Blog » Industry Review » Industry Week in Review – September 21, 2012

Industry Week in Review – September 21, 2012

By

Managing Director, KippsDeSanto & Co.

Posted on September 24th, 2012

Posted under: Industry Review, Mergers & Acquisitions

On Thursday, the House Armed Services Committee (“HASC”) held a hearing on sequestration’s impact on defense preparedness and national security in light of the Sequestration Transparency Act Report, which the White House released on September 14th. In the HASC’s view, other than the expected exemption of military personnel accounts and the confirmation that all sequesterable accounts would be reduced by 9.4%, the report brought very little insight to the impacts of sequestration on U.S. forces. 

During this two-hour hearing, top Defense Department officials made their concerns clear, suggesting that sequestration could lead to a hollow military and warning that the across-the-board federal budget cuts due to take place on January 2nd would mean decreased training, pay and preparedness for the nation’s armed forces.  Put more plainly in a joint statement produced by the representing DoD officials, sequestration would result in “a less-capable, less-modern, less-ready force.”

The two-hour session witnessed calls from both sides of the political aisle for a compromise to avoid the impact of sequestration, even though there has been little, if any, progress toward reaching a solution on which both parties could agree.  The House scheduled a Friday vote on a motion to adjourn until after the November election. Several members of the committee declared that they planned to vote against the motion in the hope of making progress toward heading off sequestration. However, by a majority vote in both houses, congress passed the earliest pre-election adjournment since 1960.

Big Movers

Kratos Defense & Security Solutions, Inc. (Up 14.8%) – Shares are up this week after dropping approximately 40% in the last year and upon release of various analyst reports that seem to suggest Kratos’ defense-electronics product line as a potential hedge against broader defense cuts.

iRobot Corporation (Down 9.6%) – Shares fell this week amid news that Evolution Robotics shareholders and its board of directors have approved the iRobot’s $74 million acquisition offer. iRobot said it expects to take one-time charges of 18 to 22 cents per share in the fourth quarter related to the deal, and it expects 22 to 26 cents per share in charges in 2013.

Relevant Transactions

TransDigm Group Incorporated (“TDG”) acquired Aero-Instruments Company, a provider of electrically heated pitot probes, pitot-static probes, static pressure ports, angle of attack sensors, temperature sensors, and flight test equipment, for $35 million in cash.  No word from TDG on the strategic rationale for the deal.  With over 60% of Aero-Instrument’s revenue coming from the aftermarket, the acquisition seems to be a double down on aftermarket exposure.  However, it comes just a month after the aerospace supplier sold the AmSafe Aftermarket Spares & Services business to Wencor.

iRobot Corporation acquired Evolution Robotics, Inc., the developer of Mint® and Mint® Plus automatic floor cleaning robots, for $74 million in cash.  Evolution Robotics’ products is expected to expand iRobot’s automated floor care offerings while its technology and intellectual property will bring visual navigation and simultaneous localization and mapping, among other technologies, which could be deployed in future iRobot products to deliver greater customer value

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