KAL Capital 2024 Q1 Newsletter

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Dear Friends,

We are pleased to announce three new transactions in the first quarter that are described in greater detail on the following slides. We are immensely proud of the momentum in the practice, particularly given that these transactions each represent a key KAL Capital focus area including Maintenance, Repair, Overhaul (“MRO”), surface treatments, and the US Navy supply-chain.

From a capital markets perspective, we have unequivocally witnessed an improvement as each of our active projects has received a robust response from both strategic and private equity buyers. Most acutely, we have seen risk appetite in the debt capital markets improve markedly and while all-in rates remain high, availability (Debt/EBITDA) has recovered after a precipitous decline during the second half of 2022. Unfortunately, the equity capital markets for A&D names have not rallied in-line with the broader market. This is primarily related to the major challenges at Boeing (-33% YTD) and the ripple effect of an on-going FAA investigation.

From a supply-chain perspective, challenges at Boeing commercial have become a constant source of concern with limited odds of near-term relief. After leaning on its supply-chain to continuously reduce cost without sacrificing quality or delivery, it now appears that Boeing should have spent more time and energy understanding its own manufacturing processes and controls. There is now little doubt that Airbus has emerged as the winner in the battle for the all important narrowbody market. That said, airlines do not have the option of waiting nearly a decade for an A320 delivery slot, and in many ways the B737MAX is “too big to fail”. For M&A processes, we are being conservative in how we forecast Boeing production ramps to align with buyers who are still very much looking for high-quality assets in the sector.

The defense sector has seen significant news flow so far this year. First, the DoD Budget was finally appropriated in late March despite the fiscal year of the government beginning six-months earlier. This dysfunction stands in the way of important next-generation platforms and effectively reduces total procurement spending. Despite an era of global rearmament, the DoD Budget is declining in real-terms (adjusted for inflation) and the threat of a global conflict remains omnipresent as illustrated by Iran’s unprecedented direct attack on Israel. The nature of the attack serves to inform the future of combat whereby a high number of attritable UAVs are used in a “swarm” to overwhelm air combat defense. This presents a new set of challenges and a mismatch in cost of defense vs. attack (Patriot Missile vs. near-hobby drone). The DoD and its funding mechanisms are responding to this evolving landscape, and we have seen an unprecedented variety of new programs searching for next-generation solutions.


Trevor Bohn & Ryan Murphy

Segers Aero Corp Acquired by H.I.G. Capital

H.I.G. Capital (“H.I.G.”), a leading global alternative investment firm with $60 billion of capital under management, is pleased to announce that one of its affiliates has completed the acquisition of Segers Aero Corporation (“Segers” or the “Company”).

Segers provides essential maintenance, repair, and overhaul (“MRO”) services on mission-critical military platforms. The Company offers a comprehensive suite of engine, accessory, and propeller services for global operators of the C-130 and similar aircraft. The C-130 is the most versatile tactical airlift platform developed with more than 2,000 active aircraft utilized for a variety of mission profiles. Segers, headquartered in Fairhope, AL, was founded in 1976 and is led by a team of industry veterans with deep MRO experience.

Segers is recognized by its OEM partners and customers for superior quality and continuous improvement efforts. The Company maintains a wide range of approvals from Rolls Royce, Lockheed Martin, and Honeywell, in addition to national airworthiness approvals from the United States, European Union, and the United Arab Emirates (UAE).

H.I.G. is partnering with the current management team to support the Company’s continued growth. Christo Kok, Segers’ Chief Executive Officer, said, “Over the last five decades, we have made substantial investments in our facility, expertise, and capabilities to position Segers as a best-in-class provider of repair and overhaul services. Given our reputation for safety and providing the highest quality services, our customers are increasingly turning to Segers to meet their needs. We are excited to partner with H.I.G. to leverage their resources and experience to further invest in our capabilities and provide best-in-class service to our customers.”

Anthony Chambers, Managing Director at H.I.G., added, “Segers is a critically important partner to global operators of the C-130 and related platforms. We look forward to collaborating with management to build upon the Company’s long history of success with incremental investments to expand capacity and enhance opportunities for continued growth.”

About Segers
Segers is a leading FAA-certified repair center and provides MRO services on the C-130 and related platforms. The Company is a Rolls-Royce Authorized Maintenance Center for the T56/501 engine, a Lockheed Martin Hercules QEC Service Center, and Honeywell-Approved Fuel Component Service Center for the T56/501. The company also provides full repair and overhaul of Hercules and P-3 propellers, including valve housings and pump housings. The Segers team is dedicated to providing world-class quality products and services with five decades of prior performance serving global militaries and cargo carriers. Segers was founded in 1976 and is headquartered in Fairhope, AL. For more information, visit segers.aero.

About H.I.G. Capital
Based on total capital raised by H.I.G. Capital and its affiliates. About H.I.G. Capital H.I.G. is a leading global alternative investment firm with $60 billion of capital under management. Based in Miami, and with offices in Atlanta, Boston, Chicago, Dallas, Los Angeles, New York, and San Francisco in the United States, as well as international affiliate offices in Hamburg, London, Luxembourg, Madrid, Milan, Paris, Bogotá, Rio de Janeiro, São Paulo, and Dubai, H.I.G. specializes in providing both debt and equity capital to middle market companies, utilizing a flexible and operationally focused/value-added approach. Since its founding in 1993, H.I.G. has invested in and managed more than 400 companies worldwide. The Firm’s current portfolio includes more than 100 companies with combined sales in excess of $53 billion. For more information, please refer to the H.I.G. website at hig.com.

