aerospace & defense report - tm capital...

M&A INTERNATIONAL INC.

Aerospace & Defense Report

2014 in Review

www.mergers.net

2M&A International Inc. - we close deals in your industry

Table of Contents

1. Introduction ........................................................................................................................................................................................... 3

2. Aerospace & Defense Industry Trends ................................................................................................................................................ 4

Top Commercial Primes ................................................................................................................................................................... 6

Commercial and Military MRO ......................................................................................................................................................... 9

Global Defense Spending ............................................................................................................................................................. 11

3. Aerospace & Defense M&A Activity ................................................................................................................................................... 13

Consolidation ............................................................................................................................................................................... 13

Select Acquisitions by Leading A&D Industry Players .................................................................................................................. 14

European Joint Ventures .............................................................................................................................................................. 16

Private Equity ............................................................................................................................................................................... 17

Global M&A .................................................................................................................................................................................. 18

Global M&A by Segment ............................................................................................................................................................... 20

Defense M&A ............................................................................................................................................................................... 23

Recent Notable Defense M&A Deals ............................................................................................................................................ 23

4. Highlighted Transactions ................................................................................................................................................................... 24

Precision Castparts Corp. Acquires Aerospace Dynamics ............................................................................................................. 24

Alliant Techsystems Inc. Merges with Orbital Sciences Corp. ........................................................................................................ 25

CobhamplcAcquiresAeroflexHoldingCorp. ................................................................................................................................ 27

Engility to Acquire TASC from KKR and General Atlantic ............................................................................................................. 29

5. Highlighted Platforms ........................................................................................................................................................................ 31

Bombardier CSeries ..................................................................................................................................................................... 31

TerminalHighAltitudeAreaDefense(THAAD). ............................................................................................................................. 33

NorthropGrummanGlobalHawk .................................................................................................................................................. 35

Airbus A320neo ............................................................................................................................................................................ 37

6. About M&A International Inc. .............................................................................................................................................................. 39

7. Recent Transactions Closed by M&A International Inc.’s Specialists .............................................................................................. 40

8. Main M&A International Inc. Aerospace & Defense Specialists ........................................................................................................ 42


1IntroductionAEROSPACE & DEFENSE REPORT

Introduction

The aerospace and defense industry is undergoing major structural change, driven by increased globalization, rapid consolida-tion and continued pricing pressures. While commercial aerospace orders, deliver-ies and backlog remain at historic highs,defense budgets are under considerable downward pressure. While the commercial aerospace sector is seeing the introduc-tion of new platforms and programs (787-10, 777X, 757 replacement, etc.), certaindefense platforms and programs face the

risk of either cancellation or curtailment(C-17,A-10,F-16,U-2,etc.).Thesetrends,discussed in thefirstsectionof this report,will provide a basis for the analysis in the second and third sections regarding the resurgence in M&A deal activity and rising valuations. This report also includes brief, regional aerospace & defense updates from ourlocalexperts.

Excellent Time to Sell

“As 2014 has come to a close, we wanted to share some high level thoughts on dealvaluationsandkeytrendswithintheAerospace&Defense(A&D)industry.

Businesses continue to trade at exceptionally high valuations. A combination of high stock prices, lowinterest rates, lite covenants, pent-up demand for deals, excess cash oncorporate balance sheets, private equity overhang, improving fundamentals, amongst other factors, has contributed to a valuation environment that is very strong. Competition among buyers to acquire certain key strategicbusinesses has at times been intense. Notwithstanding near-term bullish forecasts, the A&D industry is undergoing major structural change. It is our belief that business owners shouldnotoverlooktheimpactofthesestructural changes on the future survival and prosperity of their businesses. A careful assessment of one’s financialand strategic objectives is as timely today as it has ever been.

Bottom line: From a valuationperspective, there has rarely been a better time for an A&D business owner to sell than the present. Our A&D Group brings extensive industry expertise,buyerknowledgeandanunderstandingof specialized issues facing A&D business owners and companies.”

Stephen PerryHead of M&A International Inc.’sAerospace & Defense Group


Aerospace & Defense Industry TrendsAEROSPACE & DEFENSE REPORT 2

Figure 1: Cumulative Deliveries Value (US$b)

Commercial aircraft original equipment manufacturers (OEMs) are expected toamassover36,000deliveriesinthenext20years, including the development of new ver-sions and upgrades, such as Boeing’s 777X and Airbus’ A320neo. Over 25,000 of these deliveries, valued cumulatively at US$2.6trillion, consist of single-aisle aircraft. Me-diumwide-body (US$1.2 trillion)andsmall

wide-body (US$1.1 trillion) aircraft rank adistant second and third, respectively, for deliveries over the next 20 years. Newerandupgradedaircraftareexpectedtooper-ate at increased range, reduced noise, in-creased engine power and lower operating cost.Emergingmarkets, suchasAsiaandthe Middle East, are expected to receiveover 50% of projected deliveries through

2033. Airbus’ A320neo and Boeing’s 737 MAX are expected to rank as the two topcommercial aircraft for cumulative delivery value between 2014 and 2023. LockheedMartin’sF-35isforecastedtobeinthetopfive for cumulative delivery value between2014and2023,withfighteraircraftdemandprimarily driven by the need to replace ag-ingF-18andF-16aircraftfleets.

Airbus A320neo

Boeing 737 MAX

Boeing 787

Airbus A350XWB

Lockheed F-35

Boeing 777

Airbus A330

Bombardier Global

Boeing 777-X

Airbus A380

Embraer E-Jets

Gulfstream 650

Airbus A400M

Sikorsky H-60

Boeing 747

Boeing 767/KC-46

Gulfstream 550

Lockheed C-130J

Gulfstream 450/P42

Boeing AH-64

2014-2023 255 220 151 110 95 90 53 51 47 45 43 28 27 25 24 23 23 22 21 19

2004-2013 175 145 20 0 8 115 90 25 0 25 34 3 1 26 25 15 25 14 13 20

Airbus A320neo

Boeing 737 MAX

Boeing 787

Airbus A350XWB

Lockheed F-35

Boeing 777

Airbus A330

Bombardier Global

Boeing 777X

Airbus A380

Embraer E-Jets

Gulfstream 650

Airbus A400M

Sikorsky H-60

Boeing 747

Boeing 767/KC-46

Gulfstream 550

Lockheed C-130J

Gulfstream 450/P42

Boeing AH-64

$0 $30 $60 $90 $120 $150 $180 $210 $240 $270

2014-2023 2004-2013

Source: Teal Group Corporation; data as of 2014



Figure 2: Commercial Aircraft 2014-2033 Forecast by Region

Figure 3: Commercial Aircraft Deliveries 2014-2033

Source: Boeing

Source: Boeing

37 20 20 8 8 4 3 3 3 2 2 2 2 2 2 12

3%4%

8%

8%

20%

20%

37%

Asia-Pacific

Europe

North America

Latin America

Middle East

C.I.S.

Africa

36,770Total

Deliveries

Regional Jets: 6%

Single-Aisle: 70%

Small Wide-Body: 13%

Medium Wide-Body: 9%

Large Wide-Body: 2%

Average Deal Value

2,490 25,680 4,520 3,460 620

Regional Jets: 6% Single-Aisle: 70% Small Wide-Body: 13% Medium Wide-Body: 9% Large Wide-Body: 2%

6203,4604,520

25,680

2,490

Regional Jets 6%

Regional Jets: 2%

Single-Aisle: 47%

Small Wide-Body: 23%

Medium Wide-Body: 23%

Large Wide-Body: 6%

Average Deal Value

100 2.560 1.140 1.160 240

Regional Jets: 2% Single-Aisle: 47% Small Wide-Body: 23% Medium Wide-Body: 23% Large Wide-Body: 6%

Regional Jets 6%

US$100b

US$2,560b

US$1,140b US$1,160b

US$240b

39 20 17 6 12 3 3

3%3%

12%

6%

17%

20%

39%

Asia-Pacific

Europe

North America

Latin America

Middle East

C.I.S.

Africa

US$5.2tTotal Value

# Aircraft

Dollar Value



Program Backlog

737NG 1,636

737 MAX 2,663

767 47

787 843

777 564

747 36

Total 5,789

Source:Boeing,Airbus,MarketResearch

Top Commercial Primes

Demand for commercial aircraft remains extremely strong. In some cases, orderbacklogs extend out 6-8 years at currentproduction rates. Boeing and Airbus accu-mulated record industry backlogs in 2014.The huge backlog reflects robust demandfor upgraded single-aisle aircraft, Airbus’ A320neo and Boeing’s 737 MAX.

Program Backlog

A320ceo 1,508

A320neo 3,621

A330 313

A350 779

A380 165

Total 6,386

RecordTotalBacklog

12,175Airbus/Boeing Combined

Platform H2

2011 H1

2012 H2

2012 H1

2013 H2

2013 H1

2014 H2

2014 Forecast

737 31.5 35 35 38 38 42 42Plans to increase the monthly production rate to 47 beginning in 2017

747 1.5 1.5 2 2 2 1.5 1.5Plans to further reduce the monthly production rate to 1.5 fromFeb2014throughtheendof2015

767 2 2 2 2 1 1.5 1.5Expectstoincreasethemonthlyproductionrateto2in2016

777 7 7 7 8.3 8.3 8.3 8.3 First777Xdeliveryexpectedin2020

787 2.5 3.5 5 7 7 10 10Plans to increase the monthly production rate to 12 in 2016 and 14 by 2020

Source:Boeing,MarketResearch

Boeing recently announced plans to ramp up production of the 737 aircraft from 42 per month to 47 per month beginning in 2017, claiming globaldemandsupportsmoreofthesefuel-efficientplanes.Thereductionin747outputfrom2permonthto1.5permonthreflectsaslowerrecoveryinthecargomarketthanthecompanyanticipated.Monthlybuildratesofthe767modelroseslightlyhigherfrom1permonthto1.5 per month in order to respond to increased demand. 777 aircraft production increased from 7 per month to 8.3 per month as the 777X nears its debut. In spite of early problems, Boeing’s 787 Dreamliner production has risen steadily from 7 per month to 10 per month and is expectedtocontinuegrowing.

Figure 4: Boeing Monthly Build Rate



Platform H2

2011 H1

2012 H2

2012 H1

2013 H2

2013 H1

2014 H2

2014 Forecast

A320 38 40 40 42 42 42 42Monthlybuildrateof44expectedbyQ12016followedbyanother increase to 46 in the following quarter

A330 8.5 9 9.5 10 10 10 10Plans to maintain the current monthly production rate of 10 at least through 2015

A350 N/A N/A N/A N/A N/A N/A N/ACurrentlyinearlyproduction(firstdeliveryforlaunchcustomerQatarAirwaysexpectedH22014);planstoreach a monthly build rate of 10 by 2018

A380 2 2 2 2 2 2 2.7Stabilizedandrefinedproductionprocessin2013;plansto deliver 30 A380s in 2014, approaching a build rate of 3

Source:Airbus,MarketResearch

TheA320neoleadsthechargefortheAirbusfleet,anditsproductionincreasefrom40permonthto42permonthcarriesintonextyearandbeyond.ThecompanyplanstomaintainthecurrentrecordlevelsofA330outputof10permonthoverthenext6yearstoaccommodateanexpectedflatmarket.AirbusexpectsitsA350modeltoreachmonthlybuildratesof10by2018,butitcurrentlyremainsintheearlyproduc-tionstage.FortheA380,thecompanyplanstokeepproductionratesflatinthelightofrecentmonthsofrelaxeddemand.

