C4ISR M&A COVERAGE REPORT Q2 2019 COMMAND, CONTROL, COMMUNICATIONS, COMPUTERS, INTELLIGENCE, & RECONNAISSANCE (C4ISR) Q2 2019

MERGER & ACQUISTION OVERVIEW

Transaction activity involving & Defense (A&D) companies continues to be supported by spending increases in the President’s Budget 2020 (PB20) growing to $718.3 billion and focusing on innovation and modernization across all warfighting domains. Specifically, the PB20 includes the largest research and development request in 70 years, targeting high-end warfare rather than regional conflicts or counterinsurgencies. The focus on delivering “critical enabling technologies” to the warfighter continues to become an increasingly persistent theme in high priority modernization programs. As a result, differentiated C4ISR capabilities are at a premium. The increase in drone operations tempo, investments in strategic and in-theater intelligence gathering platforms, and the national priority placed on missile defense, are driving heightened valuations. Firms in this sector are providing software, engineering, and training services that allow advanced technologies to impact mission success.

In 2018, pure C4ISR deals accounted for 11% of deals closed. M&A activity remains strong in 2019 with 44 announced or closed transactions TABLE OF CONTENTS year-to-date (YTD) compared to 46 in YTD 2019. The most significant transaction this year is the announcement of the $91 billion Raytheon-  M&A Overview United Technologies merger. The companies’ ability to leverage each  Key Trends & Drivers other’s research and development resources well positions the  Company Spotlight combination to further dominate share of DoD funding for C4ISR. Other significant highlights include: the close of the $19 billion merger of L3  Notable Transaction Technologies, Inc. (NYSE:LLL) and (NYSE:HRS); the  Select Transactions close of the $2.4 billion merger of Science Applications International  Public Company Data Corp. (NYSE: SAIC) and Engility Holdings, Inc.; and two acquisitions by the Parsons Corporations (NYSE:PSN) in concert with its May initial public  Firm Track Record offering (IPO) which raised ~$500 million at a valuation of $2.6 billion.

M&A Activity: C4ISR CONTRIBUTORS 80 64 Tess Oxenstierna 60 56 46 Managing Director 44 40 203-524-0888 27 [email protected] 20 Hilary Morrison Vice President Number of Transactions 0 917-763-0121 2016 2017 2018 YTD 2018 YTD 2019 [email protected] Year-to-date (YTD) ended September 13 Source: Capital IQ, PitchBook, FactSet, and Capstone Headwaters Research

3 www.capstoneheadwaters.com September 2019 KEY TRENDS & DRIVERS

PROJECTED CAGR OF GLOBAL A&D do AI-enabled mission command? How do we get faster 14.3% ARTIFICIAL INTELLEGENCE MARKET at sensor-to-shooter? How do we do data link faster than we do it today? There is great promise and potential 2 Current M&A activity has largely been driven by though the entire C4ISR enterprise.” technology and intelligence, with buyers expanding capabilities in software, data analytics, and predictive In a recent M&A AI technology play, General Dynamics intelligence. Modern technology is key to effectively Mission Systems, Inc. acquired Deep Learning Analytics, synchronizing complex intelligence data between air, land, LLC (DLA) in March for an undisclosed deal amount. DLA sea, space, and cyber to rapidly communicate with forces is a five-year-old company based in Arlington, VA that around the world and mobilize a successful response utilizes advanced algorithms to predict threats and inform team. Additionally, the speed at which technology decision-making. In 2015, DLA beat leading defense evolves in the commercial space continues to draw contractors including Boeing, Raytheon, and Northrop leading defense companies to seek opportunities for Grumman for a prime contract to improve the analysis of technological superiority through M&A. radar images and went on to be selected to execute Phase II of the previously contracted project in 2017. Artificial intelligence (AI) has rapidly emerged as a key technology target. The global AI market within the “Deep Learning Analytics brings to General Dynamics an Aerospace & Defense industry is projected to grow at a extensive expertise in artificial intelligence and specializes compound annual growth rate (CAGR) of 14.3% to reach in deploying deep learning algorithms on small, power- $17.6 billion U.S. dollars by 2025, according to Kenneth efficient appliances and mobile devices,” Chris Brady, Research.1 Building on the launch of Project Maven in General Dynamics Mission Systems President, said in a 2017 (which used AI to process drone footage), the DoD press release.3 “Through data science, research, machine has continued to seek opportunities for data maximization learning, predictive analytics and software engineering, through AI. our government and commercial customers can better exploit their data—a tremendous value to their missions.” Joint Artificial Intelligence Center (JAIC) Director Lt. Gen. Jack Shanahan explained to C4ISRNET:“Idon’tthinkthere The DoD’s demand for modern technologies will continue is any part of C4ISR that does not have the potential to be to drive leading prime defense companies to target improved through AI-enabled capabilities. I want JAIC to technology and intelligence companies with innovative help the services and the combatant commands with the commercial off-the-shelf solutions which can be adapted ops side. How do we do ops-intel fusion? How do we to serve the complex needs of the U.S. military.