Fox Valley Metal Tech Acquired by ArmorWorks

 ArmorWorks Enterprises, LLC (“ArmorWorks”), a portfolio company of Littlejohn Capital, LLC, announced today the acquisition of Fox Valley Metal-Tech, Incorporated (“Fox Valley”), a provider of complex, precision metal fabrications for use on naval ships, submarines, combat vessels, and other critical defense applications.

Founded in 1989 and based in Green Bay, WI, Fox Valley specializes in complex metal fabrications primarily for the U.S. Department of Defense (“DoD”), as well as commercial industries. The company manufactures custom electrical enclosures and consoles, components and fabrications for military trailers, radar systems as well as watertight doors and hatches. Fox Valley actively supports leading defense industry companies, and its precision components and fabrications are incorporated on the latest naval platforms such as the Ford-class aircraft carrier and Columbia-class submarine, amongst others. The company has a state-of-the-art 185,000 square foot facility that enables it to meet the highest of quality standards. For more information, visit www.fvmt.com.

Kevin Dahlin, Chief Executive Officer of ArmorWorks, commented, “Fox Valley’s components meet the Navy’s stringent requirements, and combine unique fabrication, machining, precision welding, and painting/finishing capabilities to provide customers with a vertically-integrated manufacturing solution in compliance with the highest U.S. military standards. Fox Valley’s fabrications are trusted on high priority naval programs amid a historical fleet expansion, and we look forward to supplementing our existing business with the addition of Fox Valley’s superior products.”

Angus Littlejohn III, President of Littlejohn Capital, said, “Fox Valley’s focus on mission-critical Naval systems instantly propels ArmorWorks into a broader segment of the DoD. The acquisition also adds impressive manufacturing capabilities in the Midwest expanding the geographic reach of ArmorWorks. Fox Valley is a trusted partner to the defense industry, and we are proud to add this company as an integral part of ArmorWorks as they continue to protect the military personnel who defend our country.”

Steve Corbeille, Co-Founder and Chief Executive Officer of Fox Valley, added, “Fox Valley has built its business and reputation over the past 25 years by developing products whose standards are designed to withstand the harshest conditions. Fox Valley will continue to thrive and better serve its customers as part of a larger organization within ArmorWorks.”

KAL Capital served as exclusive financial advisor to Fox Valley.

About ArmorWorks
Founded in 2001, ArmorWorks is a leading provider of specialized military survivability products. Its innovative technology is used to develop high performance products for the U.S. military forces and commercial industries, including composite and steel armor systems, blast attenuating seating, maximum-security enclosures and advanced door systems for the military and nuclear industries. A majority of ArmorWorks’ business is with the DoD, including all services, as well as many defense and commercial Original Equipment Manufacturers. For more information, visit www.armorworks.com.

Stack HIP Services Acquired by Kittyhawk

Kittyhawk, Inc. (“Kittyhawk” or the “Company”), backed by the Dallas-based private equity firm Trive Capital (“Trive”), is pleased to announce that it has acquired Stack HIP, LLC (“Stack HIP”) from Stack Metallurgical Group (“SMG”). The acquisition of Stack HIP represents a significant expansion of capacity and capabilities in Hot Isostatic Pressing (“HIP”) for aerospace, space, defense, and medical applications.

Operating from its facility in Albany, OR, Stack HIP is a market leader of HIP services to aerospace, defense, and medical customers. Stack HIP possesses the largest high-pressure HIP vessels in North America, enabling the processing of the biggest and most complex castings and additively manufactured metallic parts. Post-closing, SMG will continue to operate its world-class classical heat treatment and aluminum special processing facilities in Portland, OR, Spokane, WA and Salt Lake City, UT.

“We’re excited to welcome Stack HIP customers, employees, and suppliers into the Kittyhawk family,” said Brandon Creason, President of Kittyhawk. “Stack HIP will allow Kittyhawk to service mission critical parts up to 63” in diameter, enabling us to process the full array of components for our customers. At Kittyhawk, we commit every day to providing the best service and quality to our customers, and we’re thrilled to now do that with the added capabilities and dedicated employees of Stack HIP. We look forward to the continued relationship with SMG to deliver unmatched special processing services to our valued customers.”

Doug Puerta, CEO of SMG commented, “We look forward to continued collaboration with Kittyhawk to deliver a differentiated level of service, quality, and value to our shared customers. This transaction will allow both companies to further drive capacity, quality, and capabilities in our respective services to best serve the PNW market.”

“SMG built a world-class facility in Stack HIP. With this acquisition, Kittyhawk is the premier provider of HIP services on the West Coast. We look forward to supporting our customers’ growth and will continue to make significant investments in capacity to meet the demands of our growing customer base,” commented Tanner Cope, Managing Director at Trive.

“This is an important step in growing the platform specialized in this highly-differentiated HIP capability. The Company continues to benefit from strong industry tailwinds, and we are excited to support our customers by investing in capacity,” said David Stinnett, Partner at Trive.

KAL Capital Announces 50th Transaction!

We are pleased to announce that KAL Capital has closed it’s 50th transaction since its inception in 2017!

VIAN Enterprises, an industry leader in the design and manufacture of lubrication pumps and lubrication system components, was acquired by Crane Company for approximately $103 million. 