Figure 5: Airbus Monthly Build Rate

Figure 6: Aircraft Demand Drivers

$0

$20

$40

$60

$80

$100

$120

$14014%

12%

10%

8%

6%

4%

2%

0%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

3-M

onth

LIB

OR

3-Month London Interbank Offered Rate (LIBOR), based on US$

Dol

lar p

er B

arre

l

Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

Oil Prices

Interest Rates

Source: www.eia.gov



The recent decline in oil prices jeopardizes the longest boom cycle for commercial air-craftmakersinthejetage.Theupswinginjetorders, which began before, and was largely unaffected by the 2008 financial crisis, hasbeen driven in large part by two factors: falling interest rates and climbing oil prices. Abundant and inexpensive capital providedairlineswithanarrayoffinancingoptionsto

modernizetheirfleets.Furthermore,highsus-tained oil prices have precipitated demand for more fuel-efficient aircraft. The unprec-edented demand has led to the monumental current combined backlog of over 12,000unfilled orders for Boeing and Airbus, val-uedatapproximatelyUS$2 trillion.Backlogorders are, however, susceptible to delays/deferralswith oil becoming less expensive.

Cheaper fuel reduces demand for more fuel-efficientaircraft.Thoughlowerfuelbillsmaylessen the operating cost advantages of new planes, the duration of the current global sup-ply and demand imbalance for oil remains to be seen and themore fuel-efficient aircraftarelikelytoleadtohugecostadvantagesinthe long-term.

2012 20222009 150 2752010 525 5502011 800 1.4002012 1.200 8002013 1.300 1.5002014 1.425 1.400

200

400

600

800

1,000

1,200

1,400

1,600

2009 2010 2011 2012 2013 2014

AirbusBoeing

Figure 7: Net New Orders of Aircraft Figure 8: Average Industry Fuel Costs

Source: Airbus, Boeing

YearAverage Price per Barrel of Crude (US$)

% of Operating

Cost

2003 28.8 14%

2004 38.3 17%

2005 54.5 22%

2006 65.1 26%

2007 73.0 27%

2008 99.0 33%

2009 62.0 26%

2010 79.4 26%

2011 111.2 28%

2012 111.8 30%

2013 108.8 30%

2014 101.4 29%

2015F 85.0 26%

Source: IATA Economics



US$1b

Figure 9: Commercial MRO

Source:Moog,ICF

Aircraftretirementagesdirectlyimpacttheaerospaceanddefenseindustry,inparticularthosecompaniesengagedinspares/aftermarketandmaintenance,repairandoverhaul(MRO).Currenttrendsdemonstrateaircraftfleetsareincreasinglyreachingthematurestageintheirlifecycle,whichwillleadtorisingspares/aftermarketandMROspending.

Commercial and Military MRO



5348

2865611000060523806948615855491848639077

0% 20% 40% 60% 80% 100%

77%

90%

63%

48%

18%

49%

55%

58%

61%

48%

69%

38%

52%

60%

100%

61%

65%

28%

48%

53%

N/A

N/A

N/A

Current % of Retirement Age

Source:UnitedStatesAirForce

Aircraft Type Number of Aircraft

Current Average Age

Age at Retirement

A-10 347 31 59

B-1 66 25 52

B-2 20 18 64

B-52 76 51 79

C/KC-135 417 51 84

C-130E 46 49 49

C-130H 268 26 N/A

C-130J 68 7 N/A

C-5A/C 59 41 68

C-5B/M 50 28 54

C-17 206 10 26

E-3 23 32 N/A

F-15A/C/D 250 29 42

F-15E 222 21 44

F-16C/D 1,023 22 36

F-16Blk30/32 317 25 43

F-16Blk40/42 395 22 40

F-16Blk50/52 245 18 37

F-22 166 6 34

KC-10 59 28 58

EC-130H 14 39 62

AC-130H 8 43 48

T-38 494 46 60

Figure 10: Military MRO (Age of Aircraft Fleet)



Figure 11: Global Defense Spending

Figure 12: Defense Spending

Source: SIPRI

Source: SIPRI, * SIPRI estimate

Developedcountries,suchas theUS,France,UK,GermanyandJapan,haveexhibitedonlyslight increases in theamountofnationalmilitaryexpenditurefrom2004to2013.Ontheotherhand,certaindevelopingcountries,suchasGeorgia,Ghana,Azerbaijan,Kazakhstan,AfghanistanandIraq,havesignificantlyincreasedtheirnationalmilitaryexpenditurefrom2004to2013bybetween3-6times.

US China* Russia* SaudiArabia France UK Germany Japan India South

Korea Italy

2013 Spending (US$b)

$640 $188 $87.8 $67 $61.2 $57.9 $48.8 $48.6 $47.4 $33.9 $32.7

% Change, 2004–13

12% 170% 108% 118% 6.4% 2.5% 3.8% 0.2% 46% 42% 26%

2013 Spending as a % of GDP

3.8% 2.0% 4.1% 9.3% 2.2% 2.3% 1.4% 1.0% 2.5% 2.8% 1.6%

Global Defense Spending


Aerospace & Defense Industry TrendsAEROSPACE & DEFENSE REPORT 2The United States’ defense spending de-creased significantly in recent years as aresultofeffortstoreducethenationaldefi-cit and the withdrawal of forces from Iraq. Despite budget sequestration, the UnitedStates remained the global leader in military expenditure in 2014, spending over threetimes more than the next leading nation,China. The subsequent top defense spend-erswereFrance,RussiaandSaudiArabia.

Saudi Arabia signed multiple prominent military contracts in recent years worth US$43.5 billionwith defense leaders Boe-ing, General Dynamics and Raytheon. This ultimately led to them becoming one of the topfivecountriesforglobaldefensespend-ing. Other countries that spent considerable amounts on military equipment over the past few years include Australia, Brazil, India, SouthKoreaandtheUnitedArabEmirates.

Figure 13: Military Spending

Rest of the World:Top 10 Foreign Military Spending

28 13 10 9 9 7 7 7 5 5

United States

28 13 10 9 9 7 7 7 5 5

5%5%

7%

7%

7%

9%9%

10%

13%

28% China*

Russia*

Saudi Arabia

France

UK

Germany

Japan

India

South Korea

Italy

US$705bUS$640b

US Military Spending

 

 

 

  

 

 

 

 

 

 

   

  

 

 

 

 

 

 

Sum of select recent notable

contracts shown

Figure 14: Military Contracts

Source:DefenseSecurityCorporation,MarketResearch

Source: SIPRI, * SIPRI estimate


3Aerospace & Defense M&A ActivityAEROSPACE & DEFENSE REPORT

Consolidation

Seeking to increase margins and marketshare, leading tier 1 companies continue to search for opportunities to merge with/acquire strategic targets. 2014 had one of the largest total disclosed values over the pastfiveyears,drivenbymergersofpubliccompanies with combined enterprise values in the billions, an effect of consolidation.

The merger of Alliant Techsystems Inc. and Orbital Sciences Corporation was one of the largest mergers in 2014. This trans-action merged two prominent space and defense companies into one strategic, fully-integrated company with increased offerings and greater expertise. Another componentof aerospace and defense consolidation has been divestitures by public companies of less strategic divisions post transaction, such as United Technologies Corporation’sdivestiture of certain Goodrich assets.

Aerostructures

Flight Controls

A&D Electronics

Environ. Control Systems

Wheels & Brakes

Nacelles & Reversers

Engines

Electrical Power & Distr.

Interiors

Landing Gear

Auxiliary Power Units

1. Priorität 0,11 0,18 0,22 0,26 0,27 0,32 0,38 0,29 0,5 0,48 0,82. Priorität 0,07 0,17 0,21 0,24 0,25 0,21 0,16 0,25 0,25 0,42 0,173. Priorität 0,82 0,65 0,57 0,5 0,48 0,47 0,46 0,46 0,25 0,1 0,03

Aerostructures

Flight Controls

A&D Electronics

Environ. Control Systems

Wheels & Brakes

Nacelles & Reversers

Engines

Electrical Power & Distr.

Interiors

Landing Gear

Auxiliary Power Units

0% 20% 40% 60% 80% 100%

3%

10%

25%

46%

46%

47%

48%

50%

57%

65%

82%

17%

42%

25%

25%

16%

21%

25%

24%

21%

17%

7%

80%

48%

50%

29%

38%

32%

27%

26%

22%

18%

11%

Supplier 1 Supplier 2 Others

Figure 15: Market Share

Source:ICFSH&E

A View From France

“TheA&DsectorhasbeenparticularlyactiveintermsofM&AactivityinFrancein2014withover30dealspubliclyannounced(dealsinvolvingatleastoneFrenchparty).Comparedto2013,thenumberofdealsisupby50%.Threemainstrategicdriverscanexplainthishighnumberoftransactions.

Ongoing consolidation among metal & cast parts players: The steep ramp up in aircraft deliveries by Airbusentailsincreasingcapitalneedsfortheentiresupplychain.Weakerorsmallerplayersencounteringdifficulties tomaintainproductionqualityor toaccessadequatefinancial resourcesoften resolve theseissues by joining a bigger and stronger player.

Acquisitions in the US and Canada are actively sought by Airbus’ suppliers. This is a way for them tofulfilladoublerequestfromAirbus:1)diversifyitscustomerbasebyacquiringsuppliersofBoeingandBombardier’sprogramsand2)increaseoperatingcostsinUS$,therebyreducingexposuretothe€/$rateriskasAirbusimplementsitspolicytogrowpaymentsinUS$toitsEuropeansuppliers.

Growing attention to innovation: 2014 has seen numerous funding initiatives for innovative projects inA&D,mainlyaroundUAVprojects,3Dprintingandlightweightcabinequipment.EnginemanufacturerSafran Group has also launched “Safran Corporate Venture,” its own private equity fund dedicated to innovation in engine technologies.

AllthesestrategicmovesarefacilitatedbythemucheasieraccesstofinancialresourcesprovidedbybankersandPEfunds.Afterbeingconsideredformanyyearsasanindustrythatwas“toorisky”or“tootechnical”,investorsnowseemtovaluethehighbarriers-to-entry,thecomfortofhavingabacklogofseveralyearsofactivity,and the implementationofambitiousgrowthstrategiesbyskilledCEOs. In this favorablecontext,thereisagoodchancethattheM&AactivityofFrenchA&Dplayerswillremainverydynamicinthecomingmonths.”

Raphael PetitAerospace & Defense SpecialistM&A International Inc.France



Select Acquisitions by Leading A&D Industry Players

ThetablesbelowdetailmergersandacquisitionsvaluedinexcessofUS$500millionmadebykeyaerospaceanddefensecompaniesinthe last 20 years.

