Aerospace & Defense - Investment Banking€¦ · ... Moss Adams Capital Analysis, CapitalIQ. Over...

1 AEROSPACE & DEFENSE

M A R K E T M O N I T O R

S P R I N G 2 0 1 4

Aerospace & Defense


Contents

INDUSTRY UPDATE 3-5

PUBLIC STOCK PERFORMANCE & VALUATIONS 6-7

M&A ACTIVITY & VALUATIONS 8-10

MOSS ADAMS OVERVIEW 11-13


Clear Vision: Eight Years of Work Ahead … Valuations Up

Sources: Aviation Market News, S&P, Moss Adams Capital Analysis, CapitalIQ.

Over 11,300 aircraft on firm backorder.

• At the end of February, the large commercial jet backlog stood at 11,318 … an all-time high.

• At current production rates this figure represents eight years of work in hand.

Few industries enjoy this level of future predictability.

• Tier 2 and Tier 3 suppliers are experiencing predictable, long-term demand.

• Entire supply chain must “ramp up” to meet Boeing and Airbus production goals.

Investors attracted to the prolonged up-cycle …. Both strategic and private equity

• Tier I suppliers are consolidating to gain more control over source and quality.

• Private equity buyers are building “platforms” that are evolving into strategic buyers.

• Owners and CEOs are being flooded with unsolicited inquiries and offers.

Valuations are up across the entire aerospace supply chain.

• Public company valuations at 13-14x EBITDA, ahead of S&P.

• Private company M&A valuations at 9-10x EBITDA, ahead of market-wide valuations.

It’s a Good Time to be the owner of a aerospace supplier.


• Delivery slots for most aircraft are sold out years ahead.

• Most demand driven by new efficient engines.

• Current production rate of 1,400 per year means 8 years of work ahead.

• Production rates at both Boeing and Airbus are rising.

• Capacity of the entire supply chain must grow as a result.

• Tier 2 and 3 suppliers feeling the momentum.


How Are We Going to Build All These Planes ?


Growing Orders New orders in the first four months on 2014 are higher compared to the same period during past five years. Production rates are slowly increasing in response. Focused on New Engine Aircraft The year-to-date increase in orders is attributable to demand for new fuel efficient single-aisle aircraft. New backorder for wide-bodies is actually down slightly YTD.

Airbus and Boeing dominate Both prime contractors rely on outsourcing for the largest portions of their aircraft. Supplying either prime contractor now requires international, rather than local, capabilities. Tier I suppliers are positioning to provide “greater share of aircraft” and become integrated into the Primes’ supply chain.


Single Aisle Aircraft are Driving the Growth


Strong Growth for Mid-Size Suppliers; Valuations at Premium.

Small / Mid Cap Aerospace vs. S&P Public Market Valuations

Small and mid-Cap aerospace companies continue to outperform constituents of the S&P and at and accelerated pace.

Over a 3 year period, equity investments in small and mid-Cap aerospace companies have achieved an impressive 86% return versus 43% for the S&P 500 index.

Trading multiples for small and mid-Cap aerospace companies have increased dramatically over the last 12 months.

As of the end of the first quarter, this segment of the market is trading at nearly a 40% premium over the S&P 500 an a EV/EBITDA basis.

Small / Mid Cap

Aerospace

86%

S&P 500

43%

-25%

0%

25%

50%

75%

100%

125%

Mar

ket

Per

form

ance

Small / Mid Cap

Aerospace

14.3x

S&P 500

10.0x

6.0x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

13.0x

14.0x

15.0x

16.0x

EV

/ E

BIT

DA

Note: Small and Mid-Cap Aerospace companies are composed of the public companies included on slide 7. Source: Capital IQ.


Note: Not meaningful (NM) if EV/Sales is greater than 10x, or EV/EBITDA is greater than 20x. NA if denominator is 0, for percentages and multiples, or if estimates are not available. NTM figures are based on the median estimate of Wall St. analysts. Source: Capital IQ.

Small/Mid-Cap Aerospace Firms: Valuations

($US in millions, except where noted and per share amounts)

4/17/14 TTM Data NTM Est. Growth EV Multiple

Company Name

Share

Price 52 week High/Low

Market

Cap

Enterprise

Value Sales EBITDA

EBITDA

Margin Sales EBITDA

TTM

Sales

TTM

EBITDA

NTM

Sales

NTM

EBITDA

Small/Mid Cap Aerospace

TransDigm Group Incorporated $179.52 $184.21 / $134.48 $9,531 $14,862 $2,023 $895 44.2% 18.2% 20.7% 7.3x 16.6x 6.2x 13.8x

B/E Aerospace Inc. 85.52 88.43 / 56.08 9,057 10,379 3,484 743 21.3% 15.3% 15.2% 3.0x 14.0x 2.6x 12.1x

