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TRUSTED M&AADVISOR TO THESECURITY SECTORMONTHLY SNAPSHOTApril 20211399 New York Ave, NW Suite 1100 Washington, DC 20005 202.552.5280 www.chertoffgroup.com
ABOUT CHERTOFF CAPITALChertoff Capital – A Differentiated Investment BankChertoff Capital is an industry leading investment bankserving high-growth, mission-focused companies in thenational security, information security, and governmenttechnology markets.As the investment banking subsidiary of The ChertoffGroup, Chertoff Capital works closely with seniorexecutives and subject matter experts across the entirefirm to provide our clients with a highly differentiatedadvisory offering that brings together our transactionexperience with unparalleled business strategy insights.JASON KAUFMANPresidentKANAD up.com202.649.4260kanad.virk@chertoffgroup.comRYAN HOFFMANManaging DirectorKRISTJAN KORNMAYERSenior ertoff Capital professionals have advised on well over100 transactions over the last 20 years in our sectors offocus.Select Investment Banking Transactions:a subsidiary ofhas been acquired by&has been acquired byhas beenacquired byhas beenacquired byhas been acquired bya subsidiary ofa portfolio company ofa portfolio company ofSelect Strategic Advisory Transactions(1):a portfolio company ofa portfolio company ofa portfolio company ofhas acquiredhas acquiredandandhas acquiredhave acquiredhas acquiredThe information contained herein is provided solely for informational use and is not intended to be investment advice and should not be used or relied uponby any person for investment purposes.(1) Strategic Advisory engagements completed through Chertoff Group, LLC. Chertoff Capital, a wholly-owned subsidiary of Chertoff Group, LLC, is aregistered broker dealer and member of FINRA and SIPC.2
MARKET COMMENTARY: PRELIMINARY LOOK ATBIDEN’S FY22 DEFENSE BUDGET REQUESTBiden’s FY22 Defense budget request of 715 billion prioritizes Chinaand weapons systems modernizationFY22 Defense Budget Priorities China: Biden’s request prioritizes the need to counter threats from China and views the nation-state as the Department’s top challenge; Biden intends to leverage the multi-billion-dollarPacific Deterrence Initiative and ally relationships to ensure that the U.S.’ security posture isable to defend against potential threats Research & Development: The Biden administration recognizes DoD’s role in performinginnovative R&D that yields high-value technology; the request prioritizes defense RDT&Efunding to invest in breakthrough technologies that underpin the development of nextgeneration defense capabilities Optimizing U.S. Naval Shipbuilding: The Biden administration looks to continue therecapitalization of the strategic ballistic missile submarine fleet and invest in remotelyoperated and autonomous systems Modernizing the Nuclear Deterrent: As the administration reviews the nation’s nuclearposture, the budget request supports ongoing nuclear modernization programs while ensuringthat efforts are sustainable Divests Legacy Capacity and Force Structure: The Biden administration intends to divest legacysystems and programs to redirect resources from low- to high-priority platforms and systemsAdditional Key Points The Biden administration has taken a strong stance on IT modernization and bolstering federal cybersecurity; anadditional 500 million has been requested for the Technology Modernization Fund as well as 110 million forthe Cybersecurity and Infrastructure Security Agency (CISA) Biden also proposes that Overseas Contingency Operations (OCO) be discontinued as a separate fundingcategory, instead funding direct war costs and enduring operations in DoD’s base budget The recent release outlining the budget