For this year, we expect aerospace & defense M&A activity to recover, bolstered by strong end-market dynamics and a robust 2H 2023 recovery in the debt and equity capital markets. We will be summarizing last year’s M&A activity, as well as forecasting what 2024 will hold in our Quarterly Review next week.

Below are the transactions we closed in 2023. None of these deals would have been possible without the trust of our clients and the hard work of our team. We would also like to thank our professional partners who have provided legal, accounting, and wealth management services on these transactions. 


Trevor Bohn & Ryan Murphy

Q4 2023 Quarterly Report

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Dear Friends,

As we enter a new year, we have spent the last several weeks reflecting on 2023
both from a KAL Capital and market perspective.

For KAL, the year was filled with a few notable milestones. Amazingly, we closed our
50th transaction which would not have been possible without our clients and third
parties, many of which have become personal friends over the past seven years of
the firm’s existence. Additionally, with our new colleague, Trevor McKinnon, KAL has
launched an Emerging Technology practice to respond to both the changing
demands of the warfighter and the surge of new high-tech entrants into the DoD
supply-chain. We have been extremely proud of our early success in this area and
are thrilled about the new opportunities we are seeing in VC-funded space and
DoD businesses.

For the M&A market in general, 2023 was in many ways a disappointment.
Transaction value fell by approximately 30% (source dependent) with private equity
activity down more significantly. The overwhelming reason was that the cost and
availability of debt capital both moved against the sponsor community
dramatically, particularly in the 1H 2023. The more interesting question is what 2024
will look like, and we (like many other investment banks) are extremely optimistic.
There are few very simple reasons to support that perspective. First, the emergence
of private credit can not be overstated. The growth in this sector is astounding as
over the past decade AUM has gone from $373bn to $1,493bn of which a
significant portion will go to support private equity buyouts. Secondly, our good
friends in the private equity community continue to have a capital overhang
dynamic that has grown by 3.0x over the last decade to $2,485bn. Compounding
this issue is an LP base that saw very limited realizations from many of its alternative
asset allocations in 2023 and is undoubtedly wondering when the capital will begin
to be returned. Frankly, those drivers are a bit technical and of interest to only some
sellers. The more emotionally charged (and important) driver will be the upcoming
Presidential elections. The seemingly universal expectation for the election season is
for uncertainty at best and chaos at worst which will drive significant transaction
activity through the first three quarters of the year.

The remainder of this document will go through brief updates on each of the A&D
industry’s major sub-sectors. Our reoccurring theme in 2023 had been on how both
the “Aerospace” and the “Defense” sides of the industry were doing well
simultaneously, and our observation centered on how unusual that alignment was.
The most recent issue with the door of the B737 MAX -9 has added significant doubt
to that ideal, dual scenario, but nonetheless, we are confident that 2024 will be a
robust year with growth in both our core sectors.


Trevor Bohn & Ryan Murphy

KAL Capital Advises VIAN Enterprises

Crane Company (“Crane,” NYSE: CR) today announced that it has acquired Vian Enterprises, Inc. (“Vian”) for approximately $103 million on a cash free and debt free basis.

Founded in 1968, Vian is a global designer and manufacturer of multi-stage lubrication pumps and lubrication system components technology for critical aerospace and defense applications with sole-sourced and proprietary content on the highest volume commercial and military aircraft platforms. Through August 2023, we estimate that Vian had trailing 12-month sales of approximately $33 million and adjusted EBITDA of approximately $8 million, with an order backlog exceeding $100 million. Crane financed the acquisition primarily with proceeds from its revolving credit facility. (Please see the Non-GAAP Explanation).

Crane’s President and CEO, Max Mitchell, said: “We are very excited to announce this transaction. Vian is highly complementary to our Fluid Solution within the Aerospace & Electronics segment, significantly expanding our portfolio of mission critical aerospace flow control products. Vian has strong positions on the most attractive commercial and military aircraft platforms today, and combined with our existing fluid and thermal management capabilities, further strengthens our positioning for future content opportunities on engines, gearboxes and auxiliary power units. We expect that Vian’s margins will be accretive to the Aerospace & Electronics’ segment EBITDA margins immediately, with a long-term sales growth rate in line with the segment’s previously disclosed 7% to 9% long-term CAGR. Vian, along with the other acquisitions that we continue to pursue, meets our clearly defined strict financial and strategic acquisition criteria.”

Mr. Mitchell concluded: “I would like to personally thank Chris and Elizabeth Vian and the Vian family for entrusting Crane as the stewards of this great business moving forward. I also would like to welcome the Vian team to Crane, and to acknowledge the effort and success of all of Vian’s valued employees, who have grown this business into a leading industry supplier of aerospace lubrication solutions and related products. We look forward to working together in the years ahead, investing for further growth and building on the strong legacy and track record of both companies.”

KAL Capital Advises Unitech Composites Transaction

LOS ANGELES, November 7, 2023 – Charger Investment Partners, a renowned private equity firm specializing in investments within the industrial, services and consumer industries, recently acquired Unitech Composites.

Unitech has a rich history in aerospace and defense and was the original composite supplier to NASA’s Space Shuttle program. With a strong focus on the fixed wing and rotary aircraft for the defense sector, Unitech has excelled in complex composite lamination and machining to extremely tight tolerances.

Unitech joins two of Charger’s recent acquisitions, Advanced Composite Products & Technology and All American Racers, to form APEX Space & Defense Systems. APEX and its three unique business units delivers innovative, lightweight and durable material manufacturing solutions for the space, defense and mission-critical infrastructure sectors.

