23 Jan 20. BAE Systems to buy GPS business for $2bn. BAE Systems (BA.) will buy the military global positioning system (GPS) business belonging to Collins Aerospace, a subsidiary of US defence giant UTC (US:UTX), for $1.9bn (£1.5bn). BAE has also agreed to acquire Raytheon’s (US:RTN) Airborne Tactical Radios business for $275m in cash.
The businesses were made available for acquisition as part of the regulatory process overseeing the merger of UTC and Raytheon, which is expected to close this year. BAE will fund its GPS purchase with fresh debt. It expects the business to generate revenues of around $359m in 2020.
IC View
BAE shares rose 3 per cent following the announcement of the deals. While a shake-up to the UK’s defence procurement strategy could feasibly threaten future contracts for the group, momentum in global defence expenditure and a fraught geopolitical environment should provide BAE with further opportunities for growth this year. Hold at 641p.
Last IC View: Sell, 552.8p, 31 Jul 2019. (Source: Investors Chronicle)
23 Jan 20. VITEC, a worldwide leader in advanced video encoding and streaming solutions, today announced the strategic acquisition of IPtec Inc., a developer and manufacturer of industry-leading solutions for low-latency transfer of telemetry and video-over-IP networks. This acquisition is the third the company has made within this vertical in the last 18 months, continuing VITEC’s growth in broadcast contribution and remote production.
“IPtec is highly respected in the military and broadcast verticals,” said Kevin Ancelin, VP Worldwide Broadcast Sales, VITEC. “IPtec introduces the benefits of J2K, MPEG-2, and legacy H.264 4:2:2 10-bit codec support, as well as a full duplex encoder/decoder and a telemetry-to-IP gateway that complement VITEC’s portfolio of high-quality, low-latency HEVC codecs. Together, our solutions will provide customers with a purpose-built technology platform capable of delivering broadcast-quality media streams even under the most extreme conditions.”
Effective this month, this acquisition will add IPtec’s product families to the VITEC lineup. This includes the VNP Series video network processors, which support full-duplex encode-decode; H.264, AVC-I, and MPEG-2 video standards; and AAC and MPEG-1 Layer II audio standards, in a redundantly powered ½ RU package. The current IPtec VNP Series will be maintained as its product roadmap merges into VITEC’s HEVC portfolio offering. VITEC will also add the TNP Telemetry Network Processor Series, which addresses the need for transmitting timing-sensitive data signals over IP networks in telemedicine, defense, and industrial applications.
21 Jan 20. EnPro Industries Announces Successful Completion of Fairbanks Morse Sale for $450m in Cash. EnPro Industries, Inc. (NYSE: NPO) today announced that it has closed the previously announced sale of Fairbanks Morse to an affiliate of funds managed by private equity firm Arcline Investment Management (together with its consolidated subsidiaries, “Arcline”) for a purchase price of $450m, subject to closing date purchase price adjustments. EnPro announced the agreement to sell Fairbanks Morse on December 12, 2019.
EnPro expects to use net proceeds from the transaction to pay down a portion of its outstanding debt, while maintaining a disciplined approach to deploying capital for increased shareholder value, which could include future acquisitions and share repurchases.
DC Advisory served as exclusive financial advisor to EnPro, and Robinson Bradshaw served as legal counsel.
About EnPro Industries
EnPro Industries, Inc. is a niche provider of precision components, solutions, and services with a well-diversified customer base. For more information about EnPro, visit the company’s website at http://www.enproindustries.com.
About Arcline Investment Management
Arcline is a private equity firm with $1.5bn in capital, investing in niche, market-leading companies that we are passionate about growing. Arcline approaches investments from multiple perspectives but shares a single vision – to identify and unlock the breakout potential in its companies. While we are deliberately sector generalists, some of our primary interest areas include Industrials, Technology, Life Sciences, and Specialty Chemicals.
