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2015 Year in Review
Notable 2015 M&A Activity
Capital Markets
CACI acquired L-3’s National Security Solutions business unit for
$550 million
Harris acquired Exelis for $4.7 billion
SAIC acquired Scitor from Leonard Green Partners for $790 million
The Carlyle Group acquired Novetta Solutions from Arlington
Capital
CSC split its public sector business from its commercial and
international business; the public sector business then merged
with SRA to form CSRA, the largest professional services firm to
the federal government
Executive Summary
Source: Public Filings; Capital IQ, InfoBase as of 12/31/15
Transaction volume in the Aerospace, Defense and Government Services industry was relatively stable in 2015 but shows promising signs of future
growth. The McLean Group tracked 134 announced Defense and Government Services transactions in 2015, compared with 130 the year
before. Aerospace displayed similarly flat activity with 161 announced transactions in 2015 compared to 156 in 2014.
Capital Markets underperformed with three of the four aerospace indices ending the year in the red. The Large Cap, Mid Cap and Small Cap
Aerospace indices fell 1.5%, 9.8% and 33.6% in 2015, respectively. Conversely, both the Defense Prime and Diversified Government Services
indices recorded excellent performance the second half of the year, and were up 12.0% and 9.3% for the full year, respectively. Investors rewarded
Northrop Grumman, which led the Defense Prime Index finishing up 28.1% on the year, due to the Company’s focus on key DOD priorities of
aerospace, unmanned systems, and naval systems. Similarly, Leidos’ stock price improved 29.4%, leading the Diversified Government Services
Index, on strong contract wins and an increased backlog.
A budget was passed for the second year in a row, alleviating concerns of a government shutdown. The two-year budget bolsters investor
confidence by providing transparency in funding, highlighted by a total increase in discretionary spending of $80 billion over government fiscal years
(GFY) 2016 and 2017. The two-year budget lifts the debt ceiling and removes the spending caps for GFY 2016 and GFY 2017 previously enacted
by the Budget Control Act in an attempt to eliminate the possibility of a government shutdown standoff during a political election cycle.
Throughout the year Defense and Government Service Primes explored strategic alternatives such as: divesting business units (L-3 National
Security Solutions, GD Fidelis Cybersecurity, Lockheed Martin IS & GS, BAE Systems Intelligence & Security); merging with other pure plays to
create synergies (CSC Government and SRA, Harris and Exelis), and spin offs (CSC).
Private Equity involvement in the sector rose by 13% from 2014 and included such notable deals as Salient/Frontenac’s merger with CRGT/Veritas;
Arlington Capital’s sale of Novetta to Carlyle; Leonard Green’s sale of Scitor to SAIC; Providence Equity Partner’s majority exit of SRA via a merger
with CSC government, and Snow Phipps’ sale of Acentia to MAXIMUS.
% Change
1st Half
2015
2nd Half
2015
CY2015
Defense Prime Index
1.5% 10.4% 12.0%
Defense Systems Index
2.9% 5.3% 8.4%
Diversified Government Services Index
(6.8%)
17.3% 9.3%
Middle Market Government Services Index
(7.9%)
(9.4%)
(16.6%)
Large Cap Aerospace Index
0.8%
(2.2%)
(1.5%)
Mid Cap Aerospace Index
0.8%
(10.5%)
(9.8%)
Small Cap Aerospace Index
(3.5%)
(31.2%)
(33.6%)
International Aerospace Index
11.3%
(4.8%)
5.9%
S&P 500
0.2%
(0.9%)
(0.7%)