Target Year Value (US$b)

RockwellDefense 1996 $3.2

McDonnell Douglas 1997 29.2

HughesSpace&Communications 2000 3.8

Jeppesen Sanderson 2000 1.5

Aviall 2006 2.1

Vought Operations in S. Carolina 2009 1.0

Argon ST 2010 0.8


Gulfstream Aerospace 1999 $5.5

GTE Government Systems Corp. 1999 1.1

PrimexTechnologies 2001 0.5

Motorola Integ Info Sys Group 2001 0.8

GM Defense 2003 1.1

Veridian Corporation 2003 1.6

Anteon International Corp. 2006 2.2

Jet Aviation Management 2008 2.2

AxsysTechnologies 2009 0.6

Vangent 2011 1.4


E-Systems 1995 $2.3

Chrysler Technologies 1996 0.5

TexasInstrumentsDefense 1997 3.0

Hughes Electronics Defense 1997 9.5


AlliedSignal 1999 $16.7

Pittway Corp. 2000 2.2

UniversalOilProducts 2005 0.8

Novar 2005 2.5

FirstTechnology 2006 0.7

Metrologic Instruments 2008 0.7

Sperian Protection 2010 1.4

EMS Technologies 2011 0.6

Intermec 2013 0.7


Grumman Corp. 1994 $2.2

Westinghouse Military & Elec Sys 1996 3.6

Logicon . Inc. 1997 1.4

Litton Industries –Avondale Industries

20011999

5.00.5

Newport News Shipbuilding 2001 2.5

TRW . Inc. –BDM International–LucasVarity

200219971999

14.3 1.18.0

EssexCorp. 2007 0.6


General Dynamics Military Aircraft 1992 $1.5

Martin Marietta Corp. –GE Aerospace

19941992

13.0 2.7

Loral Corp. –IBM Federal Systems

19961993

7 .61.6

COMSAT General Corp. 2000 2.6

ACSFederal 2003 0.7

*=includesacquisitionsunderUS$500m

Bold = mergerItalics = acquisition by company prior to being acquired/merged itself




Sundstrand Corp. 1999 $4.2

Chubb Security 2000 2.0

Kidde Limited 2005 4.2

RocketdynePropulsion&Power 2005 0.7

Initial Electronic Security Group 2006 1.2

GE Security 2008 1.8

Goodrich Corp. –Freedom Chemical Company–Coltec Industries–TRW Aeronautical Systems

2010199819982002

18.60.62.01.5


10LockheedMartinDivisions 1997 N/A

Raytheon Aircraft Integration Sys 2002 $1.1

VertexAerospace 2003 0.7

Titan Corp. 2005 2.7

Insight Technology 2010 0.6


Cessna Aircraft 1992 $0.6

UnitedIndustrialCorp. 2007 1.0

Beechcraft Corp. 2014 1.4

Target* Year Value (US$b)

MAG Aerospace Industries, Inc. 1998 $0.2

Intertechnique SAS 1999 0.4

C&D Zodiac, Inc. 2005 0.6

Polaris Pool Systems, Inc. (nka:ZodiacPoolCare,Inc.)

2005 0.3

SellGmbH 2010 0.3

+20sub-$100Morundisclosedacquisitionssince2002


SextantAvionique 1999 N/A

Racal Electronics 2000 2.2

DCNInt'l(minoritystake) 2007 1.0

Alcatel Critical Systems 2007 1.2


Marconi Selenia Communications S.p.A.(nka:SelexESS.p.A)

2002 $0,6

AgustaWestland 2004 1,9

SELEX Galileo 2007 0,5

DRS Technologies 2008 5,1


Snecma –Sopartech (Labinal)

20052000

7.6 1.1

Sagem 2005 N/A

SduIdentification 2008 0.6

GEHomelandProtection 2009 0.6

L-1 Identity Solutions 2011 1.6


Aérospatiale –Matra Hautes Technologies

20001999

N/AN/A

DaimlerChrysler Aerospace – Siemens Defense Electronics

20001998

N/AN/A

Construcciones Aeronáuticas 2000 N/A

Airbus S.A.S. 2006 3.5

Vector Aerospace Corp. 2011 0.7

Satair 2011 0.5


Siemens Plessey Electronics 1998 $0.5

GE, Marconi Electronics Systems – Tracor

19991998

12.7 1.3

LockheedMartinAerospaceElect. 2000 1.7

LockheedMartinControlSystems 2000 0.5

Alvis 2004 0.5

DigitalnetHoldings 2004 0.6

UnitedDefenseIndustries 2005 4.5

ArmorHoldings 2007 4.2

TenixDefence 2008 0.7

Detica Group 2008 1.1

*=includesacquisitionsunderUS$500m

Bold = mergerItalics = acquisition by company prior to being acquired/merged itself



European Joint Ventures

Joint ventures offer strategic advantages for all parties involved in the formation of the entity. European aerospace and defense companies that utilize joint ventures have combined as-sets in order to gain greater scale and strate-gically position themselves as global industry leaders. Recently, Airbus and Safran received approval from the European Union antitrustregulators to form a joint venture to consoli-date the satellite, space launcher and missile propulsion segments of both companies and create a large, specialized company that will serve the European community. The CEO of Airbus,FabriceBrégierstated,“Withthisjointventure, industry has made a strong state-ment and has assumed leadership to foster Europe’s autonomous access to space.”

Figure 16: European Joint Ventures

Source: Company reports

A View From the UK

25%

37.5%

37.5%21%

33%

46%50% 50%

ATR-600 SeriesATR 72-500 SeriesATR 42-500 Series

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Typhoon(EF-2000)– Tranche 1– Tranche 2– Tranche 3A

ASRAAMDiamondBack

Dual Mode BrimstoneLaser Guided Zuni

MeteorViper-E

“TheUKaerospacemarketisthesecondlargestglobally,aftertheUS,withmorethan3,000companies. TheUKdefenseindustryisacornerstoneoftheBritisheconomywithanindustryturnoverofmorethan £22billionayear.BelowarekeydriversoftheM&AtrendsintheUKA&Dindustry:

Civil aerospace - supply chain consolidation: In recent years we have witnessed an increase in mergers and acquisitions between companies operating in the same supply chain, rather than between directly competing businesses. With growing demand for higher commercial aircraft production rates, businesses arelookingtoincreasecapital,enhancehumanresourcecapabilitiesandexpandproductionfacilities,andmanyseeverticalintegrationasonewayofdoingthis.Lastyear,wesawUltraElectronicsHoldingsplcacquire ICE Corporation Inc., a specialist provider of aerospace electrical power management systems, in ordertoextenditscapabilitiesintheaerospacesector.Withgrowingpressureoncompaniestoincreaseproduction, bolstering capabilities through supply chain consolidation is increasingly favorable; however, thereisconcernoverhowthisstrategymaydampeninnovationascompanieslooktosellratherthaninvest.

Defense - reduced military spending: In the defense sector there are some more fundamental issues to overcome in terms of future defense spending and how M&A opportunities can be harnessed to help companies improve their current position. With reduced defense and military spending budgets now in place in Western economies, a number of defense companies are coming under increasing pressure to explorenewopportunities.DiversifyingintonewcommercialaviationmarketsisonestrategyandlastyearwesawCobhamacquireAeroflex,aproducerofcomponentsandsystemsforwirelesscommunications,andBAESystemsacquireSilverSky,anexpertproviderofcloudsecuritysolutions.

Similarly,companiesarealsolookingatotheremergingeconomiesthathavegrowingdefensebudgets,suchasIndiaandBrazil,astheyofferopportunities.Withpoliticalandregulatoryfactorscreatingacomplexindustry environment, M&A is not always a viable option and as a result joint ventures are growing in popularity.Oneexample is in India,whereonly13 Indiancompaniesare fully licensed tobidon IndiangovernmentdefensecontractsandseveraloftheseareactivelylookingforUKpartnerstoboostcapacityandcapabilitiestotakeontheselargecontracts.”

Philip BarkerAerospace & Defense SpecialistM&A International Inc.United Kingdom



Private Equity Group

Select Transactions

Company Sub-Sector Acq.

MB Aerospace Aero-Engine Components 2013

QuantumSpatial Software/ Gov’t Services 2013

Iron Data Software/ Gov’t Services 2011

Compusearch Software/ Gov’t Services 2010

Novetta Solutions Cybersecurity/ Gov’t Services 2010

LandmarkAviation FBO/MRO 2012

Booz Allen Hamilton

Management Consulting/ Gov’t Services

2008

Sequa Corporation Aerospace MRO and Metal Coating 2007

Wesco Aircraft Aerospace Distribution 2006

Aeronautical & GI Holdings

Aircraft and Naval Systems/ Sensors 2014

IMECO Ship MRO 2013

National Response Corporation

DiversifiedRegulatory/EmergencyServices

2012

Doss Aviation Military Aviation Training & Simulation 2011

BeyondTrust Software

Software/ Gov’t Services 2014

EMCORE, Space Photovoltaics Business

Space 2014

Anaren Microwave/RFComponentsandSubsystems

2013

CPI International Microwave/RF/PowerandControlSystems

2011

Private Equity

PrivateEquityacquisitionsandexitsaccount-ed for 26% and 10%, respectively, of all trans-actionsin2014.Oftheacquisitionsexecutedby private equity firms, 60% were add-onacquisitions for current portfolio companies. The most acquisitive firms of 2014 wereTrive Capital, Arlington Capital Partners and J.F. Lehman&Companywith five, four andthree transactions, respectively. A popular private equity strategy in 2012 and 2013 was to acquire strategic add-ons for current plat-forms,whereasnumerousPEfirms realizedinvestments in 2010 and 2011. This probably suggeststhatprivateequityfirmsarebuildingcurrent portfolios with the intention of realizing investmentsoverthenextseveralyears.

2010 22 46 292011 21 37 242012 34 14 24

2013 48 14 36

2014 39 25 27

0

10

20

30

40

50

60

2010 2011 2012 2013 2014

27

36

242429

25

1414

37

46

39

48

34

2122

Add-on Exit Platform

Figure 17: Private Equity Transactions by Type

Source:DacisDM&A,CapIQ

Source:CapIQ,Dacis,companywebsites

A View From Seattle

“The consolidation of 1st Tier Boeing suppliers has continued for the ongoing reasons of scale, diversification anddesire on the part of the OEM to deal with fewer suppliers and larger components. With many private 1st Tier companies having been acquired, the consolidation has moved into the 2nd Tier. Therefore, we are continuing to see significantstrategic transaction opportunities for both 1st and 2nd Tier suppliers. We expectthistocontinuewellinto2016.”

Scott Hardman Aerospace & Defense SpecialistM&A International Inc.United States, Seattle

Arlington Capital Partners



Global M&A

Since 2010, international deals have con-sistently accounted for 40%-45% of annual transactions. After a low point in 2012, in-ternational M&A rebounded with one of its strongest years. In 2014, international M&A successfully completed 103 transactions, with approximatelyUS$20billioninenterpriseval-ue, half of the total disclosed enterprise val-ues for the entire aerospace and defense in-dustry. In general, the number of international dealsoverthepastfiveyearshascorrelatedhighly with the total number of aerospace and defense transactions overall.

The average total enterprise value (TEV)/EBITDAmultipleover thefive-yearperiodof2010-2014 for theUK,Europe,MiddleEast/Africa, Canada and Asia-Pacific are 9.6x,9.8x,7.1x,8.9xand6.8x, respectively.Overthe same time frame, the top three targeted regions for acquisitions outside of the USwereEurope,theU.K.andCanada.

