RG-33 variant
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The USA’s Mine-Resistant, Ambush Protected (MRAP) program has been a long road for BAE Systems. In the wake of the US Army’s belated realization that mine protection was critical for vehicles in theater, BAE’s designs, long-standing experience in the field, and production capacity had made them an early favorite. By June 20/07, however, contracts had been issued for 3,266 Category I patrol & Category II squad-sized MRAP vehicles, fully 42% of a the program’s planned 7,774 orders. Force Protection had racked up orders for 1,780 Cougar vehicles, and Navistar/Plasan Sasa had come out of the tests at Aberdeen with orders for 1,216 of its MaxxPro joint design. BAE sat in 4th place with orders for just 90 vehicles – 2.8% of the total. It had to be a humbling experience for the firm that went into 2004 as the world leader in the field.

BAE has worked hard to catch up, and recent contracts have put them solidly back into the competition, even as the number of MRAPs in the program has expanded. The latest orders widen their lead over 3rd place firm Force Protection, and make them one of just 2 firms with a foothold under the new MRAP-II qualifications. MRAP-II includes protection against EFP (explosively-formed projectile) land mines that fire the equivalent of a cannon shell at the vehicle, in addition to the standard underbody blasts. Meanwhile, BAE has added a new vehicle type to the family, and is receiving more SOCOM orders and an MRAP up-armoring contract…

• BAE MRAP: The Vehicles
• BAE MRAP: The Current Tally
• BAE MRAP: Contracts & Key Events [updated]
• Appendix A: MRAP Competition Half-Time Update, June 28/07
  
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In late 2007, European aerospace and defence giant said that they were looking to make at least 2 acquisitions in the American market, as part of a larger strategic plan they called “Vision 2020.” Buying PlantCML of Temecula, CA from Golden Gate Capital, a San Francisco-based private equity fund, for approximately $350 million appears to be the first step.

EADS has created a strong position for itself in the market for “professional mobile radios,” and are responsible for building several national law enforcement and first responder networks using TETRA technology. PlantCML complements these strengths by offering solutions that take advantage of this base, and handle back-end call/command center activities like call management and radio dispatch, emergency notification services, Computer Aided Dispatch (CAD) applications, and mapping services. These services can add to EADS offerings in Europe and beyond, while giving the firm a foothold for its full range of solutions in North America. PlantCML has U.S. operations in California, Alabama, Indiana, and Tennessee, and a Canadian operation in Quebec, and EADS’ release reports that PlantCML’s existing margins and profitability are strong.

Accoridng to this Forbes article, EADS’ Vision 2020 aims to have 20% of the firm’s employees and 40% of its sourcing outside Europe by 2020, with defense and homeland security revenues rising in proportion to Airbus revenues, and service revenues rising from 10% to 25%.

L-3 Communications has moved to buy Northrop Grumman’s Electro-Optical Systems (EOS) business for $175 million in cash. L-3 currently offers EO/IR (electro-optical/infrared) sensors, high-definition turrets, tactical sights and laser designators for air, land and sea applications. Northrop Grumman’s EOS’ portfolio is itself the result of absorbing multiple firms and includes night vision goggles, weapons sights, driver viewers, image intensification tubes and applied optics products. The sale should be completed in the second quarter of 2008, subject to standard regulatory approvals.

L-3 EO/IR, Inc. is a division of the L-3 Communications EO/IR Group, comprising: L-3 WESCAM (Canada); L-3 Sonoma EO; L-3 EO/IR, Inc.; and L-3 Broadcast Sports, Inc. In L-3’s words, “EO/IR, Inc. acts as a contracting agency to permit a select group of important U.S. customers to contract with L-3 WESCAM via a U.S. entity. EO/IR, Inc. also deals with all export controls and licensing issues for the EO/IR Group under the direction of L-3’s Washington Office. In addition, EO/IR, Inc. facilitates the pursuit of major U.S. Defense programs for both L-3 WESCAM and L-3 Sonoma EO.”