request only contains Biden’s top-line discretionary spending figures; amore detailed request is expected to be shared in May or JuneM&A Market Implications Deal-making continues to be rampant in the Defense and Government Services sector with nearly 160transactions announced year-to-date; furthermore, financial sponsors and strategic buyers are showing anincreased appetite to consummate multi-billion-dollar acquisitions, suggesting confidence in the sector’s outlook— Teledyne Technologies has entered into a definitive agreement to acquire FLIR Systems, Inc. for 8.0 billion— Peraton, backed by private equity firm Veritas Capital has agreed to acquire Perspecta, Inc. for 7.1 billion— Veritas Capital and Evergreen Coast Capital Corp. entered into a definitive agreement to acquire CubicCorporation for 3.0 billion— Eaton Corporation plc entered into a definitive agreement to acquire Cobham Mission Systems (UK) for 2.8billion With legacy programs likely being divested over the next several years, product-focused businesses that providehigh-end, mission-critical systems and technologies are best positioned to thrive during the Biden administrationand drive demand from buyersSources: Breaking Defense: Biden requests 715B for Pentagon, hinting at administration’s future priorities; FY22 President Budget Request materials; DACIS3
DEFENSE TECHNOLOGY SECTOR PERFORMANCE2-Year Stock PerformanceDefense TechnologyS&P 500Nasdaq19548.5%38.6%69.2%170145120957045Defense Technology IndexS&P 500March 2021 Stock PerformanceDefense TechnologyS&P 500NasdaqNasdaqYTD Stock Performance10.0%1.8%(2.5%)Defense TechnologyS&P 500Nasdaq14.4%7.4%4.3%Public MetricsFinancial PerformanceValuation MultiplesRevenueEBITDAEV/LTMEV/CY 2021ECompanyMkt. Cap.EVLTMFY 2019CY 2021E2-Yr CAGRLTMLTM MarginCY 2021ERevenueEBITDARevenueEBITDAMercury Systems, Inc. 3,966 4,102 842 655 1,06021.1% 15318.2% 2294.9x26.7x3.9x17.9xTeledyne Technologies Incorporated 15,314 15,561 3,086 3,164 3,2641.6% 62920.4% 6745.0x24.7x4.8x23.1xCubic Corporation 2,368 3,243 1,466 1,496 1,5410.7% 18512.6% 1652.2x17.5x2.1x19.7xFLIR Systems, Inc. 7,399 7,879 1,924 1,887 1,9451.5% 45223.5% 4624.1x17.4x4.1x17.1xL3Harris Technologies, Inc. 41,664 48,273 18,194 18,526 18,8150.8% 3,58519.7% 3,9642.7x13.5x2.6x12.2xKratos Defense & Security Solutions, Inc. 3,368 3,390 748 718 8317.6% 567.5% 854.5xNM4.1xNMMedian 5,683 5,990 1,695 1,692 1,7431.6% 31919.0% 3464.3x17.5x4.0x17.9xNote: in millions; Source: S&P Capital IQ4
DEFENSE TECHNOLOGY SECTOR PERFORMANCEMarket Valuation TrendsDefense Technology Valuation MultiplesEV / LTM EBITDA MultipleEV / LTM EBITDA .4x13.5x3/31/2017 3/31/2018 3/31/2019 3/31/2020 3/31/2021EBITDA Margin and Valuation Multiples25%25%20%20%LTM EBITDA MarginRevenue CAGR (2019-2021E)Revenue Growth and Valuation TM EBITDA MultipleNote: Kratos excluded due to exorbitant multiples; Source: S&P Capital IQ0%0x5x10x15x20x25x30xEV/LTM EBITDA Multiple5
DEFENSE PRIMES SECTOR PERFORMANCE2-Year Stock PerformanceDefense PrimesS&P e Primes IndexS&P 500NasdaqMarch 2021 Stock PerformanceYTD Stock Performance12.4%1.8%(2.5%)Defense PrimesS&P 500NasdaqDefense PrimesS&P 500Nasdaq14.2%7.4%4.3%Public MetricsFinancial PerformanceValuation MultiplesRevenueEBITDAEV/LTMEV/CY 2021ECompanyMkt. Cap.EVLTMFY 2019CY 2021E2-Yr CAGRLTMLTM MarginCY 2021ERevenueEBITDARevenueEBITDARaytheon Technologies Corporation 116,681 143,421 56,587 45,349 65,47620.2% 6,64111.7% 9,7522.5x21.6x2.2x14.7xGeneral Dynamics Corporation 51,886 63,794 37,925 39,350 38,794(0.7%) 5,09013.4% 4,9881.7x12.5x1.6x12.8xNorthrop Grumman Corporation 53,957 65,263 36,799 33,841 35,4652.4% 5,49614.9% 4,8261.8x11.9x1.8x13.5xLockheed Martin Corporation 102,984 113,131 65,398 59,812 68,1336.7% 10,00115.3% 10,5921.7x11.3x1.7x10.7xBAE Systems plc 22,379 28,457 26,319 24,243 29,63610.6% 2,90711.0% 3,8081.1x9.8x1.0x7.5xThe Boeing Company 148,665 188,251 58,158 76,559 81,3013.1%( 6,413)(11.0%) 5,6093.2xNM2.3xNMMedian 78,470 89,197 47,256 42,350 52,1354.9% 5,29312.6% 5,2991.8x11.9x1.8x12.8xNote: in millions; Source: S&P Capital IQ6