2010 2011 2012 2013 2014Average Deal Value

17,238 12,674 10,709 7,329 19,949No. of Deals 92 81 58 95 103

$0

$5

$10

$15

$20

$25

$30

0

20

40

60

80

100

120

2010 2011 2012 2013 2014

10395

58

8192

Tota

l Dis

clos

ed D

eal V

alue

(U

S$

billi

ons)

Num

ber o

f Tra

nsac

tions

Total Disclosed ValueNumber of Transactions

45 30 9 9 6 1

1%6%

9%

9%

30%

45%Europe

UK

Canada

Asia-Pacific

Mid East / Africa

Other Americas

Figure 18: International Transactions (2010-2014)

Figure 19: Acquisitions in Non U.S. Regions (2010-2014)



A View From Germany

“Today’smarketchallengeshavehadadirecteffectonM&Amarketactivityasentirevaluechainsarein the midst of a global restructuring. Suppliers at all tier levels have begun to realize that a presence on at least three continents is required in order to maintain a competitive position. Accordingly, there is global pressure for consolidation and collaborations, including potential equity partnerships, that will be increasingly importantgoing forward inorder to reachhigh-growth targets, to initiate/expandmarketaccessandtoacquirekeytechnologies.Especiallyagainstthebackgroundofdecliningdefensebudgets,furtherconsolidationspecificallyinthedefensesectorislongoverdue.Anycompaniesthathavenotyetapproached globalization in earnest should realize that “business as usual” is not an option.

A growing requirement to offer increasingly innovative products, such as multi-level products and servicesandnewtechnologies,requiresinvestmentsinR&D,HR,trainingandproduction.Forexample,stricter regulations and government requirements cause continuous pressure to innovate regarding fuelefficiencyandenvironmentalprotection.Tooffsetthesecosts,agrowingnumberofcompaniesaremoving towards flexible platformsandmodular design to permit economies of scale and transferringproduction activities to low-wage countries.”

Michael Thiele Aerospace & Defense SpecialistM&A International Inc.Germany



Following three years of declining deal vol-ume(273dealsin2010,206in2011and176in 2012),A&D transactionactivity pickedupin 2013 and 2014 with 215 and 256 deals, respectively(Figure20).

PublicmarketvaluationsforA&Dcompaniesare at their highest levels since before the 2008financialcrisis(Figure21).



Others Electricity T&D total09-4Q 31 24 55

10-1Q 45 33 78

10-2Q 40 17 57

10-3Q 37 28 65

10-4Q 46 27 73

11-1Q 30 21 51

11-2Q 35 23 58

11-3Q 25 11 36

11-4Q 32 29 61

12-1Q 14 22 36

12-2Q 24 19 43

12-3Q 16 18 34

12-4Q 24 39 63

13-1Q 17 32 49

13-2Q 15 38 53

13-3Q 16 32 48

13-4Q 30 37 67

14-1Q 29 30 59

14-2Q 24 50 74

14-3Q 10 41 51

14-4Q 18 54 72

0

20

40

60

80

100

09-4

Q

10-1

Q

10-2

Q

10-3

Q

10-4

Q

11-1

Q

11-2

Q

11-3

Q

11-4

Q

12-1

Q

12-2

Q

12-3

Q

12-4

Q

13-1

Q

13-2

Q

13-3

Q

13-4

Q

14-1

Q

14-2

Q

14-3

Q

14-4

Q

72

51

74

5967

4853

49

63

3443

36

61

36

5851

7365

57

78

55

54

41

5030

37

323832

39

1819

22

29

11

2321

272817

33

24

1810

24293016151724

1624

143225

353046

37404531

Disclosed Undisclosed

Others total09-4Q 3 6,610-1Q 8 8,6

10-2Q 11 9,0

10-3Q 12 11,5

10-4Q 13 10,9

11-1Q 10 10,0

11-2Q 11 9,3

11-3Q 8 10,2

11-4Q 7 9,3

12-1Q 6 9,4

12-2Q 7 9,1

12-3Q 5 7,3

12-4Q 7 8,7

13-1Q 3 7,5

13-2Q 4 9,0

13-3Q 5 12,1

13-4Q 9 13,8

14-1Q 8 10,1

14-2Q 4 13,8

14-3Q 3 7,5

14-4Q 6 9,3

0,0x

4,0x

8,0x

12,0x

16,0x

09-4

Q

10-1

Q

10-2

Q

10-3

Q

10-4

Q

11-1

Q

11-2

Q

11-3

Q

11-4

Q

12-1

Q

12-2

Q

12-3

Q

12-4

Q

13-1

Q

13-2

Q

13-3

Q

13-4

Q

14-1

Q

14-2

Q

14-3

Q

14-4

Q

9,3x

7,5x13,8x

10,1x13,8x

12,1x9,0x

7,5x

8,7x

7,3x

9,1x9,4x

9,3x10,2x

9,3x10,0x

10,9x11,5x

9,0x

8,6x

6,6x6

34

89

543

75

76781110

1312118

3

EBITDA Multiple Number of Deals with Reported TEV/EBITDA Multiples

C

M

Y

CM

MY

CY

CMY

K

chart_15.pdf 1 17/02/15 17:52

Figure 20: Number of A&D Transactions

Figure 21: EBITDA Multiples based on Publicly Traded Companies

N



Global M&A by Segment

After the low point in 2012 of 176 transactions andUS$20.1billion indisclosedA&Denter-prise values, 2014 amassed over US$41.5billion in total disclosed enterprise values on 256 transactions within the aerospace and defense industry. The increase in both the number of transactions and transaction vol-ume from 2012 to 2014 represents CAGRs of 13% and 27%, respectively. In 2014, 23 transactions were closed with an enterprise

valueofoverUS$250million.Ofthesedeals, 11hadavaluationofoverUS$1billion.

The most active Aerospace and Defense seg-mentsbydiscloseddealvaluesin2014(Fig-ure22) include:Engines&EngineSystems(US$7 billion), Satellite, Satellite Services&SpaceSystems (US$6.6 billion) andCyber-security,IntelligenceServicesandHomelandDefense (US$5 billion). Segments with thegreatestdealactivityin2014(Figure23)wereMachined & Cast Parts (38 transactions),

MRO&Logistics(34transactions)andGov-ernmentServices,ITServices&Software(29transactions). Controls & Systems (15.4x),Specialty Defense Systems & Services (13.4x)andAircraftInteriors(12.9x)generat-ed the highest TEV/EBITDA multiples in 2014. The top strategic acquirers in 2014 consisted ofamixof both commercial aerospaceanddefense primes, with Triumph Group leading the way with four transactions, followed by LockheedMartin,ZodiacAerospaceandBAESystems, with three transactions each.

Engines & Engine Systems 7.025Satellite, Satellite Services & Space Systems

6.611Cybersecurity, Intelligence Services & Homeland Defense 5.082

Machined & Cast Parts 3.983MRO & Logistics 3.946Defense Electronics 3.849Sensors & C4ISR 2.326Test & Measurement 1.700Specialty Defense Systems and Services 1.683

Electronics Manufacturing (EMS) & Harnessing 930

Aircraft Interiors 914Components & Subsystems 794Connectors 581Controls & Systems 419Government Services, IT Services and Software 385

Composites 292Land Systems 80Navy/Maritime 51Engineering and Project Management 25

Aerostructures 23Simulation & Training Systems 13Distribution – Unmanned Vehicles – Prime Defense Contractors –

Engines & Engine Systems

Satellite, Satellite Services & Space Systems

Cybersecurity, Intelligence Services & Homeland Defense

Machined & Cast Parts

MRO & Logistics

Defense Electronics

Sensors & C4ISR

Test & Measurement

Specialty Defense Systems and Services

Electronics Manufacturing (EMS) & Harnessing

Aircraft Interiors

Components & Subsystems

Connectors

Controls & Systems

Government Services, IT Services and Software

Composites

Land Systems

Navy/Maritime

Engineering and Project Management

Aerostructures

Simulation & Training Systems

Distribution

Unmanned Vehicles

Prime Defense Contractors

$0 $2,500 $5,000 $7,500 $10,000

$13

$23

$25

$51

$80

$292

$385

$419

$581

$794

$914

$930

$1,683

$1,700

$2,326

$3,849

$3,946

$3,983

$5,082

$6,611

$7,025

Total Disclosed Value(US$m)

Figure 22: Value of Disclosed Deals by Segment (2014)




A View from Cleveland

“We have seen the fortunes of a number of midwest manufacturing companies improve in the A&D sector. These companies include providers of products as diverse as jet and turboprop engines and components, aluminum structural aircraft components, aircraft braking systems, landing gear assemblies andcomponents,tanksandothermilitaryvehicles,heatexchangersformilitaryaircraftandvehicles,steelforarmor plating, etc. Thus, although Midwest A&D manufacturers do not generally manufacture products as exoticasanewF-35fighter,theyarebenefitingfromtheengineeringanddesignofmanylessglamorousitemsandthe“guts”ofthemoreexoticones.”

Mark A. FilippellAerospace & Defense Specialist M&A International Inc. United States, Cleveland

Machined & Cast Parts 38MRO & Logistics 34Government Services, IT Services and Software 29

Components & Subsystems 24Sensors & C4ISR 17Defense Electronics 16Specialty Defense Systems and Services 14

Controls & Systems 10Test & Measurement 8Simulation & Training Systems 8Engines & Engine Systems 7Cybersecurity, Intelligence Services and Homeland Defense 6

Composites 6Satellite, Satellite Services & Space Systems 6

Aircraft Interiors 6Land Systems 5Unmanned Vehicles 5Engineering and Project Management 4

Aerostructures 4Navy/Maritime 4Electronics Manufacturing (EMS) & Harnessing 2

Connectors 2Distribution 1Prime Defense Contractors -


MRO & Logistics

Government Services, IT Services and Software


Sensors & C4ISR

Defense Electronics


Controls & Systems

Test & Measurement



Cybersecurity, Intelligence Services and Homeland Defense

Composites

Satellite, Satellite Services & Space Systems

Aircraft Interiors

Land Systems

Unmanned Vehicles

Engineering and Project Management

Aerostructures

Navy/Maritime


Connectors

Distribution


0 10 20 30 40

1

2

2

4

4

4

5

5

6

6

6

6

7

8

8

10

14

16

17

24

29

34

38

Number of Deals

Figure 23: Volume of Deals by Segment (2014)




14-4Q 9.3 9.3 614-3Q 7.5 7.5 314-2Q 13.8 13.8 414-1Q 10.1 10.1 813-4Q 13.8 13.8 913-3Q 12.1 12.1 513-2Q 9.0 9.0 413-1Q 7.5 7.5 312-4Q 8.7 8.7 712-3Q 7.3 7.3 512-2Q 9.1 9.1 712-1Q 9.4 9.4 611-4Q 9.3 9.3 711-3Q 10.2 10.2 811-2Q 9.3 9.3 1111-1Q 10.0 10.0 1010-4Q 10.9 10.9 1310-3Q 11.5 11.5 1210-2Q 9.0 9.0 1110-1Q 8.6 8.6 809-4Q 6.6 6.6 314-4Q 9.3 9.3 6

