Tag Archives: intelligence community

Aronson Capital Partners Cited – Harris makes $4.75B deal for Exelis

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Harris Corp. is buying Exelis in a $4.75 billion cash and stock deal that the company is calling mandatransformational.

The deal will significantly increase the size of Harris, adding $3.25 billion in revenue to Harris’ $5 billion in revenue. Headcount will grow to 13,000 to 23,000. The transaction is expected to close by June.

Adding scale was definitely one of the factors the drove the deal, according to Harris executives and industry analysts.

“The combination of the two companies’ highly complementary core franchises creates a competitively stronger company with significantly greater scale,” said Harris CEO and chairman William Brown.

Much of that scale will come in the defense market, where Harris adds Exelis’ strong position to its own. Sixty-one percent of Exelis customer base comes from defense customers. About 75 percent of Harris’ revenue is DOD and intell related.

Exelis and Harris also both have significant international and commercial sectors. Pre-acquisition, the

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Aronson Capital Partners Advises TATE, Inc. on its Sale to CENTRA Technology, Inc.

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TATEAronson Capital Partners (“ACP”) is pleased to announce the acquisition of TATE, Incorporated (“TATE” or the “Company”) by CENTRA Technology, Inc.  The transaction expands CENTRA’s training and technical solutions for high risk personnel of the United States Military, Intelligence, Law Enforcement and Diplomatic communities.  Following the acquisition, TATE will operate as a wholly-owned subsidiary of CENTRA and will continue to be led by its founder and senior management team.

With significant operations in North Carolina, Virginia and Washington State, TATE has been a leading provider of Personnel Recovery and Survival, Evasion, Resistance and Escape (“SERE”) training solutions for the past two decades having supported a diverse collection of coveted military clients that operate in highly stressful and hostile environments.  Many of TATE’s 230 employees have extensive careers drawing upon the operational military and intelligence communities, which uniquely qualify them to provide realistic training in support of Unconventional Warfare and Counter-Terrorism missions. More recently, the Company has expanded its offerings to include Counter-IED and WMD training for a diverse customer base on a 20-acre facility south of Washington, DC.

The acquisition of TATE will provide CENTRA additional scale for its existing operations in Fayetteville, NC; further expand its support to Airborne and Special Operations Forces; and provide access to a diverse set of long-term prime, competitively  awarded contracts that can be further leveraged.  We believe this transaction demonstrates several key trends in the aerospace, defense and government services M&A environment:

  • Highly specialized solutions providers in mission-critical areas of the defense and civilian government markets continue to generate significant interest from strategic acquirers and private equity sponsors;
  • Well capitalized, privately owned strategic buyers have become more active participants in the M&A market as they seek to enhance their competitive posture in priority segments of the National Security market;
  • The capital markets focused on this industry continue to support M&A transactions which are led by strong management teams that have track records operating in all cycles of defense spending.

Philip McMann is a Partner at Aronson Capital Partners, LLC, providing investment banking services to defense and government technology services firms. Over the past 15 years,  Phil has worked on over 30 M&A transactions involving private middle-market and publicly-traded companies. During this period, he has advised or sold clients to some of the leading strategic buyers and private equity firms in the defense and government services industry, including Applied Signal Technology, Boeing, CACI, ManTech, SAIC, Sotera Defense Solutions, Ultra Electronics, VT Group, New Mountain Capital and Veritas Capital.

Aronson Capital Partners is a leading M&A advisor to middle-market defense and government technology solutions providers. ACP provides a full range of M&A and corporate finance advisory services to enable our clients to achieve their growth and liquidity objectives. With our exclusive focus on the government services and technology sector, we are able to provide clients with a unique industry perspective and access to longstanding relationships with the most active strategic buyers.

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Recent U.S. Weapons Systems Hack Foreshadows Continued Investment in Cybersecurity

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A nonpublic report received by The Washington Post late last month has identified over two dozen major U.S. defense and weapons systems that were compromised by an extended cyber exploitation mission. The report was compiled in January 2013 by the Defense Science Board (“DSB”) Task Force on Resilient Military Systems, a senior advisory group to the Department of Defense (“DoD”). A public version of the report is available, though it does not include the specific systems and technologies targeted in the breach. The public version also does not directly accuse China of perpetrating the breach, though The Washington Post has reported that “senior military and industry officials with knowledge of the breaches said the vast majority were part of a widening Chinese campaign of espionage against U.S. defense contractors and government agencies.”

Click here to continue reading this article, located in Aronson Capital Partners’ May Market update.

 

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Financial Sponsors – Continued Interest in Government Services

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Over the last five years, the Government Services industry has seen continuous interest from financial sponsors. Private equity firms have acquired publicly-traded services providers (e.g., Providence/SRA; Ares/GTEC), divestitures of large systems integrators (e.g., Veritas/The SI; General Atlantic & KKR/TASC), and both middle and small market contractors (e.g., Arlington/White Oak Technologies; LLR/Paragon). In 2012, private equity firms and their platforms accounted for one-third of the acquisition activity within Government Services. Financial sponsors are expected to continue to play a significant role in the Government Services M&A market as contractors (public and private) seek new opportunities to grow in an environment of sequesters, budget cuts, and funding uncertainty.

The Draw of Government Contracting

Financial sponsors like predictable cash flows and large addressable markets. Compared to the commercial sector, federal contractors have relatively high revenue visibility and backlog and enjoy greater confidence in their ability to collect pending customer payments. In addition, the sector is highly fragmented with opportunities for industry consolidation to either enhance an established contractor’s capabilities/customer base via bolt-on acquisitions (e.g., Camber/Novonics), or to roll-up several small companies and form a more competitive contractor with greater scale and ability to meet customer needs (e.g., Arlington/Novetta).

The Need for Financial Sponsors

As the market environment continues to evolve, opportunities become available for those with capital. After being acquired by Ares Management in 2011, Sotera Defense Solutions (formerly GTEC) President and CEO John Hillen said, “Being a part of that investor group gives us access to a lot of capital to do more and bigger deals than we could as a public company.” Within a year of the change in ownership, Sotera outbid its competitors to acquire Software Process Technologies and Potomac Fusion. With flattening growth and shrinking market sub segments, several contractors are leaning towards a more active M&A strategy as a key avenue to grow revenue streams in priority markets.

Deal Mechanics of Financial Sponsors

Borrowing capacity and cash balances have increased for many public contractors since last year, but M&A deals in 2013 have been sparse. Sequestration, budgetary concerns, the debt ceiling, and other topics on the Hill have increased uncertainty in today’s market. As a consequence, the gap between buyer and seller valuation expectations has widened. In this environment, financial sponsors have an important role to play through structuring instruments like earnouts, equity rollovers, and seller notes. These instruments are typically less likely to be included in a strategic buyer’s consideration, or at least to a lesser degree. Forms of consideration that provide paths for additional value through structure may be the only way to bridge the gap between buyer and seller expectations in the current environment.

This article is contained in ACP’s April Market Update.

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Forbes: “As Budget Cuts Bite, Defense Contractors’ Fortunes Diverge”

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While federally-focused service providers have been hit hard in recent times, weapons systems integrators have not been immediately impacted. Large weapons systems programs are more difficult to cut than IT and training contracts. This has allowed weapons manufacturers to focus on longer-term margin expansion strategies as service providers downsize and restructure.

Click here to read the entire article from Forbes.

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