About Fairbanks Morse
Fairbanks Morse (FM) develops and manufactures heavy-duty, medium-speed reciprocating engines under the Fairbanks Morse® and ALCO® brand names, which are used primarily in marine and power generation applications. FM has been the original equipment manufacturer of its engines for over 120 years and has a large installed base for which it supplies aftermarket parts and services. FM is the principal supplier of diesel engines to the U.S. Navy, U.S. Coast Guard and Canadian Coast Guard. One hundred percent of manufacturing is conducted in its U.S. based facility in Beloit, WI, while parts and services are delivered through its network of five service centers. (Source: BUSINESS WIRE)
21 Jan 20. IBM inched back to a position of growth by the thinnest of margins in the final quarter of last year, as a new mainframe product cycle helped it shake off the effects of a secular decline in its giant IT outsourcing operations. Big Blue’s revenue edged up by $17m, or 0.08 per cent, to reach $21.78bn for the quarter. Though only a fraction ahead of the year before, that was still enough for the US computer maker to record its first quarter of growth in a year and a half. Most Wall Street analysts had been expecting a revenue decline of nearly 1 per cent. IBM’s struggles to return to consistent growth prompted its $32bn purchase of open source company Red Hat last year, as it sought to reposition its portfolio of tech products and services for the cloud era. Red Hat itself saw revenue growth of 24 per cent in the latest quarter and topped $1bn in sales for the first time, said Jim Kavanaugh, IBM chief financial officer. Sales of the company’s latest mainframe computers pushed revenue from its systems division up by 16 per cent in the latest period, to $3bn. The new mainframe cycle also boosted IBM’s “hybrid cloud” revenue, a broad description of all cloud-like sales at the company that covers upgrades to customers’ own data centres and includes hardware and services. Revenue from this broad definition of cloud accelerated to 23 per cent in the quarter, from 14 per cent in the preceding three months. IBM’s success in edging back growth also reflected an acceleration in its “cloud and cognitive” division, with revenue, in constant currency terms, up 9.4 per cent, compared to a 7.8 per cent advance in the preceding three months. Adjusting for currency swings and the effects of divested businesses, IBM said its revenues would have grown 3 per cent in the quarter. Its pro forma earnings per share of $4.71 were down 16 cents from a year before, though they were still 3 cents ahead of stock market forecasts. Based on formal accounting rules, IBM reported earnings per share of $4.11, up from $2.17 a year before, when it took a $1.9bn charge to reflect the effects of US tax reform. (Source: FT.com)
20 Jan 20. Aero Vodochody Aerospace will almost double their revenues up to CZK5-6bn (€200-240m) this year in comparison to 2019, the company announced this morning. The growth will be strongly driven by new MRO businesses, especially ramp up on the A220 programme and start of industrialization of L-39NG new jet trainer and light attack aircraft. “During the last year, Aero signed several contracts with current L-39 Albatros operators for general overhauls and modernizations, the majority with the support of its strategic partner OMNIPOL,” the company explained. “Currently, Aero has an unique order backlog on MRO of 35 aircraft from our customers in Middle Asia and Africa on L-39s, and from Czech Air Force on L-159s.”
Dieter John, President and CEO of Aero Vodochody Aerospace said at this occasion: “Based on signed contracts, our MRO and upgrade business will double this year and will generate more than CZK2bn revenues, almost €80m. In our aerostructures business, we are ramping up too, mainly driven by a 50% increase of production of fixed leading edge for Airbus A220 to 73 aircraft shipsets. Our budget 2020, agreed with our shareholder, plans Aero returning to black numbers this year.”
Early 2019, Aero has launched its mid-term transformation project Aero Fit For Future (A3F) which does optimize Aero´s operations and supply chain, increase the company´s efficiency and prepares it for strong growth. Part of it has been the streamlining of the workforce and the right sizing of the cost base. Aero released about 250 employees across all functions in 2019, which finished in May last year. Aero is now recruiting new employees for some specific key aviation profession. In last three months, the company recruited 30 new employees and currently it has more than 50 open positions. (Source: ESD)
20 Jan 20. BAE Systems plc – Proposed acquisition of Collins Aerospace’s Military Global Positioning System business and Raytheon’s Airborne Tactical Radios business. BAE Systems plc (“BAE Systems” or the “Company”) announces that it has entered into a definitive Asset Purchase Agreement to acquire Collins Aerospace’s Military Global Positioning System business (“GPS business”) for $1.925bn in cash, subject to customary closing adjustments. As an asset purchase there is an expected tax benefit[i] of c.$365m.
The Company has also entered into a definitive Asset Purchase Agreement to acquire Raytheon’s Airborne Tactical Radios business (“Radios business”) for $275m in cash, subject to customary closing adjustments. As an asset purchase there is an expected tax benefit[ii] of c.$50m.
Completion of both acquisitions are subject to successful closure of the Raytheon-United Technologies Corporation (UTC) merger, as well as customary regulatory approvals and conditions.