14-4Q

14-3Q

14-2Q

14-1Q

13-4Q

13-3Q

13-2Q

13-1Q

12-4Q

12-3Q

12-2Q

12-1Q

11-4Q

11-3Q

11-2Q

11-1Q

10-4Q

10-3Q

10-2Q

10-1Q

09-4Q

0x 4x 8x 12x 16x

6.6x

8.6x

9.0x

11.5x

10.9x

10.0x

9.3x

10.2x

9.3x

9.4x

9.1x

7.3x

8.7x

7.5x

9.0x

12.1x

13.8x

10.1x

13.8x

7.5x

9.3x

7

9

9

12

11

10

9

10

9

9

9

7

9

8

9

12

14

10

14

8

9

Number of Deals with Reported TEV/EBITDA Multiples

6

3

4

8

9

5

4

3

7

5

7

6

7

8

11

10

13

12

11

8

3

6

TEV/EBITDA

6

3

4

8

9

5

4

3

7

5

7

6

7

8

11

10

13

12

11

8

3

6

Aerostructures 8.6 8.6 4Aircraft Interiors 12.9 12.9 2Components & Subsystems 8.7 8.7 3Composites 10.0 10.0 1Connectors 0.0 0.0Controls & Systems 15.4 15.4 2Cybersecurity. Intelligence Services and Homeland Defense 10.2 10.2 5

Defense Electronics 10.2 10.2 13Distribution 9.2 9.2 4Electronics Manufacturing (EMS) & Harnessing 7.2 7.2 1

Engineering and Project Management 11.7 11.7 2

Engines & Engine Systems 7.8 7.8 5Government Services. IT Services and Software 7.7 7.7 3

Land Systems 0.0 0.0Machined & Cast Parts 9.8 9.8 8MRO & Logistics 11.3 11.3 5Navy/Maritime 0.0 0.0Prime Defense Contractors 0.0 0.0Satellite. Satellite Services & Space Systems 7.9 7.9 5

Sensors & C4ISR 10.3 10.3 2Simulation & Training Systems 9.0 9.0 1Specialty Defense Systems and Services 13.4 13.4 4

Test & Measurement 11.5 11.5 3Unmanned Vehicles 9.7 9.7 1

Aerostructures

Aircraft Interiors


Composites

Connectors

Controls & Systems

Defense Electronics

Distribution


Land Systems


MRO & Logistics

Navy/Maritime


Sensors & C4ISR


Test & Measurement

Unmanned Vehicles

0x 5x 10x 15x 20x

9.7x

11.5x

13.4x

9.0x

10.3x

7.9x

11.3x

9.8x

7.7x

7.8x

11.7x

7.2x

9.2x

10.2x

10.2x

15.4x

10.0x

8.7x

12.9x

8.6x

10

12

13

9

10

8

11

10

8

8

12

7

9

10

10

15

10

9

13

9

Number of Deals with Reported TEV/EBITDA Multiples

TEV/EBITDA

4

2

3

1

2

5

13

4

1

2

5

3

8

5

5

2

1

4

3

1

Cybersecurity, Intelligence Servicesand Homeland Defense


Engineering & Project Management

Government Services, IT Servicesand Software

Satellite, Satellite Services and Space Systems


Figure 24: TEV/EBITDA All A&D Transaction Multiples by Quarter (Last 12+ Quarters)

Figure 25: TEV/EBITDA All A&D Transaction Multiples by Segment (Last 12+ Quarters)

Source:DacisDM&A,CapIQ Source:DacisDM&A,CapIQ

N

N



merged with

acquired

Defense M&A

Defense M&A activity continues to be adverse-ly impacted by the lingering effects of seques-tration. The total number of transactions de-creased from a high of 93 in 2010 to a low of 59 in 2014, representing a CAGR of -9% over the five-year span. From 2012 to 2014, defenseM&Aactivityremainedflat,withapproximately60 defense transactions per year. The defense sub-segment – cyber security, IT services and software development – has been able to gen-erateconsistentdealflow,withaCAGRof19%from 2012 to 2014. Due to the increased threat of compromised data and intelligence, along with theevents of theSonyhacking scandaland Edward Snowden, defense customers are ramping up security and data protection from outside threats. Defense primes are meeting the new security requirements through inter-nal research and development or by targeting smaller companies that specialize in data pro-tection as potential acquisitions.


25,4 26,1 25,1 22,5 23No. of Deals 93 73 59 63 59

0%

20%

40%

60%

80%

100%

0

10

20

30

40

50

60

70

80

90

100

2010 2011 2012 2013 2014

5963

59

73

93

Def

ense

Dea

ls a

s a

% o

f all

A&

D T

rans

actio

ns

Num

ber o

f Def

ense

M&

A Tr

ansa

ctio

ns

Defense Deals as a % of all A&D Transactions

Number of Defense Deals

Figure 26: Defense Transactions 2010-2014


Recent Notable Defense M&A Deals

Defense/Government

Hybrid A&D

acquired

Date Annc’d 5/20/14

TEV $1.5B

TEV/EBITDA 11.9x

acquired


TEV $1.5B

TEV/EBITDA 11.9x

acquired

acquired

Date Annc’dOct-2014

Date Annc’dJun-2014

TEV/EBITDA7.9x

TEV/EBITDA15.6x

PriceUS$1.1b

PriceUS$1.6b

acquired

acquired

Date Annc’dFeb-2014

Date Annc’dJun-2014

TEV/EBITDA8.6x

TEV/EBITDA15.6x

PriceUS$1.5b

PriceUS$1.6b

acquired

acquired

Date Annc’dMay-2014

Date Annc’dDec-2013

TEV/EBITDA11.9x

TEV/EBITDA0.3x

PriceUS$1.5b

PriceUS$1.4b

acquired


TEV $1.5B

TEV/EBITDA 11.9x

acquired


TEV $1.5B

TEV/EBITDA 11.9x

Date Annc’dApr-2014

Date Annc’dDec-2012

TEV/EBITDA23.1x

TEV/EBITDA8.5x

PriceUS$3.3b

PriceUS$4.3b

acquired

acquired

Date Annc’dOct-2014

Date Annc’dJan-2012

TEV/EBITDA17.0x

TEV/EBITDAn/a

PriceUS$1.0b

PriceUS$1.0b


4Highlighted TransactionsAEROSPACE & DEFENSE REPORT

Precision Castparts Corp. Acquires Aerospace Dynamics

Transaction Summary

On March 20, 2014, Precision Castparts Corp. (NYSE:PCP) announced it hasagreed to acquire the assets of Aerospace DynamicsInternational,Inc.(ADI)fromTheMarvin Group for US$625 million in cash.Subject to customary closing conditions and regulatoryapprovals, thetransaction isex-pected toclose in thefirstquarteroffiscalyear2015.Theacquisitionisexpectedtobeimmediately accretive to earnings, adding anestimated$0.10-$0.15toEPSinthefirstyear, assuming no synergies1. Precision Castparts will integrate ADI into its airframe products segment.

Aerospace Dynamics International (ADI) Overview

ADI is a tier-one supplier for the commercial and military aerospace industries. The Com-pany manufactures machined parts and specializes in large complex components,hard metal machining and critical assem-blies. Product offerings include structural airframes (e.g., bulkheads, caps, fittings,etc.),skinsandpanels(e.g.,barrelpanels,wing skins, fuselage structural webs) andmulti-spindle machining (e.g., wing ribs,landing gear beams, spars, etc.).ADI hasstrong positions across many platforms in-cluding the Boeing 737, 777 and 787 and the F-18 and F-3. However, its main cus-tomerisAirbus,withsignificantcontractsonthe A350 platform in particular.

The Company is California-based and em-ploysapproximately625peopleina310,000sq. ft. facility, with 50,000 sq. ft. of assembly space and 220,000 sq. ft. of manufacturing space. It operates over 45 spindles with ca-pabilities including3,4,5and6axishigh-speedverticalandhorizontalmilling,6axis

high-speed horizontal machine centers, CNCgantryprofilersandCNCturning.ADIutilizes raw materials, such as aluminum, monolithic-graphite, high-strength steels, titanium, stainless steel, inconel and invar.

Commentary

“ADI is an acquisition we have pursued for several years,” said Precision Castparts chairman and CEO Mark Donegan. “Theyhave invested in world-class facilities and developed large part capabilities that will expandouraerostructuresproductofferingand role on next-generation aircraft. ThePCC Aerostructures team, led by Andrew Masterman and Joe Snowden, will aggres-sively work with other PCC locations toprovide the fasteners, forgings and castings that ADI currently purchases on the outside, andlooktodriveadditionalopportunitiestooptimize capacity and cost decisions across our aerostructures businesses. ADI also adds another leverage point to our growing presence in Southern California.”

1 Marketresearch,estimatingADIsalesofUS$210mandEBITDAofUS$35m–US$40m

ADI Key Figures

Headquarters Valencia,CA,USA

Employees 625

Founded 1989

Revenue1 ~US$210m

EBITDA1 ~US$35m–US$40m

Deal Term Summary

Total Deal Value US$625m

Revenue Multiple1 ~3.0x

EBITDA Multiple1 ~15.6x–17.9x

AcquirerFinancing 100% Cash

ADI’s Management

John Cave President and CEO

ADI’s Capabilities

Machining, Assembly, Design Engineering, Program Management

ADI’s Select Products

A340WingRib,F-22NozzleSeal,F-18Bulkhead,C-5LandingGear,777HingeBeam,Lay-UpMandrel

Precision Castparts Strategic Rationale

Significant Synergies

Augments Exposure to High-Growth Commercial

Platforms

Seamless Integration

Benefits from Aerospace Dynamics

Precision Castparts will provide fasteners, forgings and castings to ADI, which currently sources these productsexternally,drivingcapacityoptimizationandcost reduction.

ADIhassignificantpresenceonnext-generationaircraft, such as the Airbus A350, which will add to PrecisionCastparts’currentdiminutiveUS$3mofshipset content on the program.

ADIisasingle-locationoperationincloseproximityto several of Precision Castparts’ plants in Southern California, allowing for simple integration post acquisition.

Deal Rationale



Alliant Techsystems Inc. Merges with Orbital Sciences Corp.

Transaction Summary

On April 28, 2014, the Board of Directors of AlliantTechsystemsInc.(NYSE:ATK)(ATK)approved the spinoff of ATK’s Sporting Group and the immediate merger of ATK’s Aerospace and Defense Groups with Orbital SciencesCorp.(NYSE:ORB)(Orbital).ATKshareholderswillown100%ofthetax-freespinoff of ATK’s Sporting Group. The new aerospace and defense company formed through the merger of equals will be owned bybothATK’s(53.8%)andOrbital’s(46.2%)shareholders. Both parties have certain termination rights requiring the terminating party to pay a termination fee of US$10million and reimburse expenses up to

US$10million. Pending customary closingconditions and regulatory approvals, the transaction isexpected toclosebefore theend of the calendar year.

