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02 Dec 21. KNDS readies 650m euro bid for Leonardo units – sources. KMW+Nexter Defence Systems (KNDS) is close to making a 650m euro ($736m) binding bid for Leonardo’s OTO Melara and Wass units, three sources said on Thursday, in a move that could strengthen its position in the land defence sector.
The Franco-German consortium is conducting due diligence on the two units that Italian defence group Leonardo (LDOF.MI) has put on the block and could submit its offer by the end of the year or early 2022, the sources familiar with the matter said.
KNDS is pitted against Italian shipbuilder Fincantieri (FCT.MI), which expressed an interest in the units but has not started formal due diligence and has put forward a less generous proposal so far, the sources said.
The Italian government, which controls both Leonardo and Fincantieri, is determined to have the final say on the deal.
As Europe pushes for closer cooperation on defence, Rome wants to keep open the door for cooperation between domestic and foreign groups, political sources have said, but also wants to protect jobs and growth at home.
As part of its proposal, KNDS has offered to include Italy in the Main Ground Combat System (MGCS) tank project, an option that would give Leonardo the possibility of offering its sensors and electronics for the new tank.
OTO Melara, which makes naval and terrestrial cannons, would also fit into KNDS’s portfolio and strengthen its hand in a 2.2bn euro contract that the Italian army is due to launch in the near future.
ELIMINATING A COMPETITOR
Italian metalworker unions FIOM and UILM said they had called a one-day strike at some Leonardo plants on Dec. 6 and will organise a rally in Rome on the same day against the sale of the two units to foreign groups.
“Foreign buyers, who specialise exclusively in the terrestrial field, have an interest in acquiring OTO Melara and Wass with the aim of eliminating a competitor ahead of the launch of a new contract for the Italian army,” the unions said in a flyer distributed to workers at an OTO Melara plant in the Italian city of La Spezia.
The sale could result in the splitting up of the two divisions’ land, naval, underwater and munitions’ businesses, in a move that could put at risk some of the 1,500 jobs at the units, FIOM and UILM said.
OTO Melara is currently a tank supplier to the Italian army together with Iveco Defence Vehicles (CNHI.MI), while Wass produces torpedoes.
Fincantieri, which started informal talks with Leonardo over OTO Melara and Wass before KNDS’ approach, could decide to join forces with other groups, the sources said. ($1 = 0.8836 euros) (Source: Reuters)
02 Dec 21. Japan-Based DRONE FUND Invests in Wingcopter. German drone delivery pioneer Wingcopter has announced that it has received an investment from DRONE FUND. DRONE FUND is a Japan-based venture capital company specializing in drone- and air mobility-related startups.
The investment is made out of DRONE FUND’s JPY 10bn/USD 90m strong third fund, called DRONE FUND III (officially DRONE FUND III Investment Limited Partnership), and comes in the run-up of Wingcopter’s Series B investment round. It is DRONE FUND’s first investment in eVTOL drone technology as well as its first investment in a German company.
Wingcopter already has deep ties with Japan. Last year, the company signed a partnership agreement with Japan’s biggest airline ANA. Together with Wingcopter, ANA plans to build a drone delivery network to help improve quality of life in rural areas across the country. Extensive trials have already taken place in the past months.
In addition, Wingcopter is about to announce the signing of a strategic partnership agreement with one of the largest Japanese sogo shosha (Japanese general trading companies) through Wingcopter’s Authorized Partnership Program (WAPP). The company will act as a distributor and local technical support provider for Wingcopter’s newest Unmanned Aircraft System (UAS), the Wingcopter 198, in Japan. The WAPP is Wingcopter’s global network of strategic partners. It includes drone operators, resellers, and agents that are trained and allowed to operate, promote, and distribute the world’s first triple-drop delivery drone, the Wingcopter 198.
Japan is an attractive market for Wingcopter as the country is very progressive with respect to the integration of drones into everyday life. Already in 2017, the Japanese government recognized the extraordinary potential drones have to offer in many different sectors of life and business and created a first national commercial drone roadmap, the so-called Roadmap for the Application and Technology Development of UAVs in Japan, and has continuously adapted it ever since.
“This investment comes at a time when we are intensifying our efforts on the Japanese market. We are convinced that the DRONE FUND team will open doors, allowing us to bring drone delivery services to more customers in Japan and beyond. It also makes us really proud that we are the only eVTOL drone company in their portfolio of about 50 investments. I believe the investment is testament to the fact that the Wingcopter 198 is really leading the way of delivery drone technology”, says Tom Plümmer, CEO of Wingcopter.
