much more modest degree.


Trevor Bohn & Ryan Murphy


Strategies for Determining Business Market Value

As you prepare for your next step—whether it’s financing your retirement with a business sale or graduating to your next business venture—a premium sale price can help you make your dreams for the  future a reality. 

Too often, however, owners have unrealistic assumptions about the value of their business. They allow their emotions about the company, the work they’ve put in, and their needs for retirement color their perceptions. That’s why it’s so important to have an objective strategy for valuing your business. There are a number of options for assessing what your company is truly worth: 

  1. Assign a value to your assets. For many companies, their key value is their property, including intellectual property. Subtract any liabilities or debts. Then use this figure as a starting point for assessing your company’s worth. Keep in mind that most well-run businesses are worth more than assets, so this method works best if you have little revenue and do not have a competitive team in place running your company. 
  2. Look at revenue. How much does your company earn in annual sales? Compare this figure to how much an industry competitor might be worth for a specific level of sales. It might, for instance, be about triple sales. 
  3. Determine an earnings multiple. A better measure often uses the company’s earnings to develop a price-to-earnings ratio. Determine the likely earnings over the next few years. If a typical P/E ratio in your industry is 15, then your company’s value is 15 times its annual average revenue. 
  4. Use a discounted cash flow analysis. This complex approach looks at annual cash flow, projects it into the future, then discounts that value to arrive at a net present value calculation. Many companies offer online calculators to help people who want to use this method. 
  5. Look beyond simple formulas. Don’t just crunch numbers or use formulas. Look at geographic location as a source of value, then consider how your company might help a new owner realize its strategic goals, particularly if there are valuable business synergies. 


About KAL Capital Markets:

KAL Capital Markets is an aerospace investment banking company advising middle market clients on mergers, acquisitions, and accessing the capital markets. The firm’s professionals have an exceptional track record, rooted in deep relationships and experience within aerospace & defense manufacturing and aftermarket services sectors. For additional information, please visit https://kalcapital.wpengine.com/.

KAL Capital Advises Aero Systems Engineering on the Sale to Calspan Corporation

Headquartered in St.Paul, Minnesota, Aero Systems Engineering (ASE) is the leading global provider of mission-critical testing and engineering services to aircraft engine and airframe OEMs, operators, maintenance, repair, and overhaul providers, in both commercial and government end markets. ASE serves their customers by offering independent testing services at its aerodynamic laboratory; design and build of aerodynamic wind tunnel facilities and equipment across all speed regimes including hypersonic; and design / build of jet engine test facilities and equipment.

KAL Capital partner and co-founder, Ryan Murphy, said, “We’re so appreciative of the trust Gen Cap America put into the KAL Capital team to advise on such a marquee company in their portfolio. Even though the market developed some turbulence due to Covid, our collective effort produced a highly successful exit for a key private equity client.”

Trevor Bohn, partner and co-founder of KAL Capital, also added, “David Meier, President & CEO of ASE and his leadership team grew ASE into a dominant global leader while partnered with Gen Cap America. Now in partnership with Calspan the team will undoubtedly double the business again.”


Defense Companies Thriving Despite COVID-19

While the Raytheon and United Technologies merger had gotten most of the media’s attention, M&A activity for family and private equity-owned defense supply-chain participants has stayed consistent despite COVID-19 challenges. This blockbuster deal may temporarily distract from the reality that defense M&A has seen only a modest slowdown in M&A deals with valuations essentially unchanged from pre-COVID-19 levels. We expect the activity and valuation levels to remain high through the remainder of 2020 but see uncertainty over the next year.

Here’s what we’re seeing now.

Positive Defense News
Though the COVID-19 crisis has slowed numerous deals, defense driven businesses have emerged as one of primary bright spots in the M&A market. The attractiveness of consistent end-market demand has led to unparalleled levels of interest from both strategic and private equity buyers. In an uncertain world, the US defense budget serves as predictable source of revenue and provides certainty of demand trends across various mission-critical programs and platforms.

In the first half of 2020, many defense contractors saw increased revenue and EBITDA. This trend was illustrated by Boeing’s public results where defense revenues have remained stable even when their commercial operations collapse. Indeed, in the case of Boeing, the corporation’s defense business may save the larger company from a COVID-related collapse.

Threats on the Horizon
While defense contracting is generally faring well, it is not immune to threats from COVID-19, nor from the virus’s potentially catastrophic economic aftermath. One of the biggest threats comes from the budget cuts governments may have to make due to decreased revenues and skyrocketing public health costs. In many nations, defense spending is a specific percentage of GDP. Following the Great Recession, many countries slashed defense spending to align with decreases in GDP. That may occur yet again as countries look to rev up health spending and the social safety net at a time of high unemployment. Defense contractors rely on a government commitment to defense. When those commitments change, so too do budgets and the money available to defense contractors.

Governments must find a way to pay for the massive funds allocated to COVID-19 in the form of stimulus checks, health spending, unemployment payments, public health response, and more. Defense will probably be safe over the short-term, but over time, governments will likely face high pressure to cut their budgets. For the US politics, it appears that early polling results are signaling a difficult road to re-election for the Trump Administration, while at the same time, the Democratic Party appears to be moving towards a more progressive viewpoint. Both of these developments will create uncertainty for DoD spending and simultaneously raise concerns about increasing tax rates of capital gains events.

In conclusion, we expect the current strength of the defense-focused M&A market and the uncertainty created by the current political environment to result in strong activity levels from owners of defense businesses. We at KAL Capital are witnessing this trend in real time as we have a number of defense transactions “in the market” that are being extremely well received by the private equity community.