Orbital ATK (NYSE:OA) Overview

The newly-formed Orbital ATK, Inc. (NYSE:OA), headquartered in Dulles, Vir-ginia, will be an industry leader, utilizing its advanced capabilities and continual innova-tion in an effort to support the ever-evolving aerospace and defense markets. Thecompany will employ 4,300 engineers and scientists, 7,400 manufacturing and operat-

ing specialists and 1,400 management and administration personnel in facilities span-ning 17 states and amassing over 19 million square feet. The leadership of Orbital ATK will consist of nine directors from Orbital and seven directors from ATK, with other remain-ingexecutivepositionsequitablyandevenlyselected from both companies. Orbital ATK will focus on growing and strengthening its position in the launch vehicle & propulsion systems, satellite & advanced systems, missile & defense electronics, armament systems & ammunition and aero structure & components segments, representing 25%, 22%, 18%, 22% and 13%, respectively, of revenue going forward.

Orbital ATK Key Figures

Headquarters Dulles,VA,USA

Employees 13

Revenue1 ~US$4.5b

EBITDA1 ~US$585m

Cash2 ~US$300m

Shares Outstanding2 ~US$60.5m

Deal Term Summary

Total Deal Value3 US$6,400m

Revenue Multiple3 1.4x

EBITDA Multiple3 11.1x

AcquirerFinancing: 100% Cash

Orbital ATK’s Management

RonFogleman(ATK) Board Chairman

DaveThompson(ORB) President and CEO

BlakeLarsen(ATK) COO

GarrettPierce(ORB) CFO

1 Consolidated Income Statement for 20132 ExpectedBalanceSheetatclose3 Represents combined value

25 22 22 18 13

13%

18%

22%

22%

25%

Launch Vehicles & Propulsion Systems

Satellites & Advanced Systems

Armament System & Ammunition

Missile System & Defense Electronics

Aerostructures & Components

U.S. Government

International & Commercial

73 27

27%73%

US Government


Consolidated 2013 Revenue Consolidated 2013 Sales Breakdown

Sales by Customer

U.S. Government


58 42

42%58%

Aerospace

Defense

Sales by Segment



Commentary

David W. Thompson commented: “This merger-of-equals combination of Orbital and ATK Aerospace and Defense brings to-gether two of the space and defense indus-try’s most innovative developers and cost-efficient manufacturers, who have workedclosely together for over 25 years. By build-ing on complementary technologies, prod-ucts and know-how and highly-compatiblecultures, the new Orbital ATK will deliver even more affordable space, defense and aviation systems to our existing custom-ers and be strongly positioned to expandinto adjacent areas.” ATK CEO Mark W.DeYoungsaid:“Wearebothfocusedonen-hancing thecapabilityofexistingcustomersystems by developing solutions that can be moreflexiblydeployedtosupporttheirmis-sion with enhanced cost-effectiveness. We alsoseesignificantopportunitiesforgrowthas new programs are initiated or begin to ramp up production.”

Strategic Rationale

Revenue Synergies

Cost Synergies

Organizational Integration

Benefits from the Merger

ThemergedcompanyexpectstogeneratebetweenUS$100m-US$200minrevenuesynergiesthroughimproved product offerings and strengthened customer relationships.

Expectedpre-taxcostsynergiesofUS$70m-US$100mthroughverticalandsupplychainintegration,workcenterre-balancingandSG&Areductions to be fully realized by 2016.

Similar cultural values and methodologies, along with deep relationships at all levels, should provide a seamless organizational integration.

Deal Rationale



Cobham plc Acquires Aeroflex Holding Corp.

Transaction Summary

On May 19, 2014, Cobham plc (Cobham)entered into a definitive agreement to ac-quireAeroflexHoldingCorp.(Aeroflex)withshareholdersreceivingUS$10.5pershareincash.CobhampaidUS$920milliontoshare-holdersandassumedAeroflex’sUS$540mil-lioninliabilities.Tohelpfinancethetransac-tion,CobhamagreedtoaUS$1,300millionsenior unsecured bridge loan facility from BankofAmerica,MerrillLynchInternationalLimited and The Royal Bank of Scotland.Cobham plans to integrateAeroflex into itsexistingAdvancedElectronic Solutions andCommunications & Connectivity divisions. The combined entity will generate annual costsynergiesofapproximatelyUS$85mil-lion stemming from complementary capabili-

ties, characteristics and customers. Cobham expects the transaction to be accretive toearnings beginning in year 2015. Cobham completed the acquisition of Aeroflex onSeptember 12, 2014.

Aeroflex Holding Corp. Overview

Sinceitsinceptionin1937,Aeroflexhasbeena global leader in providing radio frequency components, microwave integrated circuits, components and systems used in a variety of industries, including commercial space and avionics, commercial wireless commu-nications, medical, defense and energy. In 2013,theUSandEuropeaccountedfor75%ofAeroflex’stotalrevenue.Duringthesameperiod, 70% of revenue originated from the

higher-growth commercial segments, with no singlecustomeraccountingformorethansixpercent of total revenue. The Company cur-rently employs 2,600 employees, including 650 engineers, across 20 facilities located aroundtheworld.Aeroflexoperatesthroughtwomaindivisions:AeroflexMicroelectronicSolutionsandAeroflexTestSolutions.Micro-electronic Solutions offers an array of micro-electronics and specialty products through 11 facilities and 1,600 employees, amassing US$361millioninsalesfor2013.TestSolu-tions has 1,100 employees and occupies two primary facilities located in Wichita, Kansas, and Stevenage, United Kingdom. The divi-sion produces specialized test and measure-mentproducts,whichcontributed$286mil-lioninsalesin2013(43%oftotalrevenue).

Aeroflex Key Figures

Headquarters Plainview,NY,USA

Employees 2,6

Revenue1 US$639,9m

EBITDA1 US$122.5m

Cash2 US$47.5m

Deal Term Summary

Total Deal Value US$1,460m

Revenue Multiple1 2.3x


Aeroflex’s Management

Leonard Borow CEO

John Adamovich, Jr. CFO

1 LTM as of March 31, 20142 ExpectedBalanceSheetatclose


145.3 166.1 183.7 131.5 129.7No. of Deals 599.3 655.1 729.4 673.0 647.1

$0

$60

$120

$180

$240

$300

$0

$200

$400

$600

$800

$1,000

2009 2010 2011 2012 2013

$647.1$673.0$729.4$655.1$599.3

$129.7$131.5

$183.7$166.1$145.3$145.3

$166.1 $183.7

$131.5 $129.7

Adjusted EBITDARevenue

Rev

enue

(US

$)

Adj

uste

d E

BIT

DA

(US

$)

Key Aeroflex Customers

Aeroflex Historical Revenue & EBITDA (Adj.)



Commentary

Cobham’s Chief Executive Officer, BobMurphy, commented: “The acquisition of Aeroflexisabsolutelyalignedwithourstra-tegic objective to obtainmore exposure togrowing, commercially-oriented end mar-kets that increasingly demand more data,connectivity and bandwidth. The scale and complementary nature of the combination enables our two technology businesses to unlock significant synergy benefits togenerate increased shareholder value, while supporting our customers even more effectively. Bringing these two companies together further underpins our objective to deliver sustainable organic growth.”

Strategic Rationale

Strategic Fit

High-Quality Asset

Return on Capital


Both companies have similar styles of competition. Aeroflex’sexposuretogrowingcommercially-drivenendmarketswouldhaveasignificantimpactonCobham’s portfolio.

With over 70 years of developing its core capabilitieswithintheconnectivitysector,Aeroflexhas positioned itself as a primary supplier to an enduring customer base.

Within three years, the transaction will achieve a return that is greater than its cost of capital, assuminga9%post-taxweighted-averagecostof capital.

U.S. Government


59 41

41%59%

Defense

Commercial

2013 Cobham Pro Forma Sales Breakdown

End Market

U.S. Government


67 33

33% 67%

Connectivity

Other

Connectivity

Deal Rationale



Engility to Acquire TASC from KKR and General Atlantic

Transaction Summary

OnOctober28,2014,EngilityHoldings,Inc.(NYSE:EGL)(Engility)announcedtheyhaveentered into a definitive agreement to ac-quireTASC,Inc.(TASC)fromprivateinvest-ment firmsKKRandGeneralAtlantic in anall-stocktransactionvaluedatapproximatelyUS$1.1 billion, including the assumption ofnetdebtandthenetpresentvalueoftaxas-sets.TASCstockholders(i.e.,KKRandGen-eralAtlantic)will receive about 18.9millionsharesofEngility,representingapproximate-ly a 51%ownership stake in the combinedcompany on a pro forma, fully-diluted basis. Engility stockholders will receive a specialcashdividendofUS$11.40pershare,subjectto final adjustmentsat closing.The transac-tionisexpectedtocloseinthefirstquarterof

2015. While the acquisition forms a premier government services provider, the combined company will continue to serve customers un-der the Engility and TASC brands due to the strong name recognition in their respective markets.TASCCEOJohnHyneswillbecomethe COO of the combined company.

TASC Overview

Since its foundation in 1966, TASC has be-come a leading provider of high-end mission-critical systems and specialized services for the intelligence community,USDepartmentofDefenseandUScivilianandgovernmentagencies.In2009,duetotighteningconflict-of-interest rules for defense contractors, Northrop Grumman sold TASC to KKR and

General Atlantic for $1.7 billion. With over100 locations in the US and allied coun-tries, TASC employs approximately 4,000professionals, of which over 80% hold secu-rity clearances and 58% have top-secret or sensitive compartmented information (SCI)clearance. The company offers cybersecuri-ty, data analytics, enterprise transformation, intelligence missions and operations, ISR and systems engineering and integration, and principally serves the areas of aviation, countering weapons of mass destruction, geospatial intelligence, mobile applications, public safety and space. TASC has a particu-larly strong presence in the intelligence mar-ket,fromwhichitderives61%ofitsrevenue.Estimates for 2014 revenue and adjusted EBITDAareUS$1.1 billion andUS$90mil-lion, respectively.

TASC Key Figures

Headquarters Chantilly,VA,USA

Employees ~4,000

Revenue1 US$1,100m

Adj. EBITDA1 US$90m

Net Debt2 US$613m

FundedBacklog3 US$385m

Deal Term Summary

Total Deal Value US$1,100m

Revenue Multiple 1.0x


TASC Services

•Cyber Offerings•Enterprise Transformation•Integrated ISR•Data Analytics•Intelligence Missions and Operations•System Engineering and Integration

TASC’s Management

JohnHynes CEO

Wayne Rehberger CFO

1 EstimateforCY20142 Includesnetpresentvalueoftaxassets

1 As of 09/30/2014 4 Afteradjustingfor~US$370minnetpresentvalueofacquiredtaxassets

Key TASC Customers

U.S. Government


61 28 11

11%

28%

61%

Intelligence

Defense

Civil

U.S. Government


88 12

12%

88%

Prime Contracts

Subcontracts

TASC End Markets TASC Contract Mix

Source: Press releases, company websites, company presentations

CIA DIA FAA HomelandSecurity



Commentary

Engility’s CEO, Tony Smeraglinolo, com-mented, “We expect this transaction toaccelerate our growth strategy of broad-ening our capabilities, diversifying our customer base, adding substantial scale to our business and increasing our address-able market. TASC enhances Engility’sexisting broad service offerings by addingcapabilities in intelligence analysis, space systems architect analysis, cybersecurity, ISRoperations,etc.Together,weexpecttooffer customers an even more comprehen-sive suite of high-quality offerings to meet their evolving missions and affordability requirements.”

Strategic Rationale

Customer and End Market Diversification

Creates Substantial Revenue Opportunities

Cost Savings and Tax Attributes Significantly

Increase Cash Flow


• Highly-complementarycustomerfootprintsandlimited contract overlap.