DEFENSE PRIMES SECTOR PERFORMANCEMarket Valuation TrendsDefense Primes Valuation MultiplesEV / LTM EBITDA MultipleEV / LTM EBITDA 1EBITDA Margin and Valuation Multiples25%25%20%20%LTM EBITDA MarginRevenue CAGR (2019-2021E)Revenue Growth and Valuation Multiples15%10%15%10%5%5%0%0%0x5x10x15xEV/LTM EBITDA Multiple20x25x0x5x10x15x20x25xEV/LTM EBITDA MultipleNote: Boeing and General Dynamics excluded from bottom left chart due to negative 2yr CAGRs or negative EBITDA; Boeing excluded from bottom right chartdue to negative EBITDA; Source: S&P Capital IQ7
FEDERAL IT SECTOR PERFORMANCE2-Year Stock PerformanceFederal ITS&P 500Nasdaq19534.8%38.6%69.2%170145120957045Federal IT IndexS&P 500NasdaqMarch 2021 Stock PerformanceFederal ITS&P 500NasdaqYTD Stock Performance5.3%1.8%(2.5%)Federal ITS&P 500Nasdaq(1.8%)7.4%4.3%Public MetricsFinancial PerformanceValuation MultiplesRevenueCompanyMkt. CapEVLTMFY 2019CY 2021EEBITDA2-Yr CAGRLTMLTM MarginEV/LTMCY 2021ERevenueEV/CY 2021EEBITDARevenueEBITDABooz Allen Hamilton Holding Corporation 11,089 12,494 7,849 6,704 8,2376.4% 89911.5% 8471.6x13.9x1.5x14.8xManTech International Corporation 3,522 3,606 2,518 2,223 2,69110.0% 27010.7% 2461.4x13.3x1.3x14.6xLeidos Holdings, Inc. 13,609 18,632 12,297 11,094 13,86911.8% 1,45511.8% 1,4461.5x12.8x1.3x12.9xICF International, Inc. 1,650 2,099 1,507 1,479 1,5532.5% 17711.7% 1511.4x11.9x1.4x13.9xParsons Corporation 4,139 4,533 3,919 3,955 3,950(0.1%) 39110.0% 3631.2x11.6x1.1x12.5xCACI International Inc 6,224 8,012 5,889 4,986 6,3178.2% 74712.7% 6641.4x10.7x1.3x12.1xScience Applications International Corporation 4,854 7,552 7,056 4,659 7,2416.5% 73510.4% 6341.1x10.3x1.0x11.9xMedian 4,854 7,552 5,889 4,659 6,3176.5% 73511.5% 6341.4x11.9x1.3x12.9xNote: in millions; Source: S&P Capital IQ8
FEDERAL IT SECTOR PERFORMANCEMarket Valuation TrendsFederal IT Valuation MultiplesEV / LTM EBITDA MultipleEV / LTM EBITDA .6x11.1x10.7x10.3x3/31/2017 3/31/2018 3/31/2019 3/31/2020 3/31/2021EBITDA Margin and Valuation Multiples14%14%12%12%10%10%LTM EBITDA MarginRevenue CAGR (2019-2021E)Revenue Growth and Valuation Multiples8%6%8%6%4%4%2%2%0%0%0x5x10x15x20x0xEV/LTM EBITDA MultipleNote: Parsons excluded from bottom left chart due to negative 2yr CAGR; Source: S&P Capital IQ5x10x15x20xEV/LTM EBITDA Multiple9
CYBERSECURITY SECTOR PERFORMANCE2-Year Stock PerformanceCybersecurityS&P urity IndexS&P 500NasdaqMarch 2021 Stock PerformanceCybersecurityS&P 500NasdaqYTD Stock Performance(8.9%)1.8%(2.5%)CybersecurityS&P 500Nasdaq(3.6%)7.4%4.3%Public MetricsFinancial PerformanceValuation MultiplesRevenueEBITDAEV/LTMEV/CY 2021ECompanyMkt. CapEVLTMFY 2019CY 2021E2-Yr CAGRLTMLTM MarginCY 2021ERevenueEBITDARevenueFortinet, Inc. 30,096 28,311 2,594 2,163 3,05618.9% 56021.6% 87810.9xNM9.3xNMSplunk Inc. 22,197 23,036 2,229 1,803 2,5393.8%( 675)(30.3%) 1310.3xNM9.1xNM22.5xEBITDAQualys, Inc. 4,108 3,711 363 322 40111.6% 12935.7% 16510.2x28.7x9.3xRapid7, Inc. 3,931 4,082 411 327 49422.9%( 48)(11.8%) 299.9xNM8.3xNMCyberArk Software Ltd. 5,056 4,426 464 434 4926.5% 255.4% 409.5xNM9.0xNMPalo Alto Networks, Inc. 31,318 31,619 3,783 2,900 4,55720.8% 260.7% 1,0418.4xNM6.9xNMProofpoint, Inc. 7,220 7,300 1,050 888 1,19916.2% 10.1% 2057.0xNM6.1xNM11.4xCheck Point Software Technologies Ltd. 15,698 11,732 2,065 1,995 2,1333.4% 92544.8% 1,0315.7x12.7x5.5xFireEye, Inc. 4,634 4,753 941 889 1,0046.3%( 51)(5.4%) 1525.1xNM4.7xNMOneSpan Inc. 982 882 216 253 221(6.7%) 31.6%( 0)4.1xNM4.0xNMSecureWorks Corp. 1,111 920 561 519 541(1.1%) 91.6%( 14)1.6xNM1.7xNMMedian 5,056 4,753 941 888 1,0046.5% 91.6% 1528.4x20.7x6.9x17.0xNote: in millions; Source: S&P Capital IQ10