FY 2020 Budget Priorities

Enhance Competitiveness Modernize in Air, Through Emerging Compete Maritime, and Warfighting Land Domains Domains Deter

Sustainand Build Develop and Field on Readiness Win Innovative Gains Technologies

Source: Department of Defense FY 2020 Budget Proposal C4ISR | Q2 2019 3 COMPANY SPOTLIGHT

L3 Harris Creates Leading Defense Ticker: NYSE: LHX Technology Company Stock Price as of 09/16/19: $214 USD Headquarters: Melbourne, FL

Diversified Business Mix

Nine months after the announcement, L3 Technologies, Inc. and Harris Corporation completed their merger in June to form 32.0% (NYSE:LHX) – the sixth-largest Aerospace & Defense prime contractor in the U.S. and a top 10 defense company globally. 68.0% Strategic benefits of the $19.2 billion dollar merger (13.7x EBITDA), as noted in the press release,4 include:

 Increased scale with a diversified business mix - The Prime Contractors combined company has a product range spanning Sub Contractors from military radios and space hardware to air-traffic control systems. There is limited overlap between their products and the combined portfolio brings depth and Merges with balance of relationships across a diverse spectrum of customers. The increased scale will expand capabilities Strong Customer Relationships to provide more comprehensive products and services, allowing the company to be more cost competitive. 21.0% 23.0%

 Shared culture of innovation and operating philosophy creates stronger platform to drive growth - The deal combines two of the industry’s most robust technology-driven research and development 56.0% (R&D) spenders with a combined workforce of more than 20,000 engineers and scientists. The combined company plans to accelerate investment as a means of International establishing a more significant leadership position in Department of Defense key strategic domains including national security. Other

 Meaningful value creation opportunity - Annual gross pre-tax cost synergies are expected to be close to $500.0 million. Over the course of the next three years, the company is expected to invest ~$450.0 Culture of Talent and Innovation million cash to achieve synergies. Overhead costs will be reduced by consolidating corporate and segment 24,000 headquarters and establishing shared IT services and 20,000 finance platforms.

 Strong balance sheet with significant cash flow generation - The combined company will target $3.0 billion in free cash flow by year three, driven by organic growth, cost synergies, working capital improvement, Engineers Cleared Personnel and capital expenditure efficiencies.

Source: L3 Harris Technologies Investor Presentation, July 1, 2019 C4ISR | Q2 2019 4 NOTABLE TRANSACTION

United Technologies Corporation to Merge with (June 2019, $91.1 Billion)

United Technologies Corporation (NYSE:UTX) and Raytheon Company (NYSE:RTN) have agreed to an all-stock merger of equals for $91.1 billion. As the largest defense industry merger ever completed, it underscores the key industry theme of defense companies moving up the value chain to access more prime contract awards.

Raytheon is a Waltham-based military contracting company, primarily supplying To merge with global Military and Government markets with aircraft and missile equipment. United Technologies Corporation (UTC), based in Farmington CT, provides technology products and services to building and commercial systems. The combined company will operate as Raytheon Technologies, addressing the Military, Government, and Commercial Aerospace & Defense markets.

The merger offers significant long-term value creation, according to the press release, with key benefits including: 1) a balanced and diversified portfolio; 2) complementary technology and R&D with more than 60,000 engineers and a combined annual $8 billion in R&D spending; 3) a strong cash flow with an expected combined gross annual run-rate of more than $1 billion by year four; and 4) complementary company cultures with expanded career opportunities across the newly combined platform. 5

“Our two companies have iconic brands that share a long history of innovation, customer focus and proven execution,” UTC Chairman and CEO Greg Hayes said in the press release. “By joining forces, we will have unsurpassed technologyand expanded R&D capabilities that will allow us to invest through business cycles and address our customers’ highest priorities.”

