Dear Friends,

As we get started in the fall season, the aerospace/defense M&A market remains highly

dynamic with several notable developments. That said, two main topics dominate nearly

every conversation and serve as key drivers of M&A timing decisions.

First, the B737 MAX train wreck continues full steam ahead underscored by multiple

unpleasant developments including Boeing executive departures, Congressional inquiries and

international safety agencies defying the FAA. For us and the aerospace supply-chain, all the

headlines are of limited importance in comparison to the health of the order book. To that

point, Southwest CEO Gary Kelly’s comments gave us the most pause when he announced

that the devoted B737 carrier would be considering diversifying its fleet into other OEMs.

From a M&A perspective, we have been pleasantly surprised by the number of businesses

with significant MAX content that have successfully completed transactions. That said, the

number of deals put on hold or pausing due to MAX uncertainty remains sky high.

Second, now that we are approximately a year out, the US presidential election is becoming a

hot button issue. While we try to stay away from political bias or agenda, the Trump

Administration has been an unequivocal boon to the defense industry with supportive

increases in spending nearly across the board. Businesses with defense-centric end-market

exposures have seen material improvements in valuation multiples over the past three years.

Additionally, the left-leaning rhetoric out of several of the leading Democratic candidates

advocates material changes in the tax treatment of capital gains as well as wealth in general.

Given those two factors, we would expect M&A activity to spike in the event of even the

increased likelihood of a Warren/Sanders nomination. Shareholders of all political

affiliations will be looking to get ahead of any potential tax increases as well as any decreases

in the DoD budget.

Our practice remains very busy with multiple new transactions coming to market before the

end of the year plus a few closed transactions to be (fingers crossed) announced shortly.

As always, we encourage your thoughts and questions and hope to hear from you soon.

Sincerely,

Trevor Bohn Ryan Murphy

Partner Partner

Quarter in Review Q3 2019Introduction

KAL Capital - Aerospace & DefenseQuarter In Review

© KAL Capital, 2018

Table of Contents

I. KAL Capital Overview

II. Q3 M&A Snapshot

III. Commercial Focus

IV. Defense Focus

V. Aftermarket Focus

A&D Sector

Knowledge

Transactions

Relationships

Clients

First

Team

KAL Capital Overview

KAL Capital is a boutique investment bank focused on providing advisory

services to owners of businesses throughout the greater aerospace supply-chains.

Our services consist primarily of M&A advisory and liquidity event planning. Our

clientele are generally family or partnerships that own successful, growing

businesses within the aerospace/defense sector. Today’s M&A environment

offers business owners a wide-range of transaction alternatives, often at

compelling valuations. Our role is to assist in the navigation of this process and to

ensure that valuation is maximized.

▪ KAL is built on the belief that

M&A processes should be built

to maximize transaction

outcomes for clients

▪ KAL has vast experience throughout

the supply chain with a comprehensive

understanding of each subsector’s

growth drivers and strategic buyers

▪ Cross-border transaction experience

▪ KAL has long-term relationships with

financial buyers as well as C-Suite

executives at leading A&D public

companies who prioritize KAL clients

▪ Deep A&D sector knowledge vital to

articulating unique major macro-drivers

▪ KAL team understands that each business

has a highly unique story and accumulation

of history

▪ Founders have worked together for 10+ years

with a combined 25+ years of A&D experience

▪ Deep team of highly-seasoned support staff

Services Provided

• Sell-Side Advisory

• Buy-Side Advisory

• General Strategic Advisory

• Debt Capital Raising

• Equity Capital Raising

• Merchant Banking

M&A Market Snapshot

Q2 Aerospace & Defense M&A Activity

Deals by End Market

❖ Defense-focused

targets have buoyed

2019 deal volume

❖ C4ISR systems,

and aerostructures

& components

manufacturers lead

Q3 M&A priorities

❖ Record-high private

equity dry powder

signals optimism for

2020 deal flow and

valuations

HIGHLIGHTS

Deals by Product Category

Source: DACIS, KAL Capital estimates, and other publicly available information

Strategic vs. Private Equity

Source: DACIS, KAL Capital estimates, and other publicly available information

The DoD spending profile and steady growth in passenger traffic bolster A&D deal flow. Despite geopolitical concerns and broader economic uncertainties, corporate cash and record-high private equity capital tow the deal market forward.

The greater C4ISR systems space contributed greatest in terms of deal count in Q3, as the DoD demands quicker time-to-market solutions for mission-critical systems and blue-chip primes look to streamline supply chains. Mercury Systems has been among the most active buyers in the space, announcing the acquisition of American Panel Corp this quarter and a four-deal total in 2019.