• Engility’sstand-alonecustomermixincludes64%defense, 35% federal/civil and 1% intelligence; proforma,thecombinedentityhasadiversifiedmixof48%,24%and28%,respectively.

• Bringing Engility’s cost-effective model to TASC’s targetmarketscreatesthepotentialtoimproverecompete and new-bid win rates.

• Acquiring TASC also provides numerous new offerings to Engility’s services portfolio, as well as enhancing current capabilities.

• Withimprovedscale,US$35mincostsynergiesareexpectedtoberealizedbyyearend2016,witharunrateofUS$50mby2018.

• Additionally,TASChas~US$1.4boftaxattributes,allowingforutilizationoftaxassetsforthemaximumannualtaxshield.

Deal Rationale


5Highlighted PlatformsAEROSPACE & DEFENSE REPORT

Select Narrow-Body Jet Airliner Competitors Specifications

Platform Wingspan Length Range Seat Count Unit Cost (US$m)

Boeing 737 MAX 7

117’ 10” 110’ 5” 3,800nm 126-140 $85

Airbus A319neo

117’ 5” 111’ 0” 4,200nm 124-156 $94

Embraer E-195-E2

110’7” 136’ 2” 2,200nm 118-144 $60

Bombardier CSeries

Description

The CSeries is a new family of single-aisle, twin-jet aircraft currently under development and in production by Bombardier. The pro-gram launched in 2008 and competes in the 100-to149-seataircraftmarketagainstoth-er narrow-body, medium-range jet airliners, including the Boeing 737, Airbus A320 and Embraer 195. Bombardier aims to compete by delivering wide-body comfort, including high overhead bin-per-passenger capac-ity and upsized windows, seats and aisles, while simultaneously offering economic ad-vantages, such as reduced cash operating cost and fuel burn. The company projects the CSeries will have a lighter airframe,

15% cash operating cost and 20% fuel burn advantage compared with its Boeing and Airbus counterpart programs.

Two models are currently available for order: the CS100 and the larger CS300, designed for lower- and higher-density operations, respectively. The CS100 is currently in early production and test phases with expectedentry-into-service by the second half of 2015.ThreeCS100prototypeshaveflowntodate,includingitsmaidenflightinSeptember2013. The CS300, still under development, is expected to followwith entry-into-serviceapproximatelysixmonthsaftertheCS100.

Features

Advanced Structural Materials•Aluminum fuselage•Advanced composite empennage, rear

fuselage, nacelles and wings

Advanced Flight Deck and Avionics•LargeLCDdisplaysanddualflight

management system with RNP0.1 capability

•DualCursorControlDevices,datalinkwith full format printer, CAT IIIa autolandandfly-by-wirewithsidestickcontrols

•Optionalelectronicflightbag,CATIIIbcapability and head-up display

Pratt & Whitney PurePower® PW1500G Engine•World’shighestbypassratiocertified

turbofan•Double-digit fuel burn reduction,

50% noise reduction and reduced emissions

Economic Advantages•15% cash operating cost advantage•20% fuel burn advantage•Over 25% direct maintenance cost

advantage

Environmental Advantages•20% CO2 emissions advantage over

average•50%lessNOxemissions•255EPNdB;4xsmallernoisefootprint

Interior Flexibility and Comfort

•Upsizedstorage,windowsandseats•New Lavatories for Persons with

Reduced Mobility

Source: Airbus, Boeing, Bombardier, Embraer

Bombardier CSeries Specifications

Platform Wingspan Length Range Seat Count Unit Cost (US$m)

CS100 115’ 1” 114’ 9” 2,950nm 108-125 $62

CS300 115’ 1” 127’ 0” 2,950nm 130-160 $71



Recent Developments

In February, Bombardier announced a re-vised expenditure estimate for the CSeriesprogram from the original assessment of US$3.4billion toUS$4.4billion,asa resultof an extra US$750 million in tooling anddevelopment costs and US$300 million ininterest and borrowing. The news trailed the announcements in January, revealing six-to nine-month delays for entry-into-service for both the CS100 and CS300, as well as a 1,700 employee layoff in the Bombardier aerospace division. The announced delay marked the fourth time the program hasencountered postponement. In March, the company froze salaries of approximately38,000 non-unionized employees in efforts toachieveprofitmargintargetsinthefaceofcostly delays.

Increasing costs, layoffs, delays and slow orders have hindered the program, but it remains an integral part of Bombardier’s growth plan, as the company anticipates sales from the CSeries jets will nearly dou-ble annual company revenue by 2020. The company is targeting 300 firm orders with20 to 30 customers by entry-into-service and claimed a total of 182 orders with 17 customersbytheendof2013.InFebruary2014, Bombardier announced firm orderstotaling 201 and remained confident it willhit its target number by delivery date.

Others Electricity T&D totalRepubli 0 40 40 40Ilyushin Financ

0 32 32 32Lufthansa

30 0 30 0

LCI 3 17 20 17

Other 30 49 79 49

0

10

20

30

40

50

60

70

80 79

20

3032

40

49

1732

4030

3

30Num

ber o

f Airc

raft

Ord

ered

CS100 CS300

Republic Airways

Ilyushin Finance Co.

Lufthansa LCI Other

2008 2013 20141. Priorität 3.4 3.9 4.4

2008

2013

2014 US$4.4b

US$3.9b

US$3.4b


50 40 43 15 34No. of Deals 50 90 133 148 182

50 90 133 148 182

0

10

20

30

40

50

60

0

40

80

120

160

200

2009 2010 2011 2012 2013

182

148133

90

50 Ann

ual O

rder

s

Cum

ulat

ive

Ord

ers

CSeries Orders

Increasing Program Costs

Stagnant CSeries Orders



Terminal High Altitude Area Defense (THAAD)

Description

The shortcomings of the PAC-2 missile, as an anti-ballistic missile system, created a need for a new system and resulted in the creation of the Terminal High AltitudeArea Defense (THAAD) missile program.The THAAD program is a highly-mobileand deployable anti-ballistic missile system capable of intercepting ballistic missiles in-side or outside the atmosphere during the terminalphaseofflight.Thesystemutilizeshit-to-kill technology in the form of kineticenergy to eliminate incoming threats and remaining debris. The ability to accept in-formationfromotherexternalsources,suchas Aegis and satellites, and to coordinate with other missile systems increases the coverage area, providing augmented levels of effectiveness. The U.S. Army operatesthe THAAD system, the Missile DefenseAgencymanagesthesystemandLockheedMartin acts as the prime contractor and sys-tem integrator.

Components

Airframe: Single-stage unit utilizing a nose-mounted infrared (IR) seeker and a solid-fuel motor. The shroud assembly protects the IR seeker during flight and separatesonceoutsidetheatmosphere.Asahit-to-killvehicle,THAADdoesnotcarrynoremploya warhead.

Launch System: Missiles are housed in canistersmountedontherearofaOshkoshM1120HEMTT10-tontruck.Eachtruckcar-ries the payload capacity of eight THAADmissile rounds.

Electronics - Guidance: Initially, an inertial measurement unit and an integrated avion-icsprocessorprovidesflightcontrol for themissile. The combined systems provide missile guidance, navigation, control, data communication, event sequencing and pro-cessing functions. Once the shroud assem-bly disengages, THAAD uses an infraredsensor for terminal homing.

Specifications

Length 19ft.(5.8m)

MaxAltitude 95mi(150km)

MaxRange 125mi(200km)

MaxSpeed 1.7mi/s(2.8km/s)

Target Intercept Range

120mi(195km)

Target Intercept Altitude

90mi(145km)

Kill Mechanism Kinetic Kill Vehicle

Timeline of Development

2000 ContractawardedtoLockheedMartin

2006 Firstandsecondbatteriesawarded

2008 Firstbatteryactivation

2009 Second battery activation

2011 Third and fourth batteries awarded

2011 Firstinterceptordelivery

2011 FirstForeignMilitarySale(FMS)

2012 50th interceptor delivered

2012 Third battery activation

2014 2015 2016 2017 2018 2019 2020 2021 2022Average Deal Value

313.200.000 338.400.000 249.400.000 279.700.000 300.000.000 300.000.000 300.000.000 300.000.000 300.000.000No. of Deals 566 447 490 464 470 470 470 470 470

$0

$100

$200

$300

$400

$500

$600

2014 2015 2016 2017 2018 2019 2020 2021 2022

$470$470$470$470$470$464$490

$447

$566

Bud

get (

US

$m)

R&DProcurement

Budget



Electronics - Fire Control: In the initial stage,externalsources,suchassatellites,provide target cueing for the THAADmis-sile system. The system then uses internal processestotrack, identifyandassesstheproperimpactpointandkillapproach.Iftheinitialengagementisunsuccessful,THAADis designed to allow a second attempt.

Propulsion System: In the initial stage, the missile employs an Aerojet single-stage solid-fuel rocket motor and thrust vectorcontrols for propulsion and maneuvering. During the terminal phase and separation of shroud assembly, divert-and-attitude-con-trol-system (DACS)maneuvers the kill ve-hicle. DACS utilizes four divert thrusters to steer the missile to the point of interception.

THAAD Outlook

After years of development and testing, the THAADprogramheadstowardsfullprocure-ment. With THAAD’s unique skillset andcapabilities,THAADVicePresidentandPro-gramManageratLockheedMartin,MathewJoyce, continues “to see strong interest from aroundtheglobe.”InDecember2013,Lock-heedMartinreceivedanawardforaUS$3.9billion production contract. The contract will produce110 interceptors for theU.S.Army,along with interceptors and ground hardware fortheUAE.InJune2014,theSouthKoreanmilitarybegananalyzingTHAADanditsben-efitsinresponsetoheightenedtensionwithintheregion.TheTHAADmissiledefensesys-temcouldplayakeyroleinimprovingSouthKorea’s missile defense program and help alleviateconcernsbeforetheUStransitionscommand of the country’s wartime defense to South Korea.

Interceptor Production Forecast

User 2014 2015 2016 2017 2018 2019 2020 2021

U.S. Army 27 42 36 36 36 36 36 36

Foreign 0 0 25 25 25 25 25 25

Total 27 42 61 61 61 61 61 61

Source:MarketResearch



Northrop Grumman Global Hawk

Description

The Global Hawk is a high-altitude, long-endurance unmanned aerial vehicle (UAV)with intelligence, surveillance and reconnais-sance (ISR) capabilities. Primarily used bytheU.S.AirForceandNavyforavarietyofoperations,includingpeacekeepingmissionsandfull-scalecombat,theGlobalHawkisde-signed to provide military commanders with near real-time ISR and detection of moving targets over a large geographical area for battle management, targeting and situational awareness. With Northrop Grumman as the prime contractor, the platform entered devel-opment and limited production in 2001 with theRQ-4Amodel. In 2011, theRQ-4Awasretired as the next generation RQ-4B wasdeveloped, featuring enhanced open-system architecture, increased AC power for sen-sors, longer wingspan and fuselage, larger payload capacity, improved fuel capacity and increasedgross takeoffweight.TheRQ-4Bisproducedinthreeconfigurations:Block20,30 and 40.