Hexcel Corp. 44.42 46.46 / 27.37 4,442 4,672 1,678 330 19.7% 10.4% 18.8% 2.8x 14.1x 2.5x 11.9x

Spirit AeroSystems Holdings, Inc. 28.42 35.89 / 17.93 4,068 4,815 5,961 (235) NA 11.0% NA 0.8x NA 0.7x 6.0x

Teledyne Technologies Inc. 101.35 102.19 / 72.49 3,821 4,355 2,339 331 14.2% 4.5% 16.7% 1.9x 13.1x 1.8x 11.3x

HEICO Corporation 62.80 65.04 / 32.61 3,547 4,089 1,059 233 22.0% 12.1% 16.9% 3.9x 17.6x 3.4x 15.0x

Esterline Technologies Corp. 110.23 113.06 / 69.16 3,530 4,028 2,017 365 18.1% 5.6% 3.9% 2.0x 11.0x 1.9x 10.6x

Triumph Group, Inc. 64.42 85.50 / 62.35 3,392 4,988 3,813 589 15.4% 1.0% 4.8% 1.3x 8.5x 1.3x 8.1x

Curtiss-Wright Corporation 65.50 69.90 / 30.64 3,172 4,006 2,511 356 14.2% 6.7% 14.6% 1.6x 11.3x 1.5x 9.8x

Moog Inc. 63.85 69.97 / 42.85 2,911 3,430 2,633 370 14.0% 0.2% 4.9% 1.3x 9.3x 1.3x 8.8x

Astronics Corporation 67.25 72.99 / 24.74 1,229 1,375 340 61 17.8% 60.2% 58.6% 4.0x 22.7x 2.5x 14.3x

AAR Corp. 30.92 31.55 / 16.02 1,222 1,764 2,129 188 8.8% (0.1%) 32.8% 0.8x 9.4x 0.8x 7.1x

GenCorp Inc. 19.29 19.58 / 12.06 1,186 1,688 1,383 93 6.7% 25.8% 154.2% 1.2x 18.2x 1.0x 7.2x

AeroVironment, Inc. 36.16 39.50 / 17.69 801 633 232 9 3.8% 8.3% 162.8% 2.7x NM 2.5x 27.0x

Ducommun Inc. 27.00 31.35 / 16.74 294 578 737 75 10.2% 1.5% 8.7% 0.8x 7.7x 0.8x 7.0x

LMI Aerospace Inc. 15.53 22.69 / 10.81 199 494 388 48 12.4% 8.2% 15.6% 1.3x 10.3x 1.2x 8.9x

Median $4,017 $2,020 $282 14.2% 8.3% 16.7% 1.7x 12.2x 1.6x 10.2x

as of April 17, 2014 Average $4,135 $2,045 $278 16.2% 11.8% 36.6% 2.3x 13.1x 2.0x 11.2x


Source: Capital IQ.

Next 12 Months: Estimated Growth Aerospace & Defense M&A*

Strong Growth Expected over the next 12 months

The outlook for the companies in the Small and Mid-Cap Aerospace companies are positive, with sales projected to grow 8%, and EBITDA projected to grow almost 17%, over the next 12 months.

Expectations for the sector are significantly stronger than for the S&P 500 as a whole, which is expected to grow revenue and EBITDA at 4% and 12%, respectively.

The Aerospace & Defense sector continues to experience steady deal flow with 104 announced M&A transactions in 2013. Q1 2014 activity in the sector is holding steady over the same time period in 2012.

114

103

67

96

106

98

104

27 28

0

20

40

60

80

100

120

2007 2008 2009 2010 2011 2012 2013 2013YTD*

2014YTD*

Nu

mb

er

of

An

no

un

ced

Tra

nsa

ctio

ns

S&P 5004.3%

S&P 50012.3%

Small / Mid-Cap Aerospace

8.3%

Small / Mid-Cap Aerospace

16.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Est. NTM Sales Growth Est. NTM EBITDA Growth


Recent Aerospace & Defense Transactions

Source: Capital IQ.

$ in millions

Transaction

Announced Acquirer/Investor Target Target Description Value Metric

Pending Precision Castparts Corp. Aerospace Dynamics International, Inc. Manufactures and supplies machined parts and assemblies. $625.0

Pending Global Digital Solutions Inc. Remington Outdoor Company, Inc. Operates as a firearms, ammunition, and related products company. $1,689.2 1.1x Rev; 7.7x EBITDA

Pending Private Investor TAC Air, Inc. Provides repairs and phased inspections for aircrafts. $7.0

Pending Atlantic Aviation Corporation Galaxy Aviation, Inc. Chain of fixed base operators in Florida. $195.0

04/11/14 RFE Investment Partners SPX Precision Components, LLC Manufactures and supplies aerospace parts, components and assemblies. $62.0