Timeline: UTC’s Transforming into a Leading A&D Systems Provider

2011 2015 2017 2018 2019

Acquired Sold Acquired Pending Sale Acquired September, EV ~$18B July, EV ~$9B September, EV ~$31B November, EV ~$132B June, EV ~$56B

~$34B in A&D PF ~$27B in A&D PF ~$38B in A&D PR ~$43B in A&D PF ~$74B in A&D PF Revenue Revenue Revenue Revenue Revenue

~53% A&D Revenue ~50% A&D Revenue ~58% A&D Revenue ~100% A&D Revenue ~53% A&D Revenue

Complementary Reduce platform- Added world-class Create focused A&D Create leading A&D products / systems specific A&D exposure electronics and and commercial systems provider– scale, across the airframe software capabilities Platforms breadth and innovation Increase focus on Cost synergies of providing high Cost synergies of Positioned to serve Increase high-tech $600 million+ technology systems $600 million+ high-growth areas of systems focus commercial A&D industries

PF = Pro Forma Source: UTC Investor Presentation, Q2 2019 C4ISR | Q2 2019 5 SELECT TRANSACTIONS

Enterprise EV / LTM Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA

Saturn Satellite Designs and develops modular satellites and 09/09/19 Novawurks --- Networks spacecraft that host payloads.

Provides intelligence analysis services and solutions to 08/08/19 H2M Group ManTech's Mission --- the National Geospatial-Intelligence Agency.

Convergent Offers intelligence analysis, cybersecurity and national 08/07/19 Exiger --- Solutions security solutions, and related IT services.

General Dynamics Communications & Designs, develops, manufactures, and installs satellite 08/05/19 --- SATCOM Power Industries and wireless communications products.

Developer and provider of proprietary radio 07/31/19 QRC Technologies Parsons Corporation $215.0 -- frequency products.

Vykin Provides IT and operational intelligence to the 07/10/19 SOS International --- Corporation Defense, Federal and Intelligence Community markets.

06/12/19 KeyW Holding Jacobs Engineering Provides mission-critical cybersecurity, $920.8 1.9x 23.8x cybersuperiority, and geospatial intelligence solutions.

Develops, manufactures, and supplies unmanned 06/11/19 Pulse Aerospace AeroVironment $25.7 - - helicopters and associated systems.

Raytheon United Technologies Develops integrated products, services, and solutions 06/09/19 $91,079.2 3.3x 23.1x Company Corporation for the defense and other government markets.

Constructions Designs intelligence, surveillance, and reconnaissance 03/22/19 Airstar Aerospace --- Industrielles tethered balloons, and airships for satellites.

Harris Corp.’s Provides night vision technology to the U.S. and allied 04/05/19 Elbit Systems $350.0 - - Night Vision military/security forces and federal homeland security.

Automated Rockmont Capital; Designs, manufactures, and sells communication and 04/04/19 --- Business Power Cache Creek power systems for the Defense industry.

Tactical Curtiss-Wright Provides tactical data link software solutions for the 03/18/19 $50.0 3.3x - Communications Corporation military community.

Delivers mission-critical communications products, 03/01/19 LGS Innovations CACI International $750.0 -- R&D, and supporting services.

N2 Imaging Designs compact infrared imaging systems for use in 02/15/19 Cornerstone Capital --- Systems soldier vision enhancement and surveillance.

Endeavor 02/11/19 FLIR Detection Develops, produces, and delivers mobile robots. $382.0 - - Robotics

Provides equipment that allow agencies to capture, 02/05/19 L-3 Mobile-Vision Safe Fleet Holdings --- manage, and communicate critical information.

Designs rugged signals intelligence, electronic warfare, 01/30/19 Mastodon Design CACI International $225.0 - - and cyber operations products and solutions.

Manufactures small unmanned aerial systems for 01/28/19 Aeryon Labs FLIR Systems $200.8 - - military and public safety operators worldwide.

Rafael Advanced Provides unmanned solutions, systems, and 01/13/19 Aeronautics $236.6 2.4x - Defense subsystems for defense and home land security.

Provides geospatial and security solutions for the 01/07/19 OGSystems Parsons Corporation $300.3 - - Department of Defense and intelligence community.

Source: Capital IQ, PitchBook, FactSet, and Capstone Headwaters Research C4ISR | Q2 2019 6 PUBLIC COMPANY TRADING & OPERATING DATA

Aerospace & Defense Enterprise Value Index by Sector

Public Company Enterprise 18.0x Values Continue to Climb 16.0x

 Capstone Headwaters’ Aerospace 14.0x & Defense Enterprise Value Index 12.0x rose to a median 13.0x in July 10.0x 2019, closely mirroring the S&P. 8.0x  A&D Electronics companies are 6.0x trading at a premium of 17.0x EV/EBITDA, representing a 20% 4.0x year-over-year increase. 2.0x Median EV/EBITDA Multiple Median EV/EBITDA 0.0x 1/1/2006 7/1/2007 4/1/2008 1/1/2009 7/1/2010 4/1/2011 1/1/2012 7/1/2013 4/1/2014 1/1/2015 7/1/2016 4/1/2017 1/1/2018 7/1/2019 10/1/2006 10/1/2009 10/1/2012 10/1/2015 10/1/2018