Kotaro Chiba, Founder and Managing Partner of DRONE FUND, comments: “We have seen the air logistics network in Japan developing at an accelerated pace with the lifting of the ban on Level 3 flights in 2021. Wingcopter is one of the most reliable and cutting-edge eVTOL hardware, software and AI providers in the world, with successful experience in Japan. We are honored to be able to invest in such a great team. We look forward to working with the Wingcopter team to contribute to the development of drone logistics in Japan and abroad.”
DRONE FUND joins existing investors Xplorer Capital, Futury Capital, Expa, Hessen Kapital III, and Corecam Capital Partners. Wingcopter is currently in advanced investor discussions for its upcoming Series B round. (Source: UAS VISION)
01 Dec 21. Italy’s Leonardo says buyer’s nationality not key issue in units’ sale. Italian defence group Leonardo (LDOF.MI) said on Wednesday the nationality of a future buyer of its canon maker OTO Melara and naval torpedo unit Wass would not be a key factor in its decision.
The group indicated some months ago it is ready to put on the block OTO Melara and Wass, which could have a total value of more than 500m euros, and CEO Alessandro Profumo said it expects some offers “in the short-term”.
The state-controlled conglomerate has received expressions of interests from both Franco-German KMW+Nexter Defence Systems (KNDS) and Italian shipbuilder Fincantieri (FCT.MI), with some politicians claiming a sale to the Italian group could be the best solution.
“At a time when there is a debate over creating European Defence (capabilities) we will not decide considering the nationality of the buyer alone,” Profumo said, when asked about a potential sale to Fincantieri.
The disposal of the two units is part of a broader strategy by Leonardo aimed at focusing on its helicopters, aircraft and electronics for defence businesses.
“We want to be global leaders in helicopters and a European leader in aircraft and we have an important role in electronics both in the United States and in Europe,” he said.
In this strategy Wass, aren’t seen as core to the company and OTO Melara is perceived as too small to compete at European level.
KNDS has offered around 650m euros for the two units, while Fincantieri’s proposal is less attractive from a financial perspective, several sources familiar with the matter said.
OTO Melara and Wass employ more than 1,500 workers at four Italian plants.
“We will keep in mind the long-term sustainability of (the companies’) jobs when deciding on options,” Profumo said on the sidelines of a presentation of the group’s digital infrastructure in Genoa, where it manages a high-performance-computer dubbed Davinci-1.
(Source: Reuters)
01 Dec 21. HENSOLDT ranked first in sustainability rating. Sensor solutions provider HENSOLDT is a front-runner in the aerospace and defence industry for sustainability criteria. The company was ranked number one in the aerospace and defence industry in an initial rating by Sustainalytics for the risk of material financial impact from ESG (environment, social, governance) factors. The rating, research and data company Sustainalytics is a Morningstar Group company. It rates companies with regard to sustainability risks that can have significant consequences for companies. Criteria analysed include respect for human rights and “supply chain management as well as environmental and climate change risks. Specifically, the company achieved an ESG Risk Rating of 18.1 points in the assessment of the current 2021 business year according to Sustainalytics’ ESG assessment scheme, which runs up to 100 points, and is thus the only company in the branch to fall into the “Low Risk” category (10-20 points). In numerous categories – including “Product Governance”, “Human Capital”, “Bribery & Corruption” and “Occupational Health & Safety” – HENSOLDT even achieved a score below 10, which corresponds to a rating of “negligible risk”.
“It makes us very proud to have achieved such a great result. This rating confirms our decision to make ESG a strategic priority,” said Thomas Müller, Chairman and CEO of HENSOLDT. “We will continue to increase our focus on sustainability and further advance topics such as the further development of hydrogen technologies and the reduction of our carbon footprint.”
HENSOLDT takes its responsibility in its role as a global citizen and sustainable company very seriously and has set itself the goal of pioneering technologies and human potential that promote the protection of all species worldwide. At the same time, its activities serve the higher purpose of securing the freedom and future of our planet, our nature and our lives. Social commitment is one of our central ethical priorities and supporting the project is thus a matter of great concern to us.
30 Nov 21. Airbus Ventures Leads Q-CTRL’s Series B Financing Round. Airbus Ventures announces its investment in Q-CTRL, an Australia-based company optimizing quantum performance with its state-of-the-art cloud-based software suite, which today announced its Series B financing round of $25m (USD). This latest round will support the team’s growing quantum control efforts and will also enable new data-as-a-service markets powered by quantum sensing.
“Q-CTRL enables speed and agility at a moment of rapid acceleration for the entire quantum industry,” remarks Dr. Lewis Pinault, Airbus Ventures Partner, Japan and Asia Pacific. “At Airbus Ventures, we’re particularly excited about the team’s widening span of advanced applications and solutions, including lunar development, geospatial intelligence, and Earth observation, all increasingly critical in the global effort to address the accelerating planetary system crises we now face.”
