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Tuesday
09Feb2010

Analysis of U.S. Defense Budget

DateTuesday, February 9, 2010 at 04:09
The Feb issue of the SPADE Investor newsletter has a good general analysis of the new U.S. defense budget. Overall the budget looks as strong as ever and should be received by the sector as highly positive for increased competition and generally increased spending.
Highlights (all stats come from SPADE Index):
  • Core defense budget (which excludes overseas CONOPS) will grow around $15B annually for the next 5 years
  • 2010 supplemental is $33B and 2011 has $159B for overseas operations
  • Time & materials and labor hour contracts will decrease 17% through 2011
  • SOCOM gets a 6% increase in spending (plus 2800 new personnel)
  • DA will add a 12th active duty brigade (a combat aviation brigade) in 2010 and another in 2015
  • M&A firm Houlihan Lokey says the 60 transactions completed in 2009 is likely to rise. 50 of those deals were sub-$100M. A confirmed shift from large "exquisite weapons programs" will surely fuel continued M&A as big firms continue to diversify into growth areas like cyberwarfare, UAV, and overall more technical services.

Much more coverage in the full issue, including mention of Sikorsky developing an unmanned Blackhawk, as well as earnings report coverage of all the majors and more.

AuthorDPM | Comments Off |
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Monday
08Feb2010

Opportunity or Crisis in Global Defense Budgets?

DateMonday, February 8, 2010 at 05:22
Frost & Sullivan's Aerospace and Defense Practice says that changes in acquisitions strategies combined with budget tightening will continue to change the landscape of global defense spending.
What does this mean?
  • Big program and equipment cuts put pressure on firms like Lockheed and Northrop, both down 40% on stock market value over the last 12 months.
  • R&D and new procurement budgets in the U.S. are off $100B from the 2008 peak
  • "traditional contractors will lose market share to 'disruptive companies' that offer good enough but not exceptional products."
  • Maintenance and technical services will continue to dominate the principal defense budgets.
As for opportunity, Frost & Sullivan Asia Pacific Consultant Kunal Sinha says:
Global companies are scooping up midsized companies in these areas, as was evident in the buyout of Axsys systems by General Dynamics. Exports and Foreign sales are potential bright spot in the defense market. India is expected to spend USD100 billion on military procurement over the next decade. Saudi Arabia and other Middle East Countries are also increasing their defense spending.
AuthorDPM | Comments Off |
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Wednesday
27Jan2010

IBM Buys NISC from DC Capital 

DateWednesday, January 27, 2010 at 08:46

Forbes reports that IBM has purchased the National Interest Security Company (NISC) from DC Capital Partners. NISC specializes in mostly classified contracts helping intelligence organizations manage and secure data and information systems. When the deal closes during Q1 this year, DC Capital will realize $180M on its original investment of $19.6M less than 3 years ago.

The same article describes the NISC sale as particularly important win for former Veritas Capital founder Thomas Campbell, who left Veritas to found DC Capital after being squeezed out by then partner Robert McKeon. Campbell and McKeon led the 2005 buyout and subsequent IPO of DynCorp International. The former partners separated after Campbell was forced off the DynCorp board. See prior Defense Ventures article here.

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Tuesday
26Jan2010

Follow Up From Ranger Aerospace

DateTuesday, January 26, 2010 at 02:29

Following our post about recent acquisitions by Ranger Aerospace, CEO & founder Steve Townes sent me the following note:

Many thanks for your astute commentaries about Ranger Aerospace. We now have total capital in our Boardroom group of over $800 Million "available" for deals, so we are actively looking for more acquisitions and joint ventures.
Very best wishes for the New Year!
Steve Townes
Subsequent emails with Steve indicated that Ranger is interested in extending their diversification into Government Services, targeting acquisitions that complement Aviation Services and Heavy Vehicle MRO/RESET.

 

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Monday
04Jan2010

Background on CI Capital Partners and CoVant

DateMonday, January 4, 2010 at 07:41
CI Capital Partners LLC lists defense and government services as an area of investment focus. In 1996 CI Capital Partners acquired the company that became Anteon International Corporation for $47.5M, including a total of $32.5M in equity investment ($10M upfront and then $22.5M in 1999). Anteon provided IT and Engineering services to federal Government customers. CI grew revenues at Anteon from around $100M annual to $1.5B, with EBITDA around $140M. Anteon did an IPO in 2002 and then sold to General Dynamics in June 2006, for $2.2B (cash). 
On the heels of this exit, CI formed the firm CoVant with some former Anteon management, including CEO Joseph M. Kampf. CoVant's strategy would be to "make acquisitions of companies providing advanced solutions for the national defense, homeland security, information technology and government technology services markets." 
In 2008 CoVant bought A-T Solutions, which provides anti/counter terrorism services to the U.S. Government. But beyond that there isn't much else listed in their portfolio. GEN Shelton and GEN Kern (now President and COO of AM General) sit on CoVant's board. It will be interesting to see if their acquisitions pick up or not during 2010, and even more interesting if they can repeat the success of the Anteon investment.