“Collectively, we now have access to a much larger group of engineering, quality and manufacturing resources,” said Tracy Glende, APEX CEO. “We will be working in core teams across the organization to leverage the broad capabilities, strengths, and experience of each business unit. We look forward to enhancing the services and solutions we can offer APEX customers.”

“We are thrilled to announce the acquisition of Unitech and the launch of the APEX brand,” said Aaron Perlmutter, co-founder and Partner at Charger. “With the additional resources and capabilities of Unitech, APEX is incredibly well positioned to support the growth of its blue-chip customer base. APEX will continue to benefit from tailwinds in the composites industry, and we are very excited to continue investing in the Company under Tracy’s leadership.”

Each of the APEX business units brings more than 40 years of experience in composite and lightweight material manufacturing. Together, they comprise more than 400 highly skilled team members and 300,000 square feet of manufacturing facilities with capabilities across advanced hand layup, filament winding and complex machining/fabrication.

Winston & Strawn LLP acted as legal advisor and KAL Capital Markets served as the investment banking advisor to Charger.
For more information about APEX, visit apexsds.com. For media inquiries, email apex@griffincg.com.

About Charger Investment Partners: Charger Investment Partners is a private equity firm that specializes in investing in mid-sized companies in the industrial, services, and consumer industries. The firm’s experienced principals are dedicated to building market-leading companies and employ an operationally focused, flexible capital approach. chargerinv.com

About APEX Space & Defense Systems: APEX Space & Defense Systems delivers world-class, lightweight, durable solutions for the space, defense and mission-critical infrastructure industries. Its work advances complex, essential operations that protect our nation, connect our world and explore our universe. From design and development through final delivery, APEX is driven by an intense focus on innovation and quality enabled by our deep commitment to transparency, integrity and partnership. apexsds.com

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. 


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. 


Strategies for Ensuring Your A&D M&A Deal Successfully Closes

It’s no secret that aerospace and defense have seen significant disruptions in recent years, thanks to political turmoil, shifting administrations, international conflicts, and the ongoing aftershocks of the COVID-19 pandemic. As the industry consolidates, mergers and acquisitions play an increasingly important role in building strong businesses. Disruptions in the M&A process waste time, money, and talent, and may make the next merger even more difficult. A comprehensive A&D investment banking strategy can help reduce the risk of failed deals. Here are the most important strategies to consider. 

Regulatory Considerations

Because of the potential for national security concerns, antitrust challenges, and international political issues, A&D mergers receive much tighter scrutiny. The Department of Defense recently announced its intent to more closely oversee A&D deals, with an eye toward preventing monopolies and protecting national security. Your deal may be subject to a number of regulatory issues, including: 

  • Novation: You may need governmental consent to proceed with a deal, especially if one or both parties has a government contract. 
  • Antitrust concerns: DoD is becoming more aggressive in its goal to prevent monopolies. In many cases, buyers may need Hart-Scott-Rodino Act approval. Failure to seek this approval could subject buyers to tens of thousands in fines each day. 
  • Export controls: Before putting an A&D business on the market, sellers should do their own due diligence to assess whether export control issues could affect the deal. 
  • National security: The Committee on Foreign Investment in the United States (CFIUS) reviews foreign investments in mission-critical industries, such as A&D, to assess for national security issues. If such an issue arises, it could slow or kill the deal. 

Proposal Protections 

Federal agencies generally have to consider M&A activity when considering bids. It’s common for A&D contractors to change ownership, and doing so is usually not a problem—but only if the M&A activities is disclosed during the bidding process. Government contractors pursuing government bids must disclose ongoing M&A activity. New M&A activity may require specific approval, depending on the terms of the contract. 

A Specialized Due Diligence Process

Due diligence is always complicated, but in many industries, it requires only gathering and compiling the right paperwork. A thoughtful approach to A&D M&A requires both sellers and buyers to prepare well ahead of time, with a comprehensive due diligence project. Not only must sellers ensure they can document earnings, projections, and other financial figures. They must also guard against common legal and regulatory pitfalls. Both buyers and sellers must consider: 

  • Whether the deal is subject to special regulatory measures, such as export controls, and what additional steps must be taking to comply with regulations. 
  • Whether the DoD is likely to apply closer scrutiny to the deal because of growing antitrust concerns. 
  • How the deal might affect national security. 
  • Whether any specific contracts pose significant liability or regulatory issues requiring additional scrutiny. 

Ideally, an experienced M&A attorney should evaluate the overall risk of the deal well ahead of serious integration planning. Working with an M&A investment banking advisor is also critical, since their experience in the industry may help with flagging problems early and mitigating risk. 


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


A&D Investment Banking: Questions to Ask Before Hiring an Investment Banker

Aerospace and defense investment banking continues to boom thanks to industry consolidation. But also, increased regulatory oversight and market contractions in anticipation of a recession loom large in the background. This makes hiring the right A&D investment banking firm more important than ever. It’s easy enough to review interview questions online and then trust your gut. But how do you really know you’ve hired the right investment banker for your needs? Asking specific questions that require documentation can help you assess whether you’re making the right choice. 

How many deals did you close last year, and in what industries? 

This helps you assess whether the banker is serious about your industry, or just a part-timer dabbling on the side. Knowing how many deals they successfully closed is also a great number to have, especially as compared to the number of contracts they took on. Because if they’re not closing any deals, they may not be giving their contracts their full attention. 