This latest investment round follows Q-CTRL’s oversubscribed Series A in July 2019 and is focused on the company’s significant addition of quantum sensing to its successful quantum computing business unit, as well as expansion of its core quantum control infrastructure software efforts.
“Q-CTRL’s vision has always been to enable all applications of quantum technology, and this new fundraise is critical in realizing our mission to deliver real value to the space, defense, and commercial sectors,” said Professor Michael J. Biercuk, Founder and CEO of Q-CTRL. “The team is thrilled to be leveraging our expertise to boost sensor performance in real field environments by orders of magnitude.”
The company is currently developing space-qualified quantum sensors via the Moon-to-Mars supply chain capability program and through the Seven Sisters Consortium led by Fleet Space. Its quantum sensing client portfolio already includes major commercial and government engagements with Advanced Navigation, Australian Department of Defence, Air Force Research Lab, and Australian Space Agency.
For additional information on Q-CTRL, visit: https://q-ctrl.com.
About Airbus Ventures
Headquartered in Silicon Valley, with offices in Toulouse and Tokyo, Airbus Ventures is a fast-moving, early-stage venture capital company that independently funds and supports startups impacting the aerospace industry. Airbus Ventures has helped aspiring innovators reach new dimensions of achievement since 2015.
About Q-CTRL
With international headquarters in Sydney, Los Angeles, and Berlin, Q-CTRL is building the quantum technology industry by overcoming the fundamental challenge in the field – hardware error and instability. Q-CTRL’s quantum control infrastructure software for R&D professionals and quantum computing end users delivers the highest performance error-suppressing techniques globally, and provides a unique capability accelerating the pathway to the first useful quantum computers. This foundational capability also applies to a new generation of quantum sensors, and enables Q-CTRL to shape and underpin every application of quantum technology. (Source: BUSINESS WIRE)
30 Nov 21. Honeywell Quantum Solutions And Cambridge Quantum Complete Business Combination To Form World’s Largest, Most Advanced Standalone Quantum Company. The new company, named Quantinuum, offers the world’s highest-performing quantum computing systems and most comprehensive quantum software. Honeywell (NASDAQ: HON) announced today that Honeywell Quantum Solutions (HQS) and Cambridge Quantum (CQ), two global leaders in quantum computing and technology, received regulatory approval and completed the previously announced business combination.
The new company, named Quantinuum, is now the largest and most advanced full-stack quantum computing company. Through its impressive scale and proven technology leadership in quantum hardware, software and research and development, Quantinuum will shape the future of what is projected to become a $1trn industry over the coming decades.
“The formation of Quantinuum marks an important milestone for the quantum computing industry,” said Darius Adamczyk, chairman and chief executive officer of Honeywell, and chairman of Quantinuum. “Quantinuum customers will now have access to the world’s first quantum operating system, applications, and hardware-agnostic software, all of which will be used to address extremely challenging business needs with which conventional computing systems struggle. The combination of the quantum industry’s top talent, growing customer base, and most comprehensive technology will position Quantinuum extremely well for future growth.”
Quantinuum’s products and solutions support cyber security and encryption, drug discovery and delivery, material science, finance, natural language processing and optimization across major industrial markets. These products are delivered in an integrated manner and are compatible with a variety of quantum hardware processors, including the system Model H1, powered by Honeywell, and also IBM’s suite of quantum computers.
“The pace and scope of engineering advances, innovations in algorithm discovery, and the development of early-stage quantum software has picked up markedly in the past 12 months and is now ahead of most projections,” said Ilyas Khan, chief executive officer of Quantinuum. “Quantinuum is an accelerator for the quantum computing ecosystem as a whole, and I am thrilled and honored to be able to lead the new company as we enter a critical phase in the birth of the quantum computing sector.”
Quantinuum has recently announced groundbreaking advances in the financial industry by enabling quantum Monte Carlo simulations; conducted the world’s largest experiment in quantum natural language processing, a key enabler of artificial intelligence; announced commercial projects in critical areas of drug discovery that will enhance humanity’s well-being; and provided all quantum software developers open access to “tket,” the world’s most popular independent quantum software development kit. Quantinuum’s System Model H1 quantum computer, powered by Honeywell, recently achieved a quantum volume of 1,024, the highest measured on a commercial quantum computer to date, with further advances to be announced in the near future.