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Tuesday
01Dec2009

Largest Defense Budget Ever Has Room for Small Business

DateTuesday, December 1, 2009 at 04:27

An article on ThomasNet outlines areas of opportunity for small businesses within the $680 billion 2010 U.S. defense budget. Shifting away from large programs like Future Combat Systems will increase focus on the military's science and technology investment strategy.

"As military research and development spending increasingly shifts toward newer technologies and more advanced systems, such as individualized communication and computing networks or reactive materials engineering for weapons and structures, more manufacturers — including small businesses — may soon be seeing the benefits of defense innovations."

As identified previously on Defense Ventures, the death of FCS has not eliminated the Army's need for better integrated communications reaching down to the small unit level. Obviously there are strong small business opportunities there, including direct particpation in military R&D programs. 

Somewhat less heralded but perhaps more intriguing will be the advanced materials sector. ThomasNet points to a Danger Room piece calling this a "reactive materials revolution."

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Friday
06Nov2009

Profile of J.F. Lehman & Company

DateFriday, November 6, 2009 at 11:35

Despite the wide net cast by our investigative resources (!), it is in fact possible for a relevant investment firm to go unnoticed and not have a dedicated Player Profile on this site. That situation has come to end for defense industry investor J.F. Lehman & Company.

Founded in 1992 by former Secretary of the Navy Dr. John F. Lehman, the firm “has pursued an exclusive and consistent focus on investing in lower middle market companies in the defense, aerospace and maritime industries and the technologies that originate from them.” They have invested $1.6B to date (according to their website) and have offices in DC and London.
 
Dr. Lehman came to found is firm after leading the aerospace & defense advisory practice at PaineWebber, and before the Secretary of the Navy post he was President of a consulting firm called Abington Corporation, which served the aerospace industry. Other prominent members of the team include Tig Krekel, former CEO of Hughes Space and Communications, and ex President of Boeing Satellite Systems. Retired General John P. Abizaid sits on the executive board, along with a fairly impressive list of others.
 
Some portfolio highlights:

(Yes, I did choose DVG as a highlighted portfolio company because of their very cool, and totally unrelated name).

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Wednesday
04Nov2009

John Hamre Joins Oshkosh Board

DateWednesday, November 4, 2009 at 06:36

John Hamre, Former Deputy Secretary of Defense (1997-2000) and current CEO of Center for Strategic & International Studies, will join the board of directors at Oshkosh Corp.

From their press release:

“We expect that his substantial international, political and economic background will enhance the direction our board provides for the corporation and our shareholders,” said Robert Bohn, Oshkosh chairman and CEO.

AuthorDPM | Comments Off |
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Tuesday
03Nov2009

KBR forced to cut Iraq workforce

DateTuesday, November 3, 2009 at 04:54

Provided without comment:

Audit: KBR must trim Iraq workforce or face fines

Ouch all around.

AuthorDPM | Comments Off |
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Tuesday
03Nov2009

Army Technology

DateTuesday, November 3, 2009 at 04:40

A friend of mine, who happens to work for Army Test and Evaluation Command, has helpfully pointed out that our Defense Technology report on Army Technology is officially out of date. He writes:

I noticed that your Army Technology section is based on FCS.  The FCS public website has been updated with info on the new Army Brigade Combat Team (BCT) Modernization strategy, which has replaced the FCS strategy.  It includes Ground Combat Vehicle (GCV), the new direction for what were the FCS manned ground vehicles (MGVs). Another useful reference for Army technology is the Army Science & Technology Master Plan (ASTMP), which is published biennially and is available through the Defense Technical Information Center (DTIC).

Check. I admit we are behind on updating the Army Technology portion of the website. I want this to be a major, central part of our content going forward so I am just planning how to attack this and developing the editorial plan. If anyone reading this would be interested in contributing content or even suggesting an idea on how to cover emerging Army/Soldier technology, please use the contact form to send me a note or post on the Defense Ventures network. One possibility is to find an analyst that could cover a major company in the sector, like maybe Oshkosh. Or of course multiple analysts/stocks. Not sure -- I am open to ideas if anyone has them to share. Thanks in advance.

AuthorDPM | Comments Off |
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