What are my business’s biggest assets and liabilities in terms of M&A? 

A savvy investment banker should be able to give you a thoughtful assessment of your business. Someone who just wants you money, by contrast, may offer a lot of bluster and false promises, but few tangible details. This question helps you weigh how carefully the banker has thought about the specific issues your business faces. 

Who can I talk to about their experience with you? 

Selling a business is a major decision. If you have a good experience with this investment banking firm, you’ll likely be willing to talk to others about it. The same is true of your investment banker’s past clients. If they can’t give you several recent references in your industry or a related industry, it’s a significant red flag. 

What deal structure do you advocate for, and how do you determine value? 

What matters here is not so much the specific answer, but that they have an answer. A good investment banker will give you specifics about the methodology they use in assessing your business’s value. They can also offer feedback on the type of deal structure they think is most likely to work well for your business. Pay attention to what they advise, and the path they say is most likely to get you where you need to be. 

Who will be working on my deal, and what will they be doing? 

It doesn’t matter how competent the firm is if you’re going to be working with an intern and a junior partner, or if the team only intends to devote an hour a week to your deal. Get very clear about what it is you’re paying for, and from whom. Ask also about the specific services you’ll get for your fees. Ideally, the investment banking firm should charge a success fee and a reasonable retainer. This incentivizes hard work, but reduces the risk that the firm will pressure you into a deal that’s not in your best interests. 


5 Considerations for A&D Principals Considering M&A

A&D M&A is a massive undertaking, but there are plenty of opportunities for profit and increased synergies. Whether you’re planning retirement, hoping to grow your business, or planning to jump to your next venture, planning is key to successful mergers and acquisitions in this competitive space. Owners and directors in aerospace and defense firms face a unique market. Here are five factors you’ll need to consider. 

Increased Industry Consolidation 

The industry is rapidly consolidating, with large contracts going to the largest players. This trend shows no sign of changing, leaving smaller firms to make a decision: adapt to the change now, or potentially get eaten by a competitor later. Understanding the consolidation trend can help you remain ahead of it, and identify the specific value your firm might provide to a larger player. The biggest A&D firms are increasingly seeking out add-on platforms with valuable technology, especially in the AI space. 

New and Emerging Technologies 

Supply chain issues continue to assault A&D. Companies that can innovate and work around these issues stand to profit immensely. New technologies, especially those that reduce the pressure of supply chain disruptions, are extremely valuable. Smaller businesses that offer such technologies should consider how they may add significant value to larger players. 

Rising Interest Rates 

Rising inflation and rising interest rates have created the perfect storm: Capital is harder and more expensive to get, and worth less. This trend is likely to persist for the coming months, and possibly longer. This means that, if you know you want to sell, the safest and most profitable time to do so is now. The future is highly uncertain, with potentially less cash available. So A&D firms must be prepared to act quickly and get expert advice. 

Increased Deal Scrutiny 

A&D mergers can affect national security in a way that many other industries do not. For this reason, they are subject to additional scrutiny. The Department of Defense recently announced its concerns about a trend toward more consolidation in the industry, and its intention to apply even more scrutiny to A&D deals, especially those that might shift the power balance in the wider industry. This may slow deals, require significant legal support, and demand more documentation. Deal makers must be prepared, and adjust their deal timelines accordingly. 

The Need for Additional Support 

A DIY approach to A&D M&A has never been a wise strategy. In today’s climate, it’s even less so. The pandemic has shown how quickly things can change, and the supply chain crisis has illustrated how quickly outside forces can shake an entire industry. Expert insight is critical for managing regulatory complexities while understanding trends in the industry and the wider economy. The right A&D M&A firm can help market your business, identify key value drivers, recruit the right buyer, and negotiate the deal, so you can continue operating your business. They can also offer significant support for regulatory, legal, and financial concerns, lending more certainty in a challenging but promising economic climate. 


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.


Technology Due Diligence for A&D M&A: What You Need to Know

Technology is central to aerospace and defense businesses, even when a company does not perceive itself as a tech company. In aerospace and defense M&A tech due diligence is more than just good business. It may also be a matter of national security. The aerospace and defense sector is increasingly the target of cyber criminals, with airlines facing the most significant attacks. Technology due diligence can protect the newly formed entity against these attacks, ensure full ownership of valuable intellectual property, and make the case for the sale price when a company owns valuable digital properties. Working with a skilled A&D investment banking firm can help your company effortlessly navigate due diligence. Prepare for the process by asking these questions. 

Is all of our software in compliance? 

It’s common for companies to retain unlicensed software, to use the same access code for various programs across computers, or to use products from developers who might not have had full usage rights to the software they used. Conduct a thorough licensing check on all software you use, and retain that information in a single location for easy reference.

Who owns our intellectual property? 

If you have valuable intellectual property—whether it’s a brand trademark, in-house software, or even a popular blog—it is critical to know who owns it. Did oyu outsource some of the work to a contractor? What about component parts, such as digital images or lines of code? Every A&D company needs airtight intellectual property agreements before moving toward a merger or acquisition. Don’t just use something you find online. A good intellectual property lawyer is key here, especially if you have highly valuable IP. 

Are there ongoing technological issues or glitches? 

If part of what you’re selling is technology—and it almost always is—then you must make sure that all of your technology works flawlessly. Too often, companies treat glitches like a missing step—something to just step over and learn to ignore. A buyer won’t ignore these issues, and may change their assessment of your business if you don’t fix them. Consider how easy your software, computers, and other technological properties are to use, and make any necessary changes now. 