Quantinuum has a staff of nearly 400, over 300 of whom are engineers and scientists that include some of the world’s leading quantum computing experts. It has offices in the U.S., United Kingdom, Japan and Germany, and is an IBM Quantum Hub. Honeywell has been an investor in and commercial partner of CQ since 2019, and now owns a majority stake in Quantinuum. Additionally, Honeywell and Quantinuum have entered into a long-term agreement for Honeywell to help manufacture the critical ion traps needed to power Quantinuum’s trapped-ion quantum hardware. Honeywell’s businesses will continue to serve as a proving ground for the new company’s quantum offerings. There is no change to Honeywell’s financial outlook as a result of the transaction. For more information, visit www.quantinuum.com. (Source: PR Newswire)
01 Dec 21. ESG tide fuels fears over defence becoming an investment pariah .Ties with sector already being cut by banks and investors but some industry executives are fighting back Defence groups including BAE Systems have increased their efforts to explain what they do and stress their contributions to economies and national security © UK MOD © Crown copyright 2021 Share on twitter (opens new window) Share on facebook (opens new window) Share on linkedin (opens new window) Share Save Sylvia Pfeifer in London 4 HOURS AGO 21 Print this page Defence executives are used to being targeted by antiwar demonstrators, who regularly try to gatecrash shareholder meetings and trade fairs. But now, the industry faces a different kind of adversary: socially conscious investors. They are stepping up demands on companies to cut the carbon footprints of fuel-hungry fighter jets and battle tanks. At the same time, they are urging greater transparency over the manufacture and sale of weapons following a surge in environmental, social and governance, ESG, investing in the aftermath of the pandemic. Some executives, particularly in Europe, fear the growing scrutiny, a lack of precise investment definitions and new sustainable finance proposals could ultimately lead to their sector being shunned completely, making them pariahs of the investment world. These fears have prompted the European trade federation, ASD, to write to the EU commission, warning that proposals on socially sustainable finance threaten to undermine their ability to invest, with banks and fund managers increasingly turning away from the sector.
The federation points out what it says are contradictions between the EU’s desire to strengthen its capability in defence and draft proposals on criteria to define sectors that are socially positive or socially harmful. Already banks and investors are cutting ties with the industry, said Alessandro Profumo, ASD president and chief executive of Italy’s defence group Leonardo. “It is important that initiatives on sustainable finance do not contradict other EU policies,” he said. EU measures should “recognise the importance of the industry . . . Defence is part of sustainability and must be recognised as such. Without security we cannot have sustainability.” Separately, other European executives warn that a valuation gap is opening up with the US, where defence groups are more widely accepted for their role as government contractors despite being excluded from ESG-focused funds. Some executives are now fighting back. Several of Europe’s largest defence companies, including France’s Thales and Britain’s BAE Systems, have stepped up their efforts to explain what they do and stress their contributions to economies and national security. Both BAE and Thales last month held ESG-focused seminars. “If for whatever reason sectors are blackballed, then it constrains where you can put money to work and ultimately loses the opportunity for good returns,” said Sir Roger Carr, chair of Britain’s largest defence contractor, BAE Systems, in response to an analyst question at the company’s event last month. “We are there to help ourselves but also to help the industry to make sure this sector is not on a naughty step and is understood for the value it creates and the ethics and principles that it adopts in the way it delivers its product.” Bertrand Delcaire, head of investor relations at Thales, said: “As the designer of many innovative solutions for a greener, safer and more inclusive world, we do not understand how cyber security, in which we are a tier-one player, can be seen as a positive ESG activity while other elements of our product portfolio such as radars, sonars and military communication systems that contribute to physical security are seen as a negative ESG activity.”
A particular worry for European executives is the absence of precisely defined ESG investment criteria, which they fear is holding back the sector. Charles Woodburn, chief executive of BAE Systems, told the Financial Times the industry was “suffering from a lack of consensus in defining ESG compliance, which is causing some investment funds to exclude all defence stocks, rather than taking a more considered approach to assess individual company strategies and portfolios”. “European defence stocks are trading at reduced multiples compared to US peers as a result of investors adopting more stringent ESG criteria,” he added. Another big concern, according to some, is that the whole sector could fall foul of blanket exclusions. “Blanket ESG exclusions have no middle ground. It does not make sense to simply exclude from an ESG fund all companies that have more than 5 or 10 per cent of sales in defence without looking carefully at the products they actually make,” said one European executive. Robert Stallard, analyst at Vertical Research Partners, said: “ESG remains a big headwind for European defence companies, though it has yet to cross the Atlantic. The sector as a whole has been ‘blacklisted’ by many European investors, and even if defence companies replanted the Amazon they would still be on the blacklist.” In Europe, Norwegian pension group KLP is among those tightening its approach. The fund recently announced it had sold holdings totalling $147m in companies including America’s Raytheon and Britain’s Rolls-Royce and Babcock International due to what it said were their links to certain types of weapons such as nuclear armaments.