CYBERSECURITY SECTOR PERFORMANCEMarket Valuation TrendsCybersecurity Valuation MultiplesEV / LTM Revenue MultipleEV / LTM Revenue Multiple8.4x8.4x10.9x10.3x /31/2017 3/31/2018 3/31/2019 3/31/2020 3/31/2021Revenue Growth and Valuation Multiples25%Revenue CAGR (2019-2021E)20%15%10%5%0%0x2x4x6x8x10x12xEV/LTM Revenue MultipleNote: OneSpan and SecureWorks excluded due to negative 2yr CAGR; Source: S&P Capital IQ11
NATIONAL SECURITY M&A SNAPSHOTDateTargetAcquirer(s)AnnouncedTarget Description: Provides mission critical embedded computingsystems, specializing in open-architecture and electronic systems foraerospace, defense, and industrial marketsAnnouncedTarget Description: Provides critical space infrastructure technologyand services that serve national security, civil, and commercialcustomers across a variety of space-related activitiesAnnouncedTarget Description: Provides leading military flight training solutions,particularly for fighter and bomber aircraft; the company alsodevelops simulator hardware for the U.S Air ForceMar-31Target Description: Designs and manufactures highly engineeredcamera gimbals for unmanned aerial systems (UAS) that performcritical intelligence and surveillance missionsMar-23Roy KapaniTarget Description: Provides systems, software, and hardwareengineering services as well as test and evaluation support to theU.S. Navy for submarine electronic systemsMar-4Target Description: Develops and manufactures high-end electronics,specializing in radio frequency (RF) over fibre systems and bespokesystems for automotive and aerospace vehiclesSource: DACIS, S&P Capital IQTransaction Notes Purchase Price: 1,350.0 millionRevenue / EBITDA: 325.0 million / Not DisclosedEmployees: Not DisclosedBuyer: Public Strategic (NYSE:AME)Seller: PE-Backed Strategic (Veritas Capital)Rationale: Acquisition adds significant scale toAMETEK’s operations, representing its largestacquisition to date, and broadens its aerospace anddefense product offerings Purchase Price: 615.0 millionRevenue / EBITDA: 163.0 million / Not DisclosedEmployees: 500Buyer: Public SPAC (NYSE:GNPAK)Seller: PE-Backed Strategic (AE Industrial Partners)Rationale: Acquisition provides Redwire with access toboth public and private capital, expanding potentialfunding sources that can contribute to supporting thecompany’s future growth Purchase Price: 1,050.0 millionRevenue / EBITDA: 500.0 million / Not DisclosedEmployees: 1,600Buyer: Public Strategic (NYSE:CAE; TSX:CAE.TO)Seller: Subsidiary of Public Strategic (NYSE:LHX)Rationale: Acquisition improves CAE’s position as aplatform-agnostic training systems integrator and willprovide significant backlog on marquee simulatorprograms serving the Air Force Purchase Price: Not DisclosedRevenue / EBITDA: Not DisclosedEmployees: Not DisclosedBuyer: Private EquitySeller: Private StrategicRationale: Acquisition delivers a leading UAS platformwith blue chip customers that is well positioned tobenefit from the significant expansion anticipated in theunmanned market Purchase Price: Not DisclosedRevenue / EBITDA: Not DisclosedEmployees: Not DisclosedBuyer: Private EquitySeller: Private StrategicRationale: Acquisition provides SEA CORP with additionalresources that will allow the company to broaden itsportfolio of capabilities and expand into new customersegments, driving future growth Purchase Price: Not DisclosedRevenue / EBITDA: Not DisclosedEmployees: 60Buyer: Public Strategic (LSE:BA.L)Seller: Private StrategicRationale: PPM’s capabilities complement BAE’s digitaland data solutions; the company also has anestablished track record of serving defense,communications, and cybersecurity end-markets12