These two proposed acquisitions represent a unique opportunity to purchase high quality technology based businesses with market leading capabilities and long histories of pioneering innovation in their fields. These assets have come to market as part of the regulatory process relating to the merger of Raytheon and UTC. Both businesses are highly complementary to our US-based Electronic Systems business and on completion they would be integrated into our Electronic Systems division.
Both businesses have strong growth outlooks driven by close alignment with the priorities outlined in the US National Defense Strategy, Congressional mandates to upgrade existing capabilities and a presence on a substantial installed base of products and platforms in the US and with allied nations. Both transactions would be expected to be immediately earnings and cash accretive.
Commenting on today’s announcement, Charles Woodburn, Chief Executive of BAE Systems said: “These proposed acquisitions present a unique opportunity to add high quality, technology focused businesses to our Electronics Systems sector. It’s rare that two businesses of this quality, with such strong growth prospects and close fit to our portfolio, become available. The strategic and financial rationale is strong and these proposed acquisitions, which are focused on areas of highest priority defence spending, will further enhance the Group’s opportunity for continued growth in Electronic Systems. We look forward to welcoming the employees of the two businesses to the Company, as we work together to help drive our business forward successfully.”
20 Jan 20. BAE Systems to buy Collins’ GPS business for $1.9bn. UK defence group in biggest acquisition for more than a decade. UK defence group BAE Systems is paying $1.93bn in cash for the military global positioning business of US engineer Collins Aerospace, in its biggest acquisition in more than a decade. The GPS business makes military receiver systems and its products are used on hundreds of US defence platforms, including the two highest-volume weapons programmes for the US Air-Force, BAE said on Monday. It has come up for sale following the $120bn merger last year of Raytheon and United Technologies, with regulators requiring the two groups to divest assets. BAE is also buying Raytheon’s airborne tactical radio unit for $275m. The two acquisitions will boost BAE’s position as an important supplier to the US military, and mark the first big strategic deals under its chief executive Charles Woodburn since he took over in 2017. They will significantly strengthen the group’s electronics systems business, a largely US-based division, in a high-growth sector that Mr Woodburn has highlighted as a strategic priority. “It is a golden opportunity,” Mr Woodburn said in an interview with the Financial Times. “Electronic systems has been our highest-performing business and for us this was a once in a generation opportunity to bolster that portfolio.” In 2018, electronic systems contributed roughly 23 per cent of BAE’s total £16.8bn sales, and 37 per cent of its £1.6bn operating profit. Mr Woodburn said both deals would add immediately to earnings and cash flow, with some analysts upgrading cash forecasts on Monday as a result. The acquisitions would add 6 per cent or more to 2021 free cash flow, said Rob Stallard of Vertical Research. “They are great businesses, with best-in-class margins — about 30 per cent in GPS,” he said. Nick Cunningham, of Agency Partners, said that while the acquisitions were “not cheap”, they were a “very good fit. It is pleasing to see BAE move further towards high-level system subcontracting — the sweetest spot in the defence industry.” Shares in BAE climbed 3 per cent by early afternoon trading. Collins’ GPS business designs and produces next-generation M-Code technologies, which the US Congress has mandated be included on all military equipment requiring GPS after October 2020. Although development of the technology began almost two decades ago, and has been fraught with problems, the products are now ready to be rolled out later this year. The deal makes BAE the biggest supplier of military GPS receivers, with twice the market share of the next biggest competitor. Its rivals will be the combined UTC/Raytheon group and L3 of the US.
The radios unit designs, manufactures and supplies communication systems to the US government as well as other defence aircraft manufacturers, BAE said. United Technologies and Raytheon’s all-share merger, which was announced in June 2019, will create a $120bn aerospace and defence powerhouse to challenge the industry’s longstanding pecking order. The acquisitions by BAE are subject to the completion of the UTC-Raytheon tie-up. The GPS business is expected to achieve revenues of approximately $359m and adjusted earnings before interest, tax, depreciation and amortisation (ebitda) of about $127m in 2020, according to BAE. The radios business generated revenues of approximately $125m in 2019. Mr Woodburn admitted that the cash outlay on the purchases, totalling $2.2bn, would temporarily restrict BAEs firepower for future bolt-on acquisitions. The group is expected to have net debt roughly equal to ebitda as a result of the deals. However, the cash-generative nature of the businesses being acquired would quickly help to reduce net debt, he said, and the company intended to retain its investment grade rating, which stood at BAA2 according to Moody’s. (Source: FT.com)