The fund is taking a “more stringent line” in particular towards “borderline cases”, Kiran Aziz, KLP’s head of responsible investments, told the Financial Times, while stressing that the fund was “not against defence”. “We support that every country has to be invested in defence, Norway is in Nato,” Aziz added. Rolls-Royce said in response to KLP’s divestment that the company’s “involvement in nuclear systems for the UK Royal Navy involves the design, manufacture and servicing of the nuclear power plant and propulsion system for its nuclear-powered submarines, not the production of any weapons”. There is nothing new about investors’ qualms over defence groups. Investment in controversial weapons such as cluster bombs and landmines as defined in international treaties is banned and is well-established in the asset management industry. Many mainstream funds adhere to universal indices set by the likes of MSCI. These can range from universal indices with the “smallest amount of exclusions such as landmines and cluster munitions” towards those that apply higher ESG rates, said Meggin Thwing Eastman, research editorial director for MSCI ESG Research. For ESG investors, weapons manufacturers are often lumped together with tobacco and coal companies and are excluded from funds. Some, such as BlackRock’s screened ESG exchange traded funds, hold no companies that make controversial weapons or civilian firearms. Vanguard’s ESG global corporate bond ETF excludes debt from weapons makers. “As ESG funds increasingly dominate asset flows, negative screening has risen . . . characterised by increasingly stringent internal metrics (societal value) and administrative reporting burdens,” said Charlotte Keyworth, analyst at Barclays in a recent note. From about a 30 per cent premium in late 2019, EU defence now trades in line with tobacco, said Keyworth, attributing the change “in part to the rise of ESG investor concerns in Europe”. UK defence stocks, which have been bolstered by a spate of recent takeover activity, are trading at a premium to the wider UK market. Nuclear is a further area of concern.
Executives are increasingly fielding questions about their work on countries’ nuclear defence programmes. Babcock International, Britain’s second biggest contractor, included an investor FAQ [frequently asked question] on nuclear weapons for the first time in its annual report this year. Thales similarly used its ESG event to explain that it is one of more than 140 direct suppliers on the French nuclear missile programme but that its involvement was not specific to the nuclear nature of the missile and represented less than 0.1 per cent of total group sales. BAE also used its event to commit to its exit in the near future from white phosphorous — the controversial chemical component used in incendiary weapons. The company said that less than 0.1 per cent of its sales still relate to products containing white phosphorous and that it was in talks with the UK Ministry of Defence to phase in a replacement solution. Making the case for defence, however, is only likely to get harder. “The risk of continued ESG headwinds doesn’t just undermine the defensive characteristics of defence stocks, it potentially risks them becoming an uninvestable asset class for European fund managers,” warned Stallard. (Source: FT.com)
30 Nov 21. Gooch & Housego takes short-term pain for long-term gain.
Reported profit drops by 13 per cent as company records £5.9m of restructuring charges.
- Cut in number of manufacturing bases will deliver £1.75m of annual savings
- Cash is used to pay down borrowings as net debt cut by £5.5m
Gooch & Housego (GHH) makes cutting-edge optical technology for customers in the industrial, defence and life sciences markets, but over the past few years it has struggled to achieve significant top- and bottom-line growth. On a reported basis, revenue for 2021 was lower than in 2018 and its pre-tax profit has more than halved over the same period.
However, there is an argument to be made that it has taken some short-term pain to achieve longer-term gains. The reported figure includes £7.9m of one-off costs, £5.9m of which related to restructuring, as it cut its number of manufacturing sites from 12 to nine.
The Somerset-based group expects the changes to deliver an annual uplift of £1.75m to its bottom line and said the initial benefits more than offset currency headwinds and some supply chain issues. After adjustments for one-off costs, profit was up 29 per cent to £12.6m.
The group attributed this to a rebound in its industrial division, which is its biggest segment of the business, making up 45 per cent of revenue. It grew by 7.2 per cent at constant-currency rates, providing technology to support the booming semiconductor market and the rollout of 5G. It is less dependent on its admittedly cyclical industrial arm than it was five years ago, though, when it made up 63 per cent of revenue. In the long run, Gooch & Housego aims to generate an equal share of business from its three divisions. Aerospace already provides a third, but life sciences currently only makes up 22 per cent. “That will be achieved through a mix of acquisition and internal R&D investment,” Webster said.
It has the headroom to achieve this. Net debt of £9.2m at year-end was lowered by £5.5m as the group used more cash to pay down borrowings, although it will need to pay out a final dividend of 7.7p, bringing its full-year dividend to 12.2p. It did not pay a dividend last year.