Global Hawk’s Battle With the U-2

The U-2 is a one-manned, ultra-high- altitude reconnaissance aircraft manufac-tured by Lockheed Martin and primarily operatedbytheU.S.AirForceandtheCen-tral Intelligence Agency. Although it is over 50 years old, the aircraft has been upgraded with key sensors, including electro-optical/infrared cameras, radar and signals intel-ligence antennas in the past 15 years, pro-vidinganalternativetotheGlobalHawkforhigh-altitude ISR missions. While the Global Hawk possesses greater endurance andrange, theU-2hasgreaterpayloadcapac-ity and can reach higher altitudes, enabling moreslantrangeforsensors.TheU-2hasadditional capabilities, such as anti-icing and defensive systems, not found on the GlobalHawk.

Global Hawk Supply Chain

SupplierSystem/ Subassembly

Aurora Flight Sciences

Graphite Composite Empennage

Curtiss Wright FlightControlComputer

GE Aviation 25 KVA Generator andFlightControlActuators

Goodrich ElectricalBrakingSystem

Héroux-Devtek Landing Gear

Honeywell Environmental Control System

L-3 Communications

Integrated Communications System

Parker Hannifin FuelSubsystemComponents

Raytheon Integrated Sensor Suite

Rolls-Royce AE3007HTurbofan Engine

Sierra Nevada Corp.

GPS and SCAT-1 Receiver

Triumph Group Graphite Composite Wing

U.S. Government


65 35 11

35% 65%

U.S. Government


41 59 11

59%

41%

R&D

Procurement

Program Summary

US$9,874m Total Program Cost to Date

US$489mFunding Needed to Complete

45 Total UnitsUS$219.4mPerUnit

Prim

eFunding

Overview(1)

Qty.(1)

1 As of August 2013

Source:U.S.GovernmentAccountabilityOffice,NorthropGrumman,LockheedMartin,MarketResearch



The tightening defense budget forced the U.S.militarytochoosebetweentheU-2andGlobal Hawk as the primary high-altitudeISR program, resulting in a seesaw of events overthepastfewyears.In2012,theU.S.AirForceintendedtoterminatetheGlobalHawk;however, on March 4, 2014, it reversed its positioninitsFY2015budgetproposal,call-ingforprocurementofBlock30sandretire-mentof theentireU-2fleet.Thereversal isprimarily attributable to the program reduc-ing the Global Hawk’s cost per flying hour(CPFH) to US$24,000, 25% less than theU-2’sCPFH.TheGlobalHawkalsobenefit-ted from support from Congress, in part due to aggressive lobbying by Northrop Grum-manonCapitolHill.TheU.S.AirForceplanstodevelopandinstallU-2sensors(e.g.,theSYERS-2Acamera)andotherequipmentontheGlobalHawk, as theplatformstill lacksnumerousU-2capabilities.

Recent Developments

OnSeptember15,2014,theU.S.AirForceannounced it was awarding Northrop Grum-manaUS$354millionfirmfixed-pricecon-tract for threeGlobalHawkBlock30s.TheUAVsarescheduledtobedeliveredin2017andwillexpandtheU.S.AirForce’sGlobalHawk fleet to a total of 37 aircraft, 21 ofwhichwill beBlock 30 configurations.Thecontractalsoincludestheretrofitoftwoex-istingU.S.AirForceBlock30swithairbornesignalsintelligencepayload(ASIP)sensorsto support advanced ISR data collections. TheASIPretrofitkitsarescheduledforde-livery in late 2016 and 2017. In March 2014, South Korea announced plans to purchase fourGlobalHawksthroughtheU.S.ForeignMilitary Sales program for approximatelyUS$815million,withthefirstdeliverydueby2018.According toMickJaggers,NorthropGrumman’sGlobalHawkprogrammanager,the prime intends to develop a single model oftheUAVwithauniversalpayloadadapter,capable of carrying a variety of sensors. A single-configuration fleet with modularcapability will enable the Global Hawk toperform diverse missions requiring varying sensor systems.

Global Hawk and U-2 Specifications

Platform Wingspan LengthGross

Takeoff Weight

PayloadMaximum Altitude

Ferry Range

Maximum Endur-ance

Defense System

Global Hawk Block 20/30/40

131 ft 48 ft 32,250 lbs 3,000 lbs >60,000 ft 12,300 nm 36 hours No

U-2S 103 ft 63 ft 40,000 lbs 5,000 lbs 70,000 ft >7,000 nm 12 hours Yes

Source:NorthropGrumman,LockheedMartin

Global Hawk and U-2 Budget Battle: Timeline of Events

Jan 2012

U.S.AirForcesubmitsproposaltocancelBlock30 procurement and retire currentGlobalHawkfleetduetohighcostandinadequate performance.

Sep 2012

Congress withdraws US$544mappropriatedforBlock30inprioryearsbutmaintainsUS$260mbudgetforFY2013tocontinueBlock30operations.

Feb 2013

U.S.AirForcecontemplatesproposing termination of Block40.

Sep 2013

Congress terminates procurementofBlock30sinFY2014budget.

Mar 2014

U.S.AirForcerequestsforprocurementofBlock30s,retirementofU-2fleetandinvestment funds to ensure Block30viabilitybeyond2023andforBlock40development.



Airbus A320neo

Description

TheA320neo(newengineoption)isthelat-est of many product upgrades to the A320 Family of aircraft, which remains underdevelopment by Airbus. The upgrades of-fer greater fuel efficiency to the company’ssingle-aisle aircraft and replace the A320ceo (current engine option).As of today,Airbusoffers the efficiency improvement packagefor the A319, A320 and A321 models of the A320 Family. Incorporating both Sharkletwingtip devicesandnewmore fuel-efficientengines,theA320neoofferssignificantben-efits compared to today’sA320ceo, includ-ing reduced fuel burn, significantly reducednoise and lower operating costs.

Airbus currently offers the Pratt & Whitney’s PW1000GFamily andCFM International’sLEAP-X, high-bypass turbofan engines as the new engines available for customers to order.

TheA320neo has won over 3,250 firm or-ders from 63 customers since its launch in December 2010. Entry into service will start inQ42015withtheA320neo,tobefollowedby the A321neo and the A319neo.

Features

Two Engine Options•Pratt & Whitney PW1000G family•CFMInternationalLEAP-X

Pratt & Whitney PW 1000G•High-bypassgearedturbofanengine•ExclusiveengineforBombardierCSeries,MRJairlinersandIrkutMS-21

CFM International LEAP-X•High-bypassturbofanengine•CurrentlyunderdevelopmentbyCFM

International, a 50-50 joint venture betweenGEAviationoftheU.S.andSnecmaofFrance

Environmental Improvements•20% fuel burn advantage•NOx emissions 50% below CAEP/6•Aircraft noise up to 15dB below

Chapter 4

Environmental Advantages•14% lower cash operating costs•20% annual fuel savings•255EPNdB;4xsmallernoisefootprint

Competitive Edge

•8% lower fuel burn per seat and 12% per trip compared to the Boeing 737 MAX8

•A319neo has lower fuel burn per seat than the CS300 and with a high reliability and maturity at entry-into-service

Airbus A320neo Family Specifications

Platform Wingspan Length Range Seat CountUnit Cost (US$m)

A319neo 117’ 5” 111’ 0” 3,700nm 124-156 $94

A320neo 117’ 5” 123’ 3” 3,300nm 150-180 $103

A321neo 117’ 5” 146’ 0” 3,200nm 185-236 $121

Select Narrow-Body Aircraft Competitor Specifications

Platform Wingspan Length Range Seat CountUnit Cost (US$m)

Boeing 737 MAX 7

117’ 10” 110’ 5” 3,800nm 126-140 $85

Bombardier CS100

115’ 1” 114’ 9” 2,950nm 108-125 $62

Embraer E-195-E2

110’ 7” 136’ 2” 2,200nm 118-144 $60

Source: Airbus, Boeing, Bombardier, Embraer



Recent Developments

India-based airline IndiGo, a leading buyer of the A320neo, recently agreed in October to buy a record 250 A320neo aircraft to strengthen its fleetandbetter target India’shigh-growth market. The milestone repre-sents A320neo’s success relative to the competition.The737Max,Boeing’srivalup-gradepackage,receivedjustover2,500or-ders to date, well shy of the more than 3,250 orders that the A320neo received since its inception. Multiple sources indicate the A320neoboastsapproximately60%marketshare against its re-engined counterpart.

AnearlyupdatetotheA320neoFamilyistheintroduction of the longer-range A321neo, which will increase the aircraft’s range to approximately4,000nauticalmilesfromthe3,650 miles offered by the initial version of the plane. Airbus plans to position the plane asareplacementfortheagingfleetofBoe-ing’s 757 jetliners. An updated form of the A321neo is currently under development by Airbus,with theexpectationof securingor-ders for the aircraft in the near future.

Others Electricity T&D totalAerCap 175 25 200 25Air Asia 291 291Air Lease

31 79 110 79American

100 100 100EasyJet

100 100

IndiGo 160 20 180 20

Lion Air 109 65 174 65Lufthansa

60 40 100 40Norwegian

100 100

SMBC 110 110

0

100

200

300

Aer

Cap

/ILFC

Air

Asi

a

Air

Leas

e C

orpo

ratio

n

Am

eric

an A

irlin

es

Eas

yJet

Indi

Go

Lion

Air

Lufth

ansa

Nor

weg

ian

SM

BC

110100100

174180

100100110

291

200

40

65

20

10079

25

11010060

109

160

100

31

291

175

Num

ber o

f Airc

raft

Ord

ered

A321A320

A319neo

A320neo

A321neo

1. Priorität 49 2.579 734

A319neo

A320neo

A321neo 734

2,579

49

Orders from Top Customers

Orders by Platform

Source: Airbus


6About M&A International Inc.AEROSPACE & DEFENSE REPORT

Stephen Perry

HeadofM&AInternationalInc.’sAerospace & Defense Group [email protected]

M&A International Inc.’s M&A teams actively represent buyers and sellers in the aero-space & defense industry as well as those seekingtoraiseprivateequityanddebtcapi-tal.Wepossesssignificantsectorexpertise,industryrelationshipsandexperienceinsuc-cessfullyexecutingcomplextransactionsonbehalf of our clients.

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This report was prepared by Janes Capital Partners, one of our Aerospace & Defense specialistfirms.

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8Main M&A International Inc.

Aerospace & Defense Specialists

AEROSPACE & DEFENSE REPORT

Country Contact Email

AfricaSouthAfrica(Johannesburg) YaronZimbler [email protected]

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Europe/MENAFinland(Helsinki) ClaesvonHeiroth [email protected](Paris) Raphael Petit [email protected](Stuttgart) Michael Thiele [email protected](Milan) Michele Manetti [email protected](Turin) Davide Eugenio Milano [email protected](Berne) Juraj Janos [email protected](London) Brian Livingston [email protected](London) PhilipBarker [email protected]

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Establishedin1985,M&AInternationalInc.(www.mergers.net)offerstheunparalleled, global resources of over 650 M&A professionals operating ineverymajorfinancialcenterof theworld.Ourspecialist teamscoverevery industry sector and advise clients on acquisitions, divestitures and financing.We have closed over 1,400 transactions totalingmore thanUS$75billionintransactionvalueinthepastfiveyears.

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