Defense Components Support Services & MRO* Prime Defense Defense IT & Technology Aerospace & Defense Electronics

Aerospace & Defense Earnings Index by Sector

Strong Earnings for Defense IT 400% & Technology Companies 350%  Public company last twelve month (LTM) earnings showed steady 300% growth, with a median year-over- year influx of 6% across all sectors. 250%

 The Defense IT & Technology 200% Index eclipsed every other sector, with an impressive 20% year-over- year increase in earnings. 150%

Cumulative LTM Earrings Growth LTM Earrings Cumulative 100% 1/1/2006 7/1/2007 4/1/2008 1/1/2009 7/1/2010 4/1/2011 1/1/2012 7/1/2013 4/1/2014 1/1/2015 7/1/2016 4/1/2017 1/1/2018 7/1/2019 10/1/2006 10/1/2009 10/1/2012 10/1/2015 10/1/2018

Defense Components Support Services & MRO* Prime Defense Defense IT & Technology Aerospace & Defense Electronics

*MRO valuation skewed by weighting to Asia/Pacific market Source: Capital IQ, company press releases C4ISR | Q2 2019 7 FIRM TRACK RECORD

Capstone Headwaters has represented numerous companies that serve the needs of federal, state and local or foreign governments, as well as the needs of civilian and defense-related agencies. We understand the nuances associated with sole-sourced, multi-year or subcontracted awards, the value of partnerships, GWACs, IDIQs and GSA schedules. We have completed transactions requiring complex CIFIUS filings, ITAR registrations and contract negotiations, and those involving classified information. Our advisory work has included multiple industries and involved companies of diverse specialties, many of which sell in both the public- and private-sector markets.

has obtained a $145 has acquired has been acquired by has been acquired by million revolving credit facility and a $44 million term loan facility

has divested has been acquired by has been acquired by has been acquired by has been acquired by

to

has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by

Command System, Inc.

has been has been acquired by has been acquired by has been acquired by has been acquired by recapitalized by

C4ISR | Q2 2019 8 CITATIONS

1. Kenneth Research, “Artificial Intelligence in Defense and Aerospace Market,” https://www.kennethresearch.com/sample- request-10078907?utm_source=Marketwatch&utm_medium=pd-ach, accessed September 17, 2019. 2. C4ISRNET, “The Pentagon’s top AI Official Explains ‘Computer Vision’,” https://www.c4isrnet.com/thought- leadership/2019/09/13/the-pentagons-top-ai-official-explains-computer-vision/, accessed September 17, 2019. 3. General Dynamics Mission Systems, ”General Dynamics Mission Systems Acquires Deep Learning Analytics,” https://gdmissionsystems.com/en/articles/2019/03/26/general-dynamics-acquires-deep-learning-analytics, accessed September 10, 2019. 4. L3 Technologies, Inc., “Harris Corporation and L3 Technologies to Combine in Merger of Equals to Create a Global Defense Technology Leader,” https://www.l3t.com/press-release/harris-corporation-and-l3-technologies-combine- merger-equals-create-global-defense, accessed September 17, 2019. 5. United Technologies Corporation, “Raytheon and United Technologies Aerospace Businesses to Combine in Merger of Equals,” https://www.utc.com/en/news/2019/06/09/raytheon-and-united-technologies-aerospace-businesses-to- combine-in-merger-of-equals, accessed September 12, 2019.

Disclosure: This report is a periodic compilation of certain economic and corporate information, as well as completed and announced merger and acquisi- tion activity. Information contained in this report should not be construed as a recommendation to sell or buy any security. Any reference to or omission of any reference to any company in this report should not be construed as a recommendation to buy, sell or take any other action with respect to any securityof any such company. We are not soliciting any action with respect to any security or company based on this report. The report is published solely for the general information of clients and friends of Capstone Headwaters. It does not take into account the particular investment objectives, financial situation or needs of individual recipients. Certain transactions, including those involving early-stage companies, give rise to substantial risk and are not suitable for all investors. This report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Prediction of future events is inherently subject to both known and unknown risks and other factors that may cause actual results to vary materially. We are under no obligation to update the information contained in this report. Opinions expressed are our present opinions only and are subject to change without notice. Additional information is available upon request. The companies mentioned in this report may be clients of Capstone Headwaters. The decisions to include any company in this report is unrelated in all respects to any service that Capstone Headwaters may provide to such company. This report may not be copied or reproduced in any form, or redistributed without the prior written consent of Capstone Headwaters. The information contained herein should not be construed as legal advice.