The group’s shares look expensive at more than 80 times reported earnings, but broker Peel Hunt argues that it has plenty of scope for growth. Its adjusted earnings forecast of 43p for next year implies a much more modest valuation of 27 times earnings. Given the scope for further growth in industrials and a balance sheet that can support further investment in life sciences, we maintain our buy recommendation. Last IC View: Buy, 1,344p, 1 June 2021. (Source: Investors Chronicle)
30 Nov 21. Simon Jackson Consulting formed. Following his careers in the British Army, BAE Systems and RBSL, Simon Jackson has set up his own consultancy business, Simon Jackson Consulting. Simon’s Army career was primarily serving in tanks and in equipment capability appointments in MOD, Army HQ and DES, including operational requirements and Deputy Team Leader in the Bowman project team. His roles in the defence industry have included programme management of new munition products development, Campaign Leader of BAE Systems’ Challenger 2 Life Extension Project team and Head of UK Sales for RBSL. Simon brings his unrivalled combination of military and defence industry experience into Simon Jackson Consulting. Based on real-life and practical experiences and focused on Small and Medium Enterprises and Programme/Campaign Teams, Simon Jackson Consulting supports Strategy Development, Decision Making, Business Winning and Teaming – helping businesses make decisions to meet their goals and aspirations. Check out Simon’s website simonjacksonconsulting.co.uk, LinkedIn, or contact him:
30 Nov 21. MRCY Acquires Atlanta Micro – 2% Accretive to FY23 EPS. MRCY announced the acquisition of Atlanta Micro for $90MM, a designer and manufacturer of high-performance RF modules and components. The company adds $16MM in annual sales (~1 pt) with >30% Adj. EBITDA margins implying a multiple of 18.8X CY22 EBITDA. Combined with the previously announced acquisition of Avalex, the two acquisitions raise our FY22 from $2.45 to $2.55 and our FY23 EPS from $2.75 to $2.90.
Insights
Atlanta Micro Adds RF Capabilities With Synergies Through End Markets and Customer. This morning, MRCY announced it has acquired GA-based Atlanta Micro, a Tier 4 designer and manufacturer of analog semiconductors across RF modules and components primarily for SIGINT and EW applications. The company operates as a fabless semiconductor supplier, primarily focused on defense. The acquisition augments MRCY’s next generation trusted microelectronics capabilities for aerospace and defense applications. The acquisition should position Mercury for larger opportunities with the ability to apply the technology to key MRCY end markets including radar, missiles, and SIGINT around Navy modernization coupled with cross-selling to key prime customers.
Atlanta Micro Financials – Adds 1 Pt of FY23. Atlanta Micro is expected to generate $16m of revs in calendar 2022 w/ Adj. EBITDA margins >30%. Given a purchase price of $90m, the deal represents ~5.6X 2022 Sales and ~18.8X EBITDA vs. an avg multiple of 12.8X since 2016. This is more inline with semiconductor multiples and represents MRCY’s target of accelerating growth through new opportunities. Given a partial year contribution, the deal adds ~$9m of sales to FY22 rising to $18m in FY23 given growth (13% est.) and a full year contribution.
Updating Estimates for Avalex (Closed Nov. 8) and Atlanta Micro. We expect Avalex to contribute $25MM to FY22 sales ($40m annual) with $9m from Atlanta Micro given timing of the transactions, rising to $42m and $18m in FY23, respectively, given full year contributions. As such our FY22 revenue estimate goes to $1.024bn (guide of $1.00 to $1.03BB) up from $990m, with our expectation of a 4% organic decline in FY22 unchanged. FY22 EBITDA of $226m ($220 to $227m guide) is up from our prior est. of $217m. We forecast FY22 EPS of $2.55, up from $2.45 previously (guide $2.51 to $2.60).
Recent Deals Add Modest Leverage – End FY22 at 1.2X. MRCY ended FQ1 (Sept) with $200m of debt under its $750m R/C coupled with $96m of cash. The acquisition of Avalex closed on November 8th for $155m and Atlanta Micro on Nov 29th for $90m. The two deals bring outstanding revolver debt to $445m. Given H2 cash generation, we assume $80m of paydown through FY end. We est. MRCY ends the year with ~$365m of debt, or ND of $268m including $97m of cash, which comes out to 1.2X ND/EBITDA for FY22 YE.
Multiples Stepping Up on Recent Deals. This is the fourth acquisition closed in the LTM with inorganic revenue expected to add $134m of revs to FY22, or 15 pts, and $25m to FY23, or 2 pts. MRCY’s recent deals have commanded higher multiples, with the 4 LTM acquisitions averaging 15.4X EBITDA vs. the 5-yr avg of 12.8X and the 11.1X avg between 2016 and 2019 (Ex. 1).
29 Nov 21. Raytheon acquires SEAKR Engineering. Raytheon Technologies has completed the acquisition of space electronics provider SEAKR Engineering, the company announced Nov. 29.
The Colorado-based privately-owned company is now a wholly-owned subsidiary of Raytheon Technologies, reporting to its Raytheon Intelligence & Space business. According to the announcement, SEAKR Engineering brings 540 employees to the company.
