M&A market heats up; 30-year shipbuilding plan; UAE sale avoids Senate block; and more.
With the trainwreck that is 2020 almost in our rearview mirror, the year is ending with a flurry of defense-related mergers and acquisitions, including a handful of notable deals announced just this week.
Aerospace and defense “companies could also pursue M&A opportunities to build scale and capture greater value,” consulting firm Deloitte said in a new report. “Long-term growth prospects for the A&D industry remain strong. The space sector, together with technological developments such as advanced air mobility, hypersonics, electric propulsion and hydrogen-powered aircraft, are likely to drive future growth for the industry.”
Pure defense companies with little commercial aerospace business — think Lockheed Martin and Northrop Grumman — have been able to better withstand the pandemic, which has depressed passenger air travel and left airlines strapped for cash. As we enter 2021, we’ll be watching whether the pure defense companies go shopping and whether those with mixed commercial portfolios start selling.
Here’s the latest M&A activity:
- South Korea’s Hyundai has reportedly purchased Boston Dynamics, the robot-making company behind DARPA’s “Big Dog” from owner SoftBank. (The company is featured in this extremely funny YouTube video.) The deal is reportedly worth $917 million, Engadget reports.
- FLIR Systems acquired small Gainesville, Florida-based drone maker Altavian. Altavian’s drones “integrate multiple sensors, including FLIR thermal technology, to provide users with decision support and intelligence, surveillance, and reconnaissance (ISR) capability,” FLIR said in a statement.
- Mercury Systems said on Monday that it would acquire Physical Optics in an all-cash deal worth $310 million. Mercury bills Physical Opticas a “leading designer, developer, and integrator of advanced technologies primarily focused on avionics & mission subsystems for defense applications.”
- Northrop Grumman said it would divest its information technology business to Peraton for $3.4 billion. The sale is expected to close in the first half of 2021, Northrop said.
- BAE Systems sold subsidiary SIlverSky to a private equity group led by Richard Dobrow and Cary Conrad.
- Leidos on Thursday announced that it would acquire 1901 Group, an IT services and cloud company. “The acquisition of 1901 Group will advance Leidos’ position in the digital modernization market and expand its ability to address the accelerating cloud and IT services markets,” Leidos said in a statement.
- Silicon Valley artificial intelligence firm C3.ai — which is behind numerous U.S. military AI projects —went public on Wednesday. “C3.ai stock zoomed 120.2% Wednesday, and jumped another 26%, near 116.50, during morning trading on the stock market today,” according to Investors Business Daily.
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From Defense One
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White House-Led 30-Year Shipbuilding Plan Released
The blueprint released by the Trump administration calls for reaching the Navy’s goal of 355 ships in 2031 and more than 400 warships by the mid-2040s. “The 30-year shipbuilding plan is consistent with the National Defense Strategy (NDS) which recognizes China and Russia as near peer threats,” Deputy Defense Secretary David Norquist said in a Thursday statement. “To ensure that we maintain superiority over these threats, the NDS requires a modern, ready force to operate in the Pacific maritime region. The Department has realigned more than $45B over the Future Years Defense Program to Navy Shipbuilding and other priorities as described in the Office of Management and Budget’s fiscal framework.” Of course, the incoming Biden administration could change the plan to reflect its defense priorities. And Congress ultimately has the final say over what the Navy buys. More here.
Senate Fails to Block UAE F-35, Reaper, Munition Deal
The failure to muster enough votes to block the controversial sale of arms worth billions of dollars to UAE allows the proposed deal to enter its next procedural phase — and just maybe, a contract before President Trump leaves the White House on Jan. 20.
The State Department said it approved $84.64 billion in arms deals in fiscal 2020. It also said that $50.78 billion in arms deals were put on contract. State also said that $124.3 billion in commercial military deals were approved. The number of those deals put on contract is not available yet.
Canceled: Paris Air Show
The Paris Air Show, held every other June, will not happen this year due to the COVID-19 pandemic. With coronavirus vaccines in the early stages of distribution, some executives were holding out hope that the biennial event would still take place. Organizers made the call more than six months ahead of the scheduled show, which draws defense and aerospace firms and government officials from around the globe. “This reasonable decision was agreed upon unanimously by the Paris Air Show Board members in the context of a crisis that has had an unprecedented impact on the aerospace industry,” the organizers said in a statement.
Delayed: the Munich Security Conference, once scheduled for February. Organizers are hoping to hold the annual event later in 2021, presumably if the pandemic subsides.
Air Force Picks Three Firms for ‘Skyborg’ Drone
Boeing, General Atomics, and Kratos will “produce missionized prototypes with the ability to fly in experimentation events while teaming with manned aircraft.” The project intends to pair autonomous, attritable drones with manned warplanes.
While on the subject of drones, DARPA was unable to snag three Gremlins drones after they successfully flew in formation during an October test, the Pentagon’s research shop said Thursday. During the test, officials tried to catch the drones with a hook hanging out the back of a C-130 cargo plane. After nine tries, the drones safely parachuted to the ground, DARPA said.
Spain Solidifies Role in Franco-German Sixth-Gen Fighter
The Spanish industry joined the Future Combat Air System “demonstration phase,” according to Airbus. “This contract, signed with French and German industry partners, completes Spain’s onboarding as an equal nation across all FCAS activities,” the company said. “The signature closes a ten month process of onboarding Spain as the third nation.”
- Northrop Grumman CEO Kathy Warden and Huntington Ingalls CEO Mike Petters have been elected chairman and vice chairman of the Aerospace Industries Association board of governors for 2021. Eric Fanning, the former Army secretary, has been reelected as president and CEO.
- Jeff Bezos rocket company Blue Origin has created a board of advisors that includes Kari Bingen, a former deputy undersecretary of defense for intelligence and security; Charles Elachi, a former director of NASA’s Jet Propulsion Laboratory; Dan Hastings, MIT’s Aeronautics and Astronautics department head and a former U.S. Air Force chief scientist; Sue Mashiko, a retired air force major general who was a deputy director of the National Reconnaissance Office; Todd May, KBR senior vice president of space and mission solutions; Bill Smith president of Primex Technologies Aerospace Division; and Heather Wilson, president of the University of Texas at El Paso and a former Air Force secretary.
- Acting Defense Secretary Chris Miller last week announced an overhaul of the Defense Business Board, and advisory board that makes recommendations to Pentagon leaders. Politico first reported the panel’s shakeup, which included the appointment of Trump loyalists Corey Lewandowski and David Bossie. Also appointed to the board: Henry Dreifus, Robert McMahon, Cory Mills, Bill Bruner, Christopher Shank, Joseph Schmidt, Keary Miller, Alan Weh and Earl Matthews,
- China hawk Michael Pillsbury of the Hudson Institute and former National Nuclear Security Administration Administrator Lisa Gordon-Hagerty were appointed to the Defense Policy Board.