04/01/14 Welding Metallurgy, Inc. Woodbine Products, Inc. Manufactures aerospace components to adjust electronics in aircrafts. $2.7

02/19/14 Ultra Electronics Holdings plc 3Phoenix, Inc. Provides technology products and services to the Department of Defense. $87.0

01/17/14 Private Investor Triumph Aerospace Systems-Wichita, Inc. Designs, manufactures, installs and repairs aerospace parts and assemblies. $23.0

03/14/14 Textron Inc. Beechcraft Corporation Builds,and supports aircraft for militaries, governments, and individuals. $1,400.0

12/31/13 Prophet Equity LLC Keywell L.L.C. A recycling company focused on aerospace metals and specialty steels. $15.8

12/19/13 TransDigm Group Incorporated Airborne Systems Inc. Ddesigns, develops, and manufactures parachutes. $250.0 1.6x Rev

11/06/13 Willis Lease Finance Corp. JT Power, LLC Engages in the supply and lease of aircraft and jet engines, and parts. $5.9

10/25/13 TriMas Corporation Mac Fasteners, Inc. Manufactures stainless steel aerospace fasteners. $40.0 2.3x Rev

02/06/14 Hong Kong Aircraft Engineering Co. TIMCO Aviation Services, Inc. Provides aircraft MRO services to commercial, government, and military. $409.3 1.1x Rev; 14.0x EBITDA

11/15/13 CACI International Inc. Six3 Systems Inc. Develops intelligence, defense and civilian solutions. $820.0 1.8x Rev; 13.5x EBITDA

10/01/13 Astronics Corporation AeroSat Corporation Designs, manufactures and distributes aviation communications systems. $65.0

12/04/13 Directional Aviation Capital Bombardier Aerospace Corporation Provides whole and fractional aircraft ownership and management. $115.0

08/20/13 Saker Aviation Services, Inc. Phoenix Rising Aviation, Inc. Provides airframe maintenance services. $2.4

10/04/13 Greenpoint Technologies, Inc. Jet Works Air Center Management, L.L.C. Offers aircraft maintenance and interior modification services. $5.5


Source: Capital IQ.

Recent Aerospace & Defense Transactions (continued) $ in millions

Transaction

Announced Acquirer/Investor Target Target Description Value Metric

07/12/13 Colt Defense LLC New Colt Holding Corp. Manufactures military products for military and law enforcement use. $60.5

11/07/13 AMTEC Corporation DSE, Inc. Manufactures specialized military products. $47.1

06/26/13 ESCO Technologies Inc. Canyon Engineering Products, Inc. Manufactures industrial valves and fluid control devices. $9.2 0.8x Rev

07/01/13 Cubic Defense Applications, Inc. Advanced Interactive Systems, Inc. Provides technology-based training solutions. $3.2 0.4x Rev

07/18/13 Astronics Corporation PECO, Inc. Manufactures aerospace temperature controls, and precision products. $136.0 1.7x Rev

05/23/13 Air Comm Corporation Meggitt (Addison), Inc Designs, develops, manufactures, and supplies aircraft HVAC systems. $40.2

06/05/13 TransDigm Group Incorporated Arkwin Industries, Inc. Manufactures precision hydraulic and fuel system components. $286.0 3.0x Rev

05/28/13 Loar Group, Inc. AGC Incorporated Manufactures and repairs precision components and assemblies. $7.0

06/21/13 Alliant Techsystems Inc. Savage Sports Corporation Designs and manufactures rifles and shotguns. $315.0

05/31/13 Flight Support Group, Inc. Reinhold Industries, Inc. Manufactures composite components and sheet molding compounds. $141.0

05/03/13 ST Aerospace San Antonio, L.P Turbo Mach, LLC Manufactures composite components and assemblies. $0.3

06/05/13 TransDigm Group Incorporated Aerosonic Corp. Manufacture aircraft instrumentation and sensor systems. $37.9 1.2x Rev; 16.1x EBITDA

04/02/13 Blackwatch International, Inc. Lattice Government Services, Inc. Provides strategic management, systems and software engineering. $1.4

03/28/13 World Surveillance Group Inc. Lighter Than Air Systems Corporation Provides aerial and land-based surveillance and communications solutions. $0.9 1.8x Rev

05/07/13 Greenbriar Equity Group Edac Technologies Corp. Provides services for tooling, fixtures, molds, jet engine components. $145.1 1.3x Rev; 9.9x EBITDA

03/01/13 RBC Bearings Inc. Western Precision Aero LLC Manufactures components and assemblies for the aerospace industry. $2.6 0.5x Rev

Deal Revenue EBITDA

Size Multiple Multiple

Transactions Represented 35 13 5

Median $47.1 1.3x 13.5x

Mean $193.1 1.4x 12.2x


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