What have we done to protect our company? 

How is your cyber security infrastructure? Have you audited for potential problems? Are there easy opportunities for hackers, or employees who will easily fall for phishing scams? A secure company is a valuable one, with significantly less exposure. Consider bringing in a cuber security firm to audit your operations and correct any shortcomings before a buyer discovers them. 

What specific technological aspects of our company lend additional value to this deal?

Every deal is unique. Understanding the unique value proposition of your own company is key to attracting the right buyer and seeing the deal through to completion. What specific technological assets matter most? Identify these early in the process, then ensure all is as it seems—from licensing to ownership contracts. 

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

Download PDF Here

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


Is European Aerospace and Defense the Next Hot Sector? 

The A&D M&A bonanza in the United States has greatly consolidated the industry. This has attracted the attention of the Department of Defense, which recently announced its intent to provide greater regulatory oversight. As a result, A&D firms and contractors may be looking across borders to find enticing deals. Early evidence suggests that European aerospace and defense mergers and acquisitions may be about to take off. 

It’s in some ways a surprising development, as NATO members have long garnered American criticism for failing to meet minimum defense expenditure thresholds. The Ukraine conflict has the potential to change that, and with it, to alter the landscape of European defense spending, and ultimately European A&D M&A. NATO spending, long a political complaint by American elected officials against European diplomats, might finally take off. And with it could come a fundamental shift in A&D M&A, at least over the short-term. If Russian aggression continues, this could even be a longer lasting change. 

NATO guidelines require member nations to spend at least 2% of their annual economic output on defense. It’s a threshold just four NATO members have managed to meet: Latvia (2.5%), Greece (2.6%), Romania (2.3%), and Estonia (2.4%). Notably, larger nations with larger budgets have consistently failed to approach this threshold, with the larger European Union expending just 1.2% of its budget. For Germany, one of the wealthiest nations in the EU, the figure is just 1%. 

Russia’s stunning invasion of Ukraine has shown that aggression poses a real threat to EU members, and has revived interest in defense spending. Ukraine had once aspired to join the EU and NATO. Now it’s unclear whether it will even continue to exist. While the conflict has decimated much of Ukraine’s economy and inspired widespread European uncertainty, defense may enjoy a sudden boom and a new cold war. 

We’re already seeing signs of defense deals doubling, with the U.S. encouraging increased defense spending across Europe in the last few years. 2021 generally saw increases, with 52 deals last year. This figure soared above 2019’s previous high. And with deal value at an estimated 27 billion Euros, 2021 nearly doubled 2019’s high of 11.7 billion Euros. Even before the invasion, there were signs that years of cuts might finally reverse. 

Rising public defense spending will undoubtedly feed the private sector. Still, though, it’s an unpredictable industry. National security woes have historically complicated cross-national defense mergers and acquisitions, even between historic allies. However, American buyers are increasingly interested in comparatively less expensive European businesses and the assets they offer. 

Ultimately, rising defense spending could become a tool of diplomacy, encouraging bad across to think twice before invasions and threats. For now, though, we should expect increased spending and manufacturing, as well as a potential deal bonanza. 

Preparing for A&D M&A requires a thoughtful, well-executed strategy, and plenty of planning, whether you’re on the buy-side or the sell-side. The right advisory team is critical, especially for firms looking to capitalize on this unprecedented and surprising growth. 

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.


Looking Ahead: Defense Spending and Opportunities for the Lower Middle Market

The Russian invasion of Ukraine has set in motion a chain of events unprecedented in the contemporary defense landscape. The West is reassessing its military might, and Europe is accelerating defense spending. The aerospace and defense sector stands to reap the benefits, with a potential flurry of M&A. The spotlight has finally come for this often-overlooked sector. A&D investment banking may soon see a surge. 

We predict that increased defense allocations will spur new opportunities in the lower middle market. 

In its Private Equity Opportunity in Aerospace and Defense report, KPMG reports that the 2021 DoD budget projected 1.5% annual growth in the coming five years—a very small increase. But in the United Kingdom, defense is accelerating at a rapid clip, with a projected 10-15% beyond its current budget of $58 billion. This occurred before Russian aggression, suggesting that Russia could change everything, leading to a defense spending bonanza. 

The United States and Russia: Tough Decisions

Fundamentally, the U.S. will ultimately have to decide whether it intends to engage in Russia, directly or indirectly. New technologies have shifted the defense landscape, and may alter what conflict looks like. Europe’s aging defense infrastructure necessitates the purchase of American-made equipment. Moreover, supply chain delays have revitalized interest in shoring up the American defense supply chain. All of this spells opportunity for the lower middle market—still, though, the nature of that opportunity is heavily dependent on American decisions about the Russian conflict. 

New Supply Chain Opportunities

With rising concerns about dependency on foreign manufacturing sites, much of the supply chain has returned to the United States. This spells opportunity for American businesses, offering lower middle market firms a fine opportunity to profit from increased defense spending. 

Defense contracts are sensitive, suggesting firms should vertically integrate services. This doesn’t always happen. Lower middle market firms still have much to contribute. Technology is one key example, and cybersecurity continues to be a priority across the industry. 

What About the Buy-Side?

