Blog » Industry Review » Industry Week in Review – August 31, 2012

Industry Week in Review – August 31, 2012

By

Managing Director, KippsDeSanto & Co.

Posted on September 4th, 2012

Posted under: Industry Review, Mergers & Acquisitions

On Wednesday, the Army announced that it would begin mobilizing resources to complete an audit of its Statement of Budgetary Resources (“SBR”) by 2014 and an audit of all financial statements by 2017.  Likely as part of a larger effort to control spending, this effort will constitute the first of its kind within the Army organization.  Officials note that the effects of gearing up for an audit of this magnitude will reach a broad range of staff offices, including contracting, payroll, acquisition, logistics and other business functions. The SBR is the statement that shows the money the Army has received in a fiscal year and outlines how it spent that money.

In fiscal year 2011, for instance, the Army had more than $335 billion in budgetary resources to account for.  The Department of Defense (“DoD”) is the last remaining federal agency with financial operations that cannot muster an independent audit. Secretary of Defense Leon Panetta has described the situation as “unacceptable” in testimony to Congress.  In 2009, Congress mandated that DoD obtain a clean audit opinion of all of its financial statements by 2017. In October 2011, Panetta announced that DoD, including all of the services, would move up the timeline to obtain a clean opinion on its SBR by 2014.

In other news, Science Applications International Corporation (“SAIC”) announced on Thursday that its Board of Directors, following a recently completed comprehensive strategic review, authorized management to pursue a plan to separate into two independent, publicly traded companies. The proposed separation is intended to take the form of a tax-free spin-off to SAIC stockholders of 100% of the shares of a newly formed company in order to focus on delivering science and technology solutions in high-growth markets that reflect high priority, long-term global needs (e.g. national security, engineering and health).  The two companies are expected to unlock substantial value by removing both the potential and the perception of organizational conflicts of interest that now prevent pursuit of new business in both the services and the solutions markets.

Big Movers

Esterline Technologies Corp. (Up 13.2%) – Shares rose this week after the Company announced 3Q2012 results with sales of $485.9 million, an 18.7% increase from the $409.5 million announced in the prior year.  In his comments regarding the most recent earnings release, Esterline CEO Brad Lawrence expressed expectations of a completed rebound by the end of this fiscal year as discrete events that impacted the third quarter are abating and improvements at the Avionics Systems, Control Systems, and Engineered Materials operations contribute to a strong fourth quarter performance.

Relevant Transactions

Arlington Capital Partners to acquire AeroMetric, a provider of high-quality geospatial services to corporate and governmental clients.  AeroMetric had been a portfolio company of HKW since 2007.  Terms of the deal were not disclosed.

Magellan Aerospace acquired John Huddleston Engineering Limited, a European supplier of precision machined aerospace components.  This acquisition is part of Magellan’s global growth strategy to invest in opportunities that complement the core business and strengthen Magellan’s manufacturing operations. The JHE acquisition provides additional capacity and engineering resources to support the growth in key customer programs.  Terms of the deal were not disclosed.

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