SEAKR Engineering is the primary contractor for Pit Boss, the autonomous mission management system that will drive the Defense Advanced Research Projects Agency’s Project Blackjack. Project Blackjack will use about 20 demonstration satellites to show the value of a proliferated low Earth orbit constellation to various Department of Defense missions, taking advantage of commercial off-the-shelf satellite technologies.
Pit Boss is effectively the brains of Project Blackjack, automatically taking the data collected by space-based sensors, processing it on orbit, and then sending it to the appropriate system or user back on Earth. Pit Boss will also be able to augment position, navigation and timing data, facilitate space-to-surface communications and more.
In March, DARPA awarded SEAKR $60.5m for phases two and three of the Pit Boss program, with work expected to be completed in March 2022.
Raytheon is also working on Project Blackjack, having been awarded $37 m in 2020 to build Overhead Persistent Infrared (OPIR) sensors for satellites. Those sensors will be integrated with both the satellite buses and the Pit Boss system.
SEAKR Engineering isn’t the only company working on Project Blackjack that Raytheon Technologies has acquired in the last year. In December 2020, it purchased Blue Canyon Technologies, which was awarded $14m to build the buses for Project Blackjack and $16m for payload contributions. The two acquisitions mean Raytheon is now contributing the bus, the mission management system and multiple payloads for Project Blackjack.
However, Project Blackjack remains a DARPA demonstration, not a program of record. Raytheon has failed to win major contracts with either of the official low Earth orbit satellites systems that appear set to carry on Project Blackjack’s legacy: the Space Development Agency’s National Defense Space Architecture and the Missile Defense Agency’s Hypersonic and Ballistic Tracking Space Sensor. While Raytheon Technologies was one of four companies initially awarded $20m to develop HBTSS, the Missile Development Agency only selected L3Harris Technologies and Northrop Grumman to build on-orbit demonstrations. L3Harris won a $122m award, while Northrop Grumman was awarded $155m in that competition.
When SpaceX and L3Harris — two companies that had not built missile warning satellites before — beat out Raytheon in the competition to build the Space Development Agency’s first missile warning satellites last year, the company filed a protest with the Government Accountability Office. A stop-work order was put in place temporarily, but the contracts — worth $149m and $193m, respectively — were ultimately confirmed by the Space Development Agency after a reevaluation.
The purchase of two major Project Blackjack contributors could represent an effort to make Raytheon a more attractive contractor for future lucrative contracts for proliferated low Earth orbit satellite systems, capable of offering a holistic package of buses, payloads and mission management systems. However, the company did not suggest in its announcement that was its thinking in purchasing SEAKR Engineering. And Blue Canyon Technologies has secured DoD contracts outside of Project Blackjack, most recently winning an award from the Air Force Research Laboratory to build a cislunar micro-satellite.
“Today’s growing space market demands greater innovation, technological expertise and ability to deliver to a higher space standard faster,” said Raytheon Intelligence & Space President Roy Azevedo in a statement. “SEAKR Engineering provides depth and strength across all these areas with a portfolio of proven space electronics and a forward-leaning culture of commitment, and we welcome them to the RI&S team.”
Raytheon did not reveal how much it paid for the acquisition. (Source: C4ISR & Networks)
29 Nov 21. FDH Aero Acquires Unical Defense. FDH Aero (“FDH”), an aerospace and defense products distributor serving aircraft production and aftermarket supply chains, announced today it has acquired Unical Defense, LLC (“UDI” or “Unical Defense”), a global provider of aftermarket component parts and logistics services for military aircraft, from affiliates of UDI’s founders.
Founded in 2015 and based in City of Industry, CA, Unical Defense provides its global defense customer base with a comprehensive aftermarket services solution for parts procurement and repair management. Serving more than 600 customers across the U.S., Asia, and EMEA, UDI has become a supplier of choice for leading government contractors, military fleet managers, and defense procurement divisions.
“We are excited to partner with the entire UDI team to support them at this inflection point in the company’s growth trajectory,” said Scott Tucker, CEO of FDH Aero. “We believe that bringing UDI into the FDH family complements and accelerates our broader strategic priority of growth in the global defense aftermarket. This acquisition further reinforces our commitment to high-touch customer service and expands our supplier partnership strategy.”
“FDH is an ideal fit for UDI as we continue to grow and invest in the business,” said Alice Zhang, existing leader of UDI and incoming Vice President of FDH’s Aftermarket Defense division. “With the strength of FDH’s existing inventory and long-term supplier OEM relationships, UDI will be able to broaden its ability to serve U.S. and international customers while maintaining the same level of quality and service that our customers have come to expect from us.”
Unical Defense is FDH’s tenth acquisition, and eighth completed since Audax Private Equity invested in the company in 2017.