Lower middle market businesses aren’t the only potential beneficiaries of new defense changes.TheCOVID cash flow crunch will force reintegration of tier 3 and 4 suppliers. This means more opportunities for private equity. But opportunity isn’t always easy. Generalist PE firms will face significant hurdles. The defense industry is complex and difficult, and the sell-side tends to prioritize industry insiders with real expertise. It’s critical to understand the defense contracting process. PE firms must be willing to obtain the expertise they need. 

As governments move swiftly to strengthen their defense capabilities, we expect a rapid influx of cash in the A&D sector. But will these changes last? Russian aggression could spur a new generation of defense competition and building. Or it could be a temporary blip that quickly goes away. Industry insiders don’t know which way the pendulum will swing. For now, though, A&D companies that have the expertise to capitalize on the new surge of cash can serve their countries and their investors. Now is an excellent time to innovate, and an exceptional time to consider A&D M&A. 


New DoD Report Outlines State of Competition in A&D

DoD recently announced its intent to crack down on consolidation in aerospace and defense.  A new report supports this plan, highlighting significant concerns about lack of competition in the defense industrial base—a challenge that industry experts say could affect the nation’s ability to defend itself and its allies. 

Industry Consolidation 

Consolidation is the leading reason for decreased competition. Of the 51 A&D contractors in the industry in the 1990s, just five remain in the present day. The report did not establish a link between consolidation and increased pricing, but it did raise concerns about strategic innovation, national security, and mission risk. It additionally asserts that having a single source or only a small group of sources for a defense need presents significant national security risks. 

Challenges of Data Rights and Intellectual Property

Another key factor driving the lack of competition is the rule introduced in the 1980s governing IP and data rights. Eighty-eight percent of new DoD contracts since 2011 have been awarded for acquisition of commercial items, where a vendor’s exclusive ownership of data rights complicates the contracts. DoD asserts that IP will now be an important factor in defense industry contracts, and in its evaluation of said contracts. 

The Decline of Small Business

Small business participation has declined by 40% over the last 10 years. The DoD report emphasizes the importance of expanding small business participation in contracts, especially disadvantaged and woman-owned companies. DoD has vowed to increase small business participation via outreach to suppliers, existing programs, and reduced barriers to entry. It also intends to use its Mentor Protege, Small Business Innovation Research, and Small Business Technology Transfer programs to welcome new entrants into the space. 

Addressing Entry Barriers

DoD has also expressed its desire to assess and reduce barriers to entry for small and marginalized businesses. In 2021, it published a Federal Register notice soliciting feedback from small businesses interested in joining the A&D space. Feedback from this notice may inform future DoD practices, and identify new priorities. 

DoD has been clear: it intends to promote competition to the greatest possible extent. A&D players who want to thrive in this space, including through M&A should carefully study DoD priorities, and assess ways to support those priorities if they want to succeed in this rapidly changing space. 


KAL Capital 2022 Q1 Newsletter

Click Here to Download Report

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

Click Here to Download Report


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. 


More Oversight Coming for Defense M&A

Citing concerns about the threat consolidation poses to national security, the Pentagon has announced its intent to increase oversight of defense contractor mergers. In a new report, it outlined a range of recommendations to counteract the reduced competition of a 30 year merger and consolidation bonanza. 

In a statement, the Department of Defense explained, “Having only a single source or a small number of sources for a defense need can pose mission risk and, particularly in cases where the existing dominant supplier or suppliers are influenced by an adversary nation, pose significant national security risks.”

The increased oversight stems in part from a Federal Trade Commission lawsuit against Lockheed to challenge a deal on antitrust grounds. DoD had previously said they wouldn’t oppose deals that bolstered suppliers, as long as the biggest players did not merge. But the number of A&D prime contractors has shrunk from 51 in the 1990s to five today. Weapons are available from a limited range of sources, with just three companies—Raytheon, Lockheed, and Boeing—making tactical missiles. With little competition, there is also little pressure to innovate or to perform well to gain new contracts. A DoD report asserts that this harms taxpayers, given that defense comprises half of federal total discretionary spending. 

The Pentagon has not fully elaborated on its plan to increase oversight over A&D mergers, but prior actions suggest that the DoD is especially concerned about consolidation in the hypersonic weapons sector, where there is intense competition with Russia and China. First-tier material suppliers, prime contractors, and first-tier subcontractors are all poised to purchase lower tiered hypersonic contractors and suppliers, thereby reducing competition—perhaps even eliminating it entirely. 

Players in this sector, as well as all A&D sectors, should plan for increased deal scrutiny. This could slow down deals, require more regulatory oversight, increase the bureaucratic burdens of deals, and potentially render some deals no longer possible. 


The Emerging Role of Artificial Intelligence in A&D M&A

Artificial intelligence deals are rapidly accelerating, with GlobalData reporting an average deal value of $159 million. The number will almost certainly increase as technology advances and companies perceive more opportunities. While most growth has occurred in the Asian Pacific, deals in the South and Central American markets are accelerating. A&D companies continue to advance AI Capabilities both organically and via acquisitions. While AI used to be the domain of big tech, defense companies are increasingly using this technology to increase in-house capabilities. 

In the immediate future, we anticipate a growing role for AI both on and off the battlefield. Its potential offerings include unmanned teams, drone swarms, autonomous weapons, and increased surveillance, logistics, and cybersecurity capabilities. 

Modern militaries are increasingly building massive databases. This data deluge poses a significant problem in terms of how to manage and mine such information. AI intelligence can reduce the pressure by analyzing the data and offering actionable insights. It can provide militaries with more information than they ever had before, without exhausting limited resources or requiring significant additional new hires. 

