KAL Capital Updates
Partner and KAL Co-Founder Ryan Murphy was featured in a MRO-Network interview with Lee Ann Shay on Friday, February 8th. Please see the discussion below or click to view the original posting.
Fast 5: Will The M&A Market For MRO Be As Hot In 2019?
The merger and acquisition appetite in 2018 for aviation aftermarket companies was competitive. KAL Capital Markets advised STS Aviation Group on its equity partnership with the Greenbriar Equity Group that closed in January. Ryan Murphy, a partner at KAL Capital Markets, which specializes in aerospace and defense investment banking services, provides his outlook for MRO M&A activity in 2019.
Lee Ann Shay | Feb 08, 2019
What are the most desirable segments of the MRO business for investors and how do those valuations compare to others?
Based on our experience, the highest valuation within the MRO ecosystem is component MRO, especially ones with either size and scale, or unique capabilities. We’ve seen the large consolidators in the space being driven by private equity quite a bit—StandardAero and Wencor are the two largest acquirers in that space. They have bought a bunch of smaller, $10 million-$100 million businesses, often family owned, and really tried to offer their customer base a one-stop shop, including a variety of ATA chapter repair capabilities.
What kind of multiples are you seeing for companies, such as STS Aviation Group and Ascent Aviation Services, both of which you helped sell?
Multiples are all over the place. Heavy MRO businesses can be in the single-digit EBITA (earnings before interest, taxes and amortization) while larger, very well diversified aviation services businesses tend to tradefor double-digit EBITA multiples.
How many companies formally looked at investing in STS? How did the process go and how long did it take?
Most of that is confidential, but I can say our processes tended to be a little bit narrower. The STS Aviation owners were looking to partner with an equity group that had more than just capital to offer—they also wanted to leverage aviation relationships and industry expertise.
What’s your forecast for the number of M&A deals in the aviation market in 2019: will it match 2018? How big is the pool of candidate companies to be sold?
We anticipate approximately an equivalent year. There were some larger transactions that moved the needle quite a bit, but generally speaking, we see a lot of the equity groups looking at the OEM cycle and seeing that a lot of the growth is in the rearview mirror. They actually see a lot more potential in the aftermarket.
Are you concerned about potential interest rate increases and how that could affect acquisition appetites?
No, not at the moment. We feel a bigger factor is the amount of dry powder that the private equity community has raised and needs to deploy. We feel that any uptake in interest rates will be mitigated by the fact that quite a bit of money needs to be spent on acquiring privately held businesses. With that said, if interest rates were to double, my answer would be quite a bit different.
Industry News
Embraer Delivers 181 Total Jets in 2018
Embraer (NYSE: ERJ; B3: BOVESPA: EMBR3) delivered a total of 181 jets in 2018. 90 were commercial aircraft and 91 were executive jets (64 light and 27 large). In the fourth quarter of 2018, Embraer delivered 33 commercial jets and 36 executive jets (24 light and 12 large). As of December 31, the firm order backlog totaled USD 16.3 billion.
Northrop Grumman’s Cygnus Spacecraft Departs International Space Station
Northrop Grumman Corporation (NYSE: NOC) announced that its Cygnus spacecraft has departed from the International Space Station after an 81-day stay during the NG-10 mission. The Slingshot CubeSat Deployer System, a new commercial customer for Cygnus, was also installed for its inaugural flight on the spacecraft.
BWXT Joint Venture Awarded Extension at Two NASA Facilities
BWX Technologies, Inc. (NYSE:BWXT) announced that NASA has awarded a contract option on the Consolidated Operations and Maintenance (SACOM) contract held by BWXT subsidiary Syncom Space Services LLC (S3). The SACOM contract is for consolidated maintenance and operations support services at the Stennis Space Center in Hancock County, Mississippi, and the Michoud Assembly Facility in New Orleans, Louisiana.
Safran Inaugurates Advanced Turbine Blades Research Center Near Paris
Safran inaugurated today its new research center for advanced turbine blades used on airplane and helicopter engines at its plant in Gennevilliers, near Paris. The advanced turbine blades research facility is part of the corporate Research & Technology center, Safran Tech. Housed in a building spanning 3,000 square meters (32,400 sq ft), the new research unit is staffed by about 30 engineers and doctoral candidates and fitted with state-of-the-art machinery and equipment.
Littoral Combat Ship 15 (Billings) Delivered to U.S. Navy
Lockheed Martin (NYSE: LMT) and Fincantieri Marinette Marine (FMM) delivered another Littoral Combat Ship, the future USS Billings (LCS 15) to the U.S. Navy.
Billings is the eighth Freedom-variant LCS designed, built and delivered by the Lockheed Martin-led industry team and will be commissioned later this year. LCS 15 will be homeported at Naval Station Mayport, Florida, alongside USS Milwaukee (LCS 5), USS Detroit (LCS 7), USS Little Rock (LCS 9), USS Sioux City (LCS 11) and USS Wichita (LCS 13).
SAIC Names Nathan Rogers as New Chief Information Officer
Science Applications International Corp. (NYSE: SAIC) announced today that Nathan G. Rogers will assume the role of chief information officer effective Feb. 2, reporting to SAIC CEO Tony Moraco. Rogers succeeds Bob Fecteau who retires from the company in April.
M&A
Odyssey Investment Partners, LLC Portfolio Company Aero Precision Holdings, L.P. Acquires Lynx Avionics
Lynx manufactures headsets and intercom systems for aircraft. DAC International, Inc., a subsidiary of Aero Precision Holdings, L.P., a portfolio company of private equity firm Odyssey Investment Partners, LLC, acquired privately held Lynx Avionics.