ABOUT FDH AERO
FDH Aero is a leading distributor of aerospace hardware, replacement parts, and chemicals to commercial and defense aircraft manufacturers, subcontractors, component distributors, commercial airlines, and MRO/aftermarket solution providers. FDH is headquartered in El Segundo, CA and has operations across North America, Europe, and Asia. For more information, please visit www.fdhaero.com.
ABOUT UNICAL DEFENSE
Unical Defense is a leading full-service aftermarket component parts solutions provider to military-focused customers across the globe. Unical Defense is headquartered in City of Industry, CA and services customers worldwide. For more information, please visit www.unicaldefense.com.
(Source: BUSINESS WIRE)
29 Nov 21. Mercury Systems acquires Atlanta Micro.
- Expands Company’s RF and microwave component portfolio
- Deepens market penetration in core EW, radar, and weapons markets
- Strengthens Mercury’s leadership position in trusted microelectronics
- High growth, high margin transaction expected to be immediately accretive
Mercury Systems, Inc., (NASDAQ: MRCY, www.mrcy.com), a leader in trusted, secure mission-critical technologies for aerospace and defense, today announced that it has acquired Atlanta Micro, Inc. (Atlanta Micro). Based in Norcross, Ga., Atlanta Micro is a leading designer and manufacturer of high-performance RF modules and components, including advanced monolithic microwave integrated circuits (MMICs) which are critical for high-speed data acquisition applications including electronic warfare, radar and weapons.
Under the terms of the purchase agreement, Mercury acquired Atlanta Micro for all cash, subject to net working capital and net debt adjustments. The acquisition and associated transaction expenses were funded through Mercury’s existing revolving credit facility. The acquisition is expected to have a non-material financial impact in Mercury’s second fiscal quarter ending December 31, 2021. Atlanta Micro is expected to contribute approximately $16mm in revenue for the twelve months ending December 31, 2022, with adjusted EBITDA margins above 30%. The acquisition is expected to be immediately accretive to adjusted EPS.
“The acquisition of Atlanta Micro, our fourth transaction in 12 months and 15th since our fiscal 2014, continues our strategy of supplementing organic growth with disciplined M&A and full integration,” said Mark Aslett, Mercury’s president and chief executive officer. “The acquisition directly supports our stated goal to provide next-generation trusted microelectronics capabilities for critical aerospace and defense applications. Atlanta Micro’s state-of-the-art MMIC capabilities expand our prior investments in the RF and microwave domain, enabling us to both provide best-in-class solutions for our customers and to address new markets through our combined expertise. We see strong alignment in our strategies and vision, as well as our cultures, values, and commitment to innovation. We are very pleased to welcome the Atlanta Micro team to Mercury,” Aslett concluded.
“We are very excited to join the Mercury Systems team” said Clay Couey, chief executive officer and founder, Atlanta Micro. “Mercury’s position at the intersection of high-tech and defense enables us to better support our existing customers while continuing to introduce new and innovative products. Further, there is an excellent fit strategically and culturally between the two businesses with a common focus on innovation that matters.”
14 Nov 21. NIC4, a division of Network Innovations, Inc., announces the acquisition of U.S. government contractor, Knight Sky LLC. The acquisition will effectively combine the expertise of both companies, enhancing the development and delivery of agile, secure and mission critical connectivity solutions for the collective clients of each organization. NIC4 will complement the existing Knight Sky managed network services with advanced technologies in the NIC4 MAVERICK VSAT services and will add additional resources and support to Knight Sky’s contracted U.S. Space Force Space Enterprise Consortium (SpEC) SATCOM Enterprise Management & Control (EM&C) Program.
Since 2003, Knight Sky has established a track record of serving critical mission customers, becoming a full-service satellite network operator and information technology services provider. Its focus has been on the design, installation and operations of mobile communications networks, information technology services, systems integrations and enterprise applications. In addition, Knight Sky is delivering software development solutions to the U.S. Space Force EM&C Program.
For NIC4, the decision to acquire Knight Sky LLC completes a critical part of its mission in enabling clients to operate anywhere. Leveraging Knight Sky’s knowledge and experience, this expanded partnership will only improve the delivery of reliable communication to U.S. government and military clients.
“We’re excited to welcome Knight Sky LLC, along with its team, to NIC4,” says Chad Gatlin, Chief Executive Officer, NIC4. “We’ll be able to create more valuable solutions, combining key capabilities from both sides to enhance the successful design, development and delivery of technology solutions for military, public safety and government agencies. Overall, we’ll be stronger together.”
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TCI International, Inc., is a wholly-owned subsidiary of SPX Corporation. TCI provides turn-key solutions for spectrum management and monitoring, direction finding, geolocation and communications intelligence to civilian, government, military and intelligence agencies as well as antennas for communications and high-power radio broadcasting. TCI is headquartered in Fremont, California, USA. For more information, visit www.tcibr.com.
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