Moreover, the race for AI dominance between the U.S. and China has already begun in earnest. The country with the strongest AI capabilities stands to gain a significant advantage—both in reality and in perception. We anticipate significant government investment in AI technology, boosting contract opportunities and incentivizing A&D companies to innovate. Companies that want to stay ahead of the curve must not only understand the benefits of AI, but also be very realistic about the challenges it poses. Developing strategies to adapt to these challenges before they become a crisis may determine dominance in this space. 

AI poses myriad ethical quandaries, particularly when it comes to the use of autonomous weapons. The complexity of developing new AI solutions that comply with real or anticipated regulations also serves as a deterrent. But A&D companies must cooperate with governments to innovate. China and Russia plan to dominate the U.S., and companies must not shrink away from big innovations that potentially offer big wins. AI is a powerful tool to companies who want to come out on top. Powerful tools present big risks. But companies who wield that risk wisely, who innovate intelligently and deliver on their promises, stand to make massive gains as the market begins looking toward this growing trend. The time to put your AI plan into place is now. Doing so will ensure more contracts, better contracts, and a better range of M&A opportunities down the road. 


KAL Capital Q4 2021 A&D Review

Click Here to See the PDF

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


The Role of Cybersecurity in Aerospace and Defense M&A

It’s increasingly a familiar story in aerospace and defense M&A: a potentially lucrative deal gets tanked when cybersecurity becomes an issue. Due diligence reveals a pattern of issues, and the buyer either backs out entirely or demands a decrease in the price. As ransomware attacks surge, the pattern is sure to accelerate. Whether a seller experiences a cybersecurity breach years before deal or in the midst of one, the consequences are potentially massive. It doesn’t have to be this way. A thoughtful, proactive approach can help lessen the potentially damaging impacts of cybersecurity threats on mergers and acquisitions. 

Practice Full Disclosure 

Sellers must be honest and upfront about any prior or current cyber incidents. Anything less than full, immediate disclosure erodes trust and is an immediate deal breaker for most buyers. Disclosing breaches gives you the opportunity to explain exactly what you have done to manage them. This can build trust and prove that you’re committed to full security. 

Be Proactive

While it’s good to respond intelligently to breaches, it’s much better to prevent incidents in the first place. Invest in quality antivirus software, cybersecurity insurance, and penetration testing. Consider how much a breach would cost you, and don’t cut corners when working with a skilled cybersecurity team. 

Practice Cybersecurity Due Diligence 

Most organizations rely heavily on digital data during the due diligence process. Consequently, this is a prime time for attacks. Moreover, many buyers include a cybersecurity assessment as part of the due diligence process. Buyers are mindful of the increase in ransomware threats, and are focusing more on cybersecurity than at any prior time in history. 

Sellers must be prepared for a due diligence process that considers: 

  • prior incidents and incident responses 
  • digital assets, including your understanding of network and system architecture
  • data flows
  • specific vulnerabilities, including via third parties such as vendors and contractors 
  • regulatory compliance via internal cybersecurity programs
  • your ability to withstand an incident and respond to whatever damage it causes 
  • how you will produce financial and other statements if there is a breach during due diligence 

Preparing to Take Action

Cyber incidents are inherently disruptive. During M&A, they are immensely harmful, with the power to cause severe delays and losses, and potentially destroy entire deals.

Aerospace and defense contractors have unique obligations, since a breach can affect national security as well as millions of individuals. There is simply no longer any excuse for outdated or nonexistent security practices. If you want a competitive edge, you must be prepared for the challenges of 21st century cybersecurity. 

The right security infrastructure—including quality technology and knowledgeable people—are integral to your deal. Ensure you hae them in place at the beginning, so you can head off threats before they occur. 


AI Technology Stands Ready to Disrupt Aerospace and Defense Industry

Artificial intelligence (AI) has the capacity to revolutionize the aerospace and defense industry. According to a new report from GlobalData’s Thematic Research ecosystem, some companies are already well positioned to lead the way. They include Boeing and Leidos. 

The assessment ranked companies on a scale of one to five, assessing their ability to tackle emerging challenges such as artificial intelligence in the A&D industry. Other winners in the report included GE L3 Harris Technologies, Airbus, and AECOM. Each attained a full score of five out of five. Leidos exemplifies the commitment to AI in this group, advertising 1,007 new AI jobs between October 2020 and September 2021. It also registered three artificial intelligence patents, and referenced AI technology in official company filings eight times. 

Boeing showed similarly impressive investment levels, with 793 new AI job listings since October of 2020, with five references to AI in its official filings. More mentions of AI in quarterly filings usually indicates that a company is either profiting from prior AI investments, or that it intends to invest more to catch up with others in the industry. Likewise, more AI deals indicate either market dominance or an attempt to shore up AI offerings using mergers and acquisitions.

Across the board, we are witnessing an increase in AI references and AI-inspired mergers and acquisitions in this sector, which once lagged behind other industries in terms of its embrace of emerging technologies. Top executives are now thinking about AI, and trying to incorporate it into their businesses. Those that can do so successfully gain a leg up on the competition, as well as a competitive edge when selling their business.

Companies with AI offerings may need help to value their AI, to integrate it into their existing business, and to prove AI’s worth. The right M&A advisory firm can help them highlight the value of AI and reap its rewards. 


KAL Capital Q3 2021 A&D Review

Click Here to See the PDF

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.