Northrop Grumman’s EOS business is headquartered in Garland, TX, and generated approximately $190 million of sales for the year ended Dec 31/07. L-3 expects the firm to be immediately accretive to its earnings, and James W. Dunn, president of L-3’s Sensors and Simulation Group, says that “Including EOS, L-3’s EO/IR businesses will generate approximately $800 million in annual sales, with growth exceeding 10%.” L-3 release | NGC release.

In late December 2007, BAE Systems signed a definitive agreement to sell its Surveillance and Attack business in Lansdale, PA to Cobham Defence Electronic Systems Corporation, for $240 million on a debt and cash free basis, payable on completion. The goodwill arising on completion is an allowable tax expense with an estimated net present value of $45 million, resulting in an effective price of $195 million. For the year ended Dec 31/06, BAE’s S&A division generated revenue of $91 million, and profits of $14 million, with gross assets of about $34 million as of Sept 30/07. The effective price represents a multiple of approximately 11.1×2006 EBITDA.

The cash transaction was expected to close in the first quarter of 2008, following receipt of regulatory approvals. That has now happened.

Lansdale’s 400 or so employees provide broadband high-power transmitter and radio frequency front-end systems for military aircraft….

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G6 SP Howitzer
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In September 2005, “South Africa’s Denel Forced Into Strategic Shift” examined the changed business landscape for the firm, which was suffering from the collapse of its domestic arms market as a source of guaranteed funding, and a flood of red ink on its balance sheet. The turnabout has been slow, but the firm’s leadership has made it clear that global alliances and sub-contractor status, with a prime role in its domestic market, is the way forward for them.

One of the product groups Denel has always been known for is its artillery systems, which may be the best in the world. Their accurate G6 155mm howitzers continue to outrange all competitors, and the base-bleed ammunition technology they pioneered has become a widespread option for countries looking to extend the range of their existing artillery systems. Industrial partnerships with Rheinmetall and Diehl BGT Defence of Germany have led to orders to supply Germany’s 155mm howitzer and 120mm mortar ammunition, and partnerships have also been explored with General Dynamics in the USA.

Despite their difficulties winning international sales with a superior product, Denel isn’t quite ready to give up its artillery system crown jewels just yet. On the ammunition front, however, business partner Rheinmetall’s move to combine the 2 firms’ customer coverage and technologies has met with a warmer reception…

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Vector Aerospace Corporation of Toronto, Canada has signed a definitive GBP 17 million (about $34 million) purchase and sale agreement with the British Secretary of State for Defence, through its that Vector Aerospace International Limited subsidiary. They will acquire the Defence Aviation and Repair Agency (DARA) Rotary Wing and Components businesses, adding its locations and workers to the firm’s existing facilities in Canada, the United States and the United Kingdom. Vector’s sites maintain various types of gas turbine engines, components and helicopter structures for commercial and military customers. According to the firm’s release, their goal is to create “a European centre of excellence in helicopter maintenance.”

Lynx repair, Iraq
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The UK deal adds the helicopter repair facilities located at Fleetlands, Portsmouth, which performs maintenance, repair and overhaul support for Chinook (CH-47), Lynx and Sea King helicopters; and the helicopter component and repair facilities located at Almondbank that serve a wider variety of helicopter platforms and customers. The transaction is expected to be completed during the first quarter of 2008.

Vector’s UK operation Sigma Aerospace, at Croydon, England, currently supports the RAF’s C-130 Hercules tactical transport and VC10 aerial tanker fleets. UK MoD release | Vector release [PDF] | Minister’s statement [PDF]

The small to mid-tier acquisition engine continues in the US defense industry. Fresh from its acquisition of BAE Systems’ Surveillance and Attack business in Lansdale, PA, British firm Cobham plc has reached agreement to purchase SPARTA Inc. for to $416 million on a debt and cash free basis. The acquisition is expected to complete in the second quarter of 2008, subject to regulatory and SPARTA shareholder approvals, and Cobham expects that the acquisition will be earnings enhancing in 2008.