Strong existing cash flows and a favorable lending environment has propelled mega deals and add-ons alike in Q3. Deal counts are slightly lower on a YoY basis, attributed primarily to rising valuations across the A&D market. This quarter we witnessed private equity compete and win against strategic buyers for several key A&D targets and this competitive dynamic will likely continue well into 2020, working in favor for sellers looking for best-price scenarios.

2

2

2

2

4

6

7

8

11

16

19

OEM

Test & Measurement Services

Engineering Services

Naval

Logistics & Distribution Services

ISR Services

Component MRO

Land & Weapons Systems

IT/Cybersecurity

Structural Components/Assemblies

C4ISR & Defense Electronics

32

46

Private Equity

Strategic

19

28

31Gov't Services

Defense

Commercial

$2.2$2.4

CorporateCash

PrivateEquity Dry

Powder

▪ Corporate balance

sheets and private

equity funds primed for

2020 deal flow

▪ Private equity has

reached record-high dry

powder at: $2.4 trillion

Source: KAL Capital estimates, PWC, and other publicly available information

Analysis

HIGHLIGHTS Commercial Focus

Commercial Market Drivers

❖ Strong backlog and

passenger traffic

demand drive

commercial market

❖ Hard/soft metal

machine shops and

composite

manufacturers

display uptick in Q3

deal flow

Strong Supply Chain Backlog

124 434 556

45925706

AllOther

777 787 737 Total

Passenger Traffic Demand

2017 2018 % Δ

Passengers

(millions)965.4 1,011 +4.8

Flights

(millions)9.7 10 +2.6

Rev Passenger

Miles

(billions)1.4 1.5 +5.2

While stagnant trade talks and the 737MAX future

occupy headlines, the health of US commercial

aerospace continues to thrive on supply chain

backlog and passenger traffic growth.

China is expected to acquire ~8,090 new aircraft

over the next 20-years making up the largest growth

market for commercial aviation. Despite trade

conflicts, U.S. manufacturers are destined to play a

significant roll. A bad trade deal would be bad for

Boeing, but worse for COMAC, as most of their

critical systems on their flagship C919 are built by

U.S. suppliers – e.g. GE engines. U.S. suppliers

remain optimistic for the long-term as backlog keeps

the supply chain busy and smooths over current

market volatility.

Overview

Buyer Target Specialization Type

Additive manufacturing and machining PE

CAL-X Sheet metal fabrication and machining PE

Elastomeric seals, gaskets and tooling for composites PE

Hydroforming, roll forming, machining for complex

metal assembliesPE

Specialty forged titanium and high-performance steel

productsPE

Precision thin-walled investment castings Strategic

Expanded and perforated metal foils and polymers Strategic

Composite components for structural assemblies and

enginesStrategic

Beyond the A&D mega-mergers, tier II & III

component suppliers saw an uptick in deals this

quarter. Strategics and private equity are going

head-to-head and driving valuations higher.

Low interest rates and high corporate cash have

raised acquisition appetites, and defense market

exposure serve as common rationale as broader

markets react to a period of instability.

Sources: Boeing, IATA, Other publicly available information

Q3 Components & Structures M&A

Defense Focus – C4ISR & Defense Electronics

Q3 Deal Spotlight

❖ Strategic buyers

lead Q3 acquisition

interest in defense

electronics firms

❖ Strong DoD funding

expectations and

increased

geopolitical risks

drive defense

market growth

❖ Defense electronics

primes and leading

tier II manufacturers

show increased

M&A appetite in Q3

HIGHLIGHTS

dB Control (HEICO Corp.) Acquires TTT-Cubed

TTT-Cubed designs and manufactures RF sources, detectors, and

controllers. TTT will integrate with dB Control as a part of HEICO’s

Electronic Technologies Group

Mercury Systems, Inc. Acquires American Panel Corp

APC engineers and manufactures flat panel displays for AH-64

Apaches, M1A2 Abrams, as well as F-35, F-15, F-16 and F/A-18.

Mercury will integrate APC with their growing avionics platform

Orbit International Corp. Acquires Q-Vio, LLC

Q-Vio provides high-bright, low-power, thermally optimized LED

backlit displays, MIPI board solutions, and ruggedized LCD. Q-Vio

will operate as a subsidiary of Orbit Electronics Group.

Blackhorse Solutions Acquires Amplus Corporation (AMP+)

AMP+ creates digital signal processing algorithms within Software

Defined Radio architectures. AMP+ will integrate with Blackhorse to

serve Cyber Electro Magnetic Activities (CEMA) market.

▪ DoD spending expectations; low single-digit

CAGR

▪ Demand for domestically-produced

technologies

▪ Increasing global security challenges; i.e.