C4ISR | Q2 2019 9 C4ISR REPORT CONTRIBUTORS

Tess Oxenstierna Managing Director [email protected] | 203-524-0888

Tess has over 25 years of experience in the Aerospace & Defense industry, Government Policy arena and Financial Services sector. She holds deep domain knowledge and transaction advisory skills, especially in the high growth markets of Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR), unmanned vehicles systems, cybersecurity, and strike warfare.

Prior to joining Capstone Headwaters, Tess founded the Aerospace & Defensepracticeatamiddle market boutique investment bank, focusing on private and public corporate clients with diverse products such as command and control software for aerial drones, satellite-based force tracking systems and electronic warfare devices used in Afghanistan and Iraq. She was Global Head of Equities Strategy at , responsible for strategy development leveraging competitive intelligence, market analysis and acquisitions across Americas, Europe, and Asia. Transactions included investments in stock exchanges, a NYSE specialist market-maker and international broker dealers. Tess was also Director of Corporate Development and Strategy at Raytheon, with deal team transactions valued at over $3.4 billion in sensor automation/information synthesis, geospatial mission support, network forensics, interoperable communications for homeland security, and commercial aviation/life cycle support.

Prior to these transactional roles, Tess worked in the Reagan White House, U.S. Departments of State and Energy, and NATO Headquarters, complementing her combat operational experience as a Commander in the U.S. Navy Reserve. A recognized industry expert, she speaks at leading industry conferences and has been interviewed on ABC’s Government Matters, Defense News, Homeland Security Wire, and Private Equity Hub. Tess holds a PhD in War Studies from Kings College London, an MA in Law and Diplomacy from Harvard’s Kennedy School of Government, and a BAinInternational Relations from UCLA. She is a Series 7, 63 Registered Securities Representative, Series 23 Registered Securities Principal, and 79 Registered Investment Banking Representative. In addition to her degrees, Tess studied Corporate Finance at Harvard Business School and British Political Thought at the University of Cambridge.

Hilary Morrison Vice President [email protected] | 917-763-0121

Hilary is a Vice President in the Aerospace & Defense group, bringing 10+ years of experience spanning Investment Banking and Equity Research.

Prior to Capstone Headwaters, Hilary worked as a Vice President on the #1 rated Broadline Retailer and Textile Manufacturing team at Lehman Brothers. She has significant public company expertise with a focus on Industrials and Manufacturing M&A and carve-outs. She has also worked on numerous strategic advisory and company valuation assignments. Hilary graduated in International Finance and French from Texas Christian University, M.J. Neeley School of Business. She is also a Series 79 Registered Investment Banking Representative.

2019 2019 2018 2018

TURNAROUND AWARDS MIDDLE‐MARKET BOUTIQUE INVESTMENT BANKING FIRM US MIDDLE MARKETS US ‐ DEBT FINANCING INVESTMENT OF THE YEAR INVESTMENT BANK OF THE YEAR ADVISORY OF THE YEAR BANK OF THE YEAR

C4ISR | Q2 2019 10 BUILT FOR THE MIDDLE MARKET

UNITED STATES

160+ professionals 17 offices INTERNATIONAL Boston  Boise  Burlington  Chicago Dallas  Denver  Greenwich  Houston 450+ professionals Los Angeles   Orange 60+ offices in 40 countries County  Philadelphia  San Diego San Francisco  St Louis  Tampa Asia: China  India  Japan Washington DC Latin America: Argentina  Brazil  Chile  Colombia  Mexico  Peru Africa: Congo  Egypt  Ghana  Ivory Coast  Mauritius  Morocco  Senegal  South Africa Europe: Belgium  Bosnia  Croatia  Czech Republic  Finland  France  Germany  Herzegovina Hungary  Ireland  Italy  London  Netherlands  Norway  Poland  Russia  Serbia  Slovenia Spain  Sweden  Switzerland  Turkey 

Capstone Headwaters is an elite investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. Capstone Headwaters provides merger & acquisition, private placement, corporate restructuring and financial advisory services across 16 industry verticals to meet the life cycle needs of emerging enterprises. Headquartered in Boston, MA and Denver, CO, Capstone Headwaters has 19 offices in the US, UK and Brazil with a global reach that includes over 450 professionals in 40 countries.

www.capstoneheadwaters.com

12