The purchase price represents a 12.1x EBITDA multiple; SPARTA’s FY 2006 operating profit was $28.6 million on revenue of $297.3 million, with $122 million in gross assets. $381 million will be payable on completion and satisfied from Cobham’s existing cash and debt facilities. SPARTA an employee-owned US company which is SEC registered, but unquoted; the balance of up to $35 million will be paid over the next 3 years to holders of unvested options who remain with the company. Cobham plc release.

SPARTA, Inc. specializes in systems engineering, and has done a lot of work on missile defense projects, including Project Hercules. Subject to approvals, SPARTA will become a separate strategic business unit within Cobham’s North America Division. Cobham CEO Allan Cook sees SPARTA as providing: ”....an exciting platform for growth in the Systems Engineering and Technical Assistance segment, which is complementary to our existing US intelligence and defence capabilities. This is a major step forward in the implementation of Cobham’s technology strategy and the creation of a significant Tier 2 business supplying the US DoD and intelligence markets.”

Dextre: part of ISS
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Alliant Techsystems announced today that it has negotiated definitive agreements with Canadian-based MacDonald, Dettwiler and Associates to acquire its Information Systems and Geospatial Information Services businesses for C$1.325 billion (about $1.318 billion). MDA’s IS/GIS business has more than 1,900 employees and estimated FY 2009 revenues of approximately USD$ 500 million, and is a global leader in space-based radar systems, space robotics (the robotic arms for the NASA Space Shuttle and International Space Station are MDA products), satellite systems, and imaging satellite ground stations and processing; with additional world-class capabilities in satellite payloads, C4ISR, and geospatial services.

ATK’s rationale for the acquisition was straightforward:

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MU90 Eurotorp
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In December 2005, “Beyond Armaris: Thales “Buys” Minority Stake in DCN” covered the government-prodded merger of Thales naval business with state-owned DCN, to create DCNS. That agreement excluded some naval items like electronics, but it did include Thales’ 24% share in Eurotorp, the European lightweight torpedo consortium that was officially founded in 1993 as a joint venture between DCN International (26%), Thomson-CSF (now Thales, 24%) and Whitehead (now Finmeccanica, 50%).

The DCNS transaction was not concluded until March 2007, and now the Eurotorp consortium has taken the next step by creating a more wide-ranging set of joint ventures in underwater weapons systems. The longer-term goal remains European integration, and the 3 CEOs have said they would consider opening the alliance to other European players at some point….

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Shadow w. 56SBCT
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United Industrial Corporation designs, produces, and supports aerospace and defense systems through its wholly owned subsidiary, AAI Corporation of Hunt Valley, MD, and AAI Corporation’s direct and indirect wholly owned subsidiaries (AAI Services Corporation, Aerosonde Pty Ltd, Aerosonde North America Incorporated, ESL Defence Limited, McTurbine Inc., and Symtx, Inc.). It is probably best known for its Shadow UAV, which serves as the de facto battalion-level/Class II UAV in the USA’s current and future force, and for its OneSystem ground station that can control UAVs from several manufacturers. Other products and services include unmanned aircraft systems, aircraft and satellite test equipment, training systems, counter-sniper devices, armament systems, aviation ground support equipment, logistical and engineering services, and maintenance, repair and overhaul activities. The firm has 2,500 employees worldwide, with projected 2007 revenues of approximately $700 million.

Now Textron Inc. of Providence, RI, has announced a definitive agreement to acquire UIC in a cash transaction valued at approximately $1.1 billion (inclusive of UIC stock expected to be issued to bondholders, pursuant to the terms of the $120 million 3.75% convertible senior notes issued by the company in September 2004). The per-share offer is a 7.1% premium to UIC’s closing price on Oct 5/07.

DID discusses the deal’s terms below, and adds some thoughts re: the UAV market. Rationales for the acquisition have been stated by a number of parties:

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