KAL Capital Q2 2022 Newsletter

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Dear Friends,

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

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

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

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

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

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

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


Trevor Bohn & Ryan Murphy