CYBERSECURITY M&A SNAPSHOTDateTargetAcquirer(s)AnnouncedTarget Description: Develops a cloud security platform that providesleading observability and visibility capabilities that is agnostic to theplatform, cloud environment, and workload typeAnnouncedEnterprise BusinessTarget Description: Provides endpoint security, cloud security, andthreat intelligence solutions to commercial and governmentcustomersMar-30Target Description: Provides email security, endpoint security,managed firewall, and security assessment solutions to theeducation, financial services, government, and healthcare industriesMar-25Target Description: Provides managed detection and response,assessment, and managed security services to the energy, financialservices, technology, government, and healthcare industriesMar-15Target Description: Provides multi-application access control,emergency access management, access analyzer, and automatedprovisioning solutionsMar-10Target Description: Develops leading threat detection technology,proactively defending against phishing and malware attacks to securecritical collaboration toolsSource: DACIS, S&P Capital IQTransaction Notes Purchase Price: Not DisclosedRevenue / EBITDA: Not DisclosedEmployees: Not DisclosedBuyer: Public Strategic (NYSE:VMW)Seller: VC-Backed Strategic (The Fabric LLC)Rationale: Acquisition allows VMware to deliver modernapplication security connectivity services that enhancethe security of developer operations, ultimately allowingits customers to improve their DevSecOps hygiene Purchase Price: 4,000.0 millionRevenue / EBITDA: 1,300.0 million / Not DisclosedEmployees: Not DisclosedBuyer: Private Equity ConsortiumSeller: Subsidiary of Public Strategic (NYSE:MCFE)Rationale: Acquisition positions the parent organization,McAfee, as a pure-play consumer cybersecuritycompany; STG also recognizes the demand and growthopportunity for device-to-cloud cybersecurity services Purchase Price: Not DisclosedRevenue / EBITDA: Not DisclosedEmployees: Not DisclosedBuyer: PE-Backed Strategic (The Riverside Company)Seller: Private StrategicRationale: Acquisition reinforces Logically’s strategy ofgrowing its security and managed services capabilitiesand geographically expands the company’s footprint inthe United States Purchase Price: Not DisclosedRevenue / EBITDA: Not DisclosedEmployees: Not DisclosedBuyer: Subsidiary of PE-Backed Strategic (Duff and Phelps)Seller: Private StrategicRationale: Redscan’s capabilities complement one ofKroll’s existing product lines, positioning the company tosupport a wider array of cloud and on-premise telemetrysources Purchase Price: Not DisclosedRevenue / EBITDA: Not DisclosedEmployees: Not DisclosedBuyer: Public Strategic (NYSE:SAIL)Seller: VC-Backed Strategic (AdvancedStage Capital; AspenCapital) Rationale: The integration of ERP Maestro into SailPoint’sIdentity Platform gives businesses stronger access tosecurity controls for critical systems Purchase Price: Not DisclosedRevenue / EBITDA: Not DisclosedEmployees: Not DisclosedBuyer: Public Strategic (NYSE:MSP)Seller: Private StrategicRationale: Acquisition bolsters Datto’s cyber defenseand security offerings, delivering new revenue andmargin opportunities that the company will leverage inits path to shaping the security roadmap for MSPs13
Market Valuation Trends. EV / LTM EBITDA Multiple. Defense Primes Valuation Multiples. Note: Boeing and General Dynamics excluded from bottom left chart due to negative 2yr CAGRs or negative EBITDA; Boeing excluded from bottom right chart due to negative EBITDA; Source: S&P Capital IQ . 7. EV / LTM EBITDA Multiple. Revenue Growth and Valuation .