AE Industrial Partners, LLC Portfolio Company Belcan, LLC Acquires Sitec Design Ltd. and Sitec Recruitment Ltd.
Sitec provides engineering services and technical recruitment services to aerospace, defense, nuclear, and industrial customers in the UK and Europe.
Bombardier, Inc. Completes Acquisition of Global 7500 Aircraft Wing Program From Triumph Group, Inc.
The Global 7500 business jet program entered into service in December 2018. The aircraft has an award-winning bespoke interior featuring a full-size kitchen and four true living spaces. The aircraft has an industry-leading 7,700 nautical mile range and a top speed of Mach 0.925. The acquired operations will be incorporated into Bombardier’s Aerostructures and Engineering Services segment.
Arctic Slope Regional Corp. Acquires K2 Industrial Services, LLC
K2 Industrial Services, LLC is the parent company of KM Plant Services (“KMP”), KM Industrial Services (“KMI”) as well as Mansfield Industrial (“Mansfield”). KMP and KMI provide industrial cleaning services in the Midwest and California, while Mansfield provides multi-craft services, focused in the Gulf South. The companies serve a diverse customer portfolio made up of industrial, oil and gas, power and commercial customers.
Teledyne Technologies, Inc. Completes Acquisition of Scientific Imaging Businesses of Roper Technologies, Inc.
Roper Technologies’s scientific imaging businesses include Princeton Instruments, Photometrics and Lumenera, as well as other brands such as QImaging, which are part of Roper Technologies’ Medical and Scientific Imaging segment. The scientific imaging businesses provide a range of imaging solutions, primarily for life sciences, academic research and customized OEM industrial imaging solutions.
Logistics Management Institute (LMI) Acquires The Tauri Group, LLC
Tauri Group provides analytical consulting with expertise in homeland security and defense.
IPKeys Technologies, LLC Acquires SigmaFlow, LLC
The company provides workflow platforms for the energy sector. SigmaFlow’s Oil & Gas Well Delivery solution provides visibility into drilling plans through rig scheduling and pre-drill workflow, while its Compliance Manager (CM) solution reduces the risk and cost of NERC Compliance for electric utilities with process controls and evidence management.
Contracts
The U.S. Marine Corps Base Camp Lejeune awarded AVMAC LLC (Chesapeake, VA) an $8.7 million firm-fixed-price contract for organizational level (O-Level) aircraft maintenance support.
The U.S. Naval Air Warfare Center Training Systems Div. (NAWCTSD) (Orlando, FL) awarded PAE Global Mission Services (Arlington, VA) a $23.0 million firm-fixed-price, indefinite-delivery/requirements contract for Contractor Instruction, Maintenance, Operation and Training Support (CIMOTS) for the Strategic Sealift Cargo Offload and Discharge Systems (COLDS) in support of Logistics Over the Shore and Joint Logistics Over the Shore (LOTS/JLOTS) and requirements for other government agencies.
The U.S. Naval Sea Systems Command (NAVSEA) (Washington, DC) awarded General Dynamics NASSCO-Norfolk (Norfolk, VA), on Feb. 1, a $74.7 million firm-fixed-price contract for the fiscal 2019 Chief of Naval Operations (CO) dry-docking selected restricted availability (DSRA) for the USS Arleigh Burke (DDG 51).
Eastern Shipbuilding Group, Inc. (Panama City, FL) awarded Northrop Grumman Maritime Systems (Charlottesville, VA) multiple contracts for production and long lead time materials (LLTM) for the U.S. Coast Guard (USCG) Offshore Patrol Cutter (OPC) Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) and control systems.
DLA Aviation at Philadelphia (Philadelphia, PA) awarded Moog, Inc. (Elma, NY) a $15.5 million firm-fixed-price delivery order under a previously issued basic ordering agreement for electro-mechanical actuators.
The U.S. SPAWAR Systems Center Pacific (SSC Pacific) (San Diego, CA) awarded Kingfisher Systems, Inc. (Falls Church, VA) a $73.3 million cost-plus-fixed-fee contract for advanced cyber support services (ACSS) in support of U.S. Marine Corps Cyberspace Operations Group (MCCOG).
The U.S. Naval Sea Systems Command (NAVSEA) (Washington, DC) awarded DRS Naval Electronics (Johnstown, PA) a $21.5 million firm-fixed-price modification under a previously awarded contract to exercise options for production of the AN/SPQ-9B radar systems and associated equipment.
Support Systems Associates, Inc. (SSAI) (Melbourne, FL) awarded Elbit Systems of America, LLC (ESA) (Fort Worth, TX) a $22.0 million contract to provide an avionics refresh for the U.S. Air National Guard’s fixed-wing aircraft used for the RC-26B Intelligence, Surveillance and Reconnaissance (ISR) operations.
The U.S. Naval Air Warfare Center Weapons Div. (NAWCWD) (China Lake, CA) awarded Canadian Commercial Corp. (CCC) (Ottawa, ON) an $11.4 million firm-fixed-price, cost-reimbursable, ID/IQ contract for unmanned vehicle target support.
The U.S. Air Force District of Washington (AFDW) awarded Akima Logistics Services LLC (Herndon, VA) a $69.0 million firm-fixed-price contract for fuels and supply services to support the missions of the 11th Wing (WG), 89th Airlift Wing (AW), and their customers.
The U.S. Naval Air Systems Command, Headquarters (NAVAIR HQ) (Patuxent River, MD) awarded Rolls-Royce Corp. (Indianapolis, IN) a $42.0 million firm-fixed-price modification under a previously awarded contract for the procurement of 20 production Marine Turbine (MT7) engines for the Landing Craft, Air Cushion (LCAC) 100 Class craft in support of the Ship to Shore Connector (SSC) program.