Russia, China, North Korea, and Middle

East instability

▪ FMS / International sales increasing

Defense Industry Drivers

▪ Program and customer expansion

▪ Supply chain delayering – primes

focusing on quality suppliers, tier II & III

incentivized to consolidate

▪ Pre-integrated, open architecture

subsystems

▪ Decreased time-to-market pressure from

DoD

4.3 5.48.4 9.3 11.2

16.2

24.1

36.8▪ 2019 Defense electronics market:

$55Bn

▪ Global A&D electronics market:

$116Bn

PEStrategic

Sources: RSAdvisors, DACIS, Mercury Systems, KAL Capital estimates

M&A Drivers

C4ISR Market ‘19 ($Bn) Active Buyers

Buyer Target

Aftermarket Services Focus

Q3 Aftermarket Deal Count

❖ Private equity

continues to pour

capital into

aftermarket services

❖ Component MRO

businesses buoy at

~9.4x EV / EBITDA

❖ Existing private

equity platform

expansion drives

third quarter

aftermarket deals

HIGHLIGHTS

Q3 Private Equity – All Eyes on the Aftermarket

2

4

7

NDT Test &Measurement

Logistics & Distribution

Component MRO

EV/EBITDA(Avg.)

~9.4x

▪ Component MRO EV/EBITDA multiples have

buoyed at ~9.4x for last two years

▪ Private equity continues to pour capital into

aftermarket, focusing on Part 145 repair stations

▪ PMA certification and DER repair capabilities challenge

high-priced OEM solutions and position key repair

stations as valuable private equity investments

Component MRO

Source: DACIS, KAL Capital estimates, and other publicly available information

Pattonair (Platinum Equity) acquires Wesco Aircraft

Wesco provides distribution and supply chain management services

to the aftermarket. Pattonair will greatly expand its customer base and

global footprint.

StandardAero (Carlyle Group) acquires Safe Aviation

Safe Aviation provides MRO and test services for fuel system

components, aircraft power generation, and actuation systems. The

deal will expand StandardAero’s line replaceable unit capabilities.

PAG (GenNx360 Partners) acquires Momentum Services Corp

MSC provides Part 145 repair specializing in aviation cockpit displays.

PAG will expand their capabilities in LCD cockpit displays,

integrating the business into their Atlanta and Long Beach stations.

AE Industrial Partners acquires Columbia Helicopters

Columbia provides rotorcraft MRO and manufacturing services to

military, firefighting, and oil & gas markets. The business also holds

DoD CARB certification, allowing for military transport services.

Buyer Target

This presentation has been prepared by KAL Capital Markets LLC (“KAL Capital”) for the exclusive use of the party to whom KAL Capital delivers this

presentation (together with its subsidiaries and affiliates, the “Recipient”) using publicly available information. KAL Capital has not independently verified the

information contained herein, nor does Salem make any representation or warranty, either express or implied, as to the accuracy, completeness or reliability of the

information contained in this presentation, or any other information (whether communicated in written or oral form) transmitted to or made available to the

Recipient. Any estimates or projections as to events that may occur in the future (including projections of revenue, expense, net income and stock performance) are

based on publicly available information as of the date of this presentation. There is no guarantee that any of these estimates or projections will be achieved. Actual

results will vary from the projections and such variations may be material. Nothing contained herein is, or shall be relied upon as, a promise or representation as to

the past or future. KAL Capital expressly disclaims any and all liability relating to or resulting from the use of this presentation.

This presentation has been prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related

financial instruments. The Recipient should not construe the contents of this presentation as legal, tax, accounting or investment advice or a recommendation. The

Recipient is urged to consult its own counsel, tax and financial advisors as to legal and related matters concerning any information described herein. This

presentation does not purport to be all-inclusive or to contain all of the information that the Recipient may require. No investment, divestment or other financial

decisions or actions should be based solely on the information in this presentation. The Recipient should not rely on any information contained herein.

This presentation has been prepared on a confidential basis solely for the use and benefit of the Recipient. The Recipient agrees that the information contained

herein and in all related and ancillary documents is not to be used for any other purpose, that such information is of a confidential nature and that Recipient will

treat it in a confidential manner. Distribution of this presentation to any person other than the Recipient and those persons retained to advise the Recipient who

agree to maintain the confidentiality of this material and be bound by the limitations outlined herein, is unauthorized without the prior consent of KAL Capital. This

material must not be copied, reproduced, distributed or passed to others at any time without the prior written consent of KAL Capital.

Trevor Bohn

Partner

(949) 404-4203

trevor@kalcap.com

Ryan Murphy

Partner

(949) 404-4204

ryan@kalcap.com

100 West Broadway

Suite 205

Long Beach, CA 90802

www.kalcap.com

P: (949) 404-4201