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FOCUS Enterprise-Focused Telecom Technology Quarterly – Summer 2020

Public Markets

After dipping slightly in our spring report, the Enterprise-Focused Telecom Technology Index (EFTTI) roared back in our summer period to past a three-month gain of 23.9%. Every single sub sector in the index was in positive territory, and three of the five sub sectors posted double digit gains.The EFTTI’s gains compared favorably to both the 12.3% gain in the S&P 500 and the 20.9% gain in the NASDAQ over the corresponding time period.This period’s strong performance was also good enough to bring the sector into the black for the full year period with a gain of 10.4%.This is on par with the year-over-year gain in the S&P 500 of 9.8%, but significantly lags the 31.4% gain in the NASDAQ. Sub sector multiples recovered nicely and are now higher than they were this same time last year. The sector revenue multiple increased from 4.8x to 5.3x, while the sector EBITDA multiple inched up from 20.0x to 20.9x.

C4ISR Industry Review and Outlook – July 2020

C4ISR Industry Trends - July 2020

Overview

The United States Military is increasingly focused on electronic warfare and cyberattack defense. These priorities are reflected in the Department of Defense (DoD) budget as well; 40% of the DoD’s military budget is allocated towards the procurement of military electronics and technologies. A large amount of capital must be spent on the upgrades needed to achieve this level of modernization, a primary driver of demand within this space. The DoD is expected to invest approximately $30B in electronic warfare capabilities over the next 3 years.

The military’s shift from physical fighting to electronic warfare and cybersecurity has created M&A opportunities for industry players, who are growing their companies by acquiring smaller companies with specialized capabilities within the C4ISR space.

FOCUS Telecom Business Services Quarterly: Summer 2020 Report

Public Markets

The FOCUS Telecom Business Services Index (TBSI) benefitted from the overall market correction to March’s downturn and grew 17.4% over the past three months. Despite this strong performance, the sector still underperformed both the 20.0% gain in the S&P 500 and the 30.6% rise in the NASDAQ over the corresponding time period.The trend is similar for the full year period as the TBSI dropped 2.5% compared to 5.4% and 25.6% increases in the S&P 500 and NASDAQ indices, respectively. The sector revenue multiple held steady compared to this same time last year at 0.6x. However, the EBITDA multiple for the sector fell from 8.6x a year ago to 7.4x currently after a March low of 5.9x.

FOCUS U.S. Communications Service Provider Quarterly: Summer 2020 Report

Public Markets

The FOCUS Communications Service Provider Index (CSPI) rebounded strongly from the steep decline in our spring report to post a gain of 10.4% in the past three months. Even so, this period’s gains still did not erase all of the losses from the spring. In addition, the CSPI also significantly underperformed both the 20.0% gain in the S&P 500 and the 30.6% gain in the NASDAQ over the corresponding time period. The sector also underperformed the broader indices for the full year as the year-over-year loss of 3.3% in the CSPI compares unfavorably to both the 5.4% gain in the S&P 500 and the 25.6% gain in the NASDAQ. Sector multiples are largely consistent with where they were a year ago. The sector revenue multiple dipped slightly from 2.8x to 2.7x, while the sector EBITDA multiple held steady at 7.8x.

FOCUS Carrier-Focused Telecom Technology Quarterly: Summer 2020 Report

Public Markets

After four straight reports with negative returns, the Carrier-Focused Telecom Technology Index (CFTTI) finally bounced back with a strong return of 12.6% in our summer reporting period. This outperformed both the S&P 500 (up 3.1%) and the NASDAQ (up 10.8%) by a wide margin. Even with this period’s strong performance, the CFTTI still significantly lags the broader indices over the full year. The CFTTI is stuck in negative territory with a 12-month loss of 3.5%, while the S&P 500 and NASDAQ are up 10.6% and 27.3%, respectively, over the course of the past year. Multiples are also slightly lower for the sector compared to the year-ago period. The sector revenue multiple dropped from 2.5x to 2.4x, and the sector EBITDA multiple fell from 14.0x to 11.5x.

FOCUS Enterprise-Focused Telecom Technology Quarterly – Spring 2020

Public Markets

While a 2.0% drop in the Focus Enterprise-Focused Telecom Technology Index (EFTTI) over the course of a three-month period would normally be considered disappointing, given the current environment for public equities it seems like a victory. This is highlighted by comparing it to the three-month drop in the S&P 500 of nearly 10%, and it also beats out the 2.9% decline in the NASDAQ over the same time frame. Sector performance is not as strong when measured over the full year period as the 11.9% decline in the EFTTI stacks up unfavorably compared to the 1.1% decline in the S&P 500 and the 9.8% gain in the NASDAQ. Sector multiples are also down significantly compared to this same time last year.The sector revenue multiple dropped nearly a full turn from 4.8x to 4.0x, while the sector EBITDA multiple fell from 20.3x to 16.6x.

FOCUS U.S. Communications Service Provider Quarterly: Spring 2020 Report

Public Markets

Not surprisingly given the current state of the public markets, it was a challenging three-month period for the FOCUS Communications Service Provider Index (CSPI). The sector plummeted just shy of 20% over this time frame, which was roughly in-line with the 20.0% drop in the S&P 500 but greater than the 14.2% drop in the NASDAQ over the corresponding time frame.The situation looks a bit better when measured over the full year period.The CSPI was down only 9.3% in the past 12 months, although once again this underperforms both the S&P 500 (down 8.8%) and the NASDAQ (down 0.4%). Sector multiples are lower than they were in the year-ago period, although the drop is not as dramatic as we might have feared.The sector revenue multiple dipped from 2.7x t0 2.5x, while the sector EBITDA multiple fell from 8.0x to 7.2x.

FOCUS Telecom Business Services Quarterly: Spring 2020 Report

Public Markets

Unfortunately the FOCUS Telecom Business Services Index (TBSI) was not immune from the storm that hit the capital markets this period. The sector plummeted 27.2% over the past three months, which significantly underperformed both the 20.0% drop in the S&P 500 and the 14.2% drop in the NASDAQ over the corresponding time period. The situation is similar for the full year period as the 9.1% drop in the TBSI was greater than the 8.8% and 0.4% drops in the S&P 500 and NASDAQ, respectively. Interestingly, the sector revenue multiple held steady compared to this same time last year at 0.4x. However, the EBITDA multiple for the sector fell precipitously from 9.2x a year ago to 6.6x currently.

A2Z Manufacturing: Is This the Competitor You Should Really Be Worrying About?

Merger and acquisition activity has accelerated in the precision machining industry due to the confluence of three fundamental technological and market forces.
  • Large capital inflows from private equity funds
  • Automated, digital manufacturing processes
  • Digital integration of the supply chain
The capital required to simply stay competitive is likely to soon leave a substantial portion of the industry field behind. The average firm owner may not yet have felt a serious impact, but complacency about the changes underway will threaten the competitive position of many industry participants and can have a serious impact on the equity they have taken years to build. Owners must recognize and confront pro-actively the building pressures for exploring a non-organic growth model. 

FOCUS Carrier-Focused Telecom Technology Quarterly: Spring 2020 Report

Public Markets

Our Spring 2020 report marks a full year of reports where the Carrier-Focused Telecom Technology Index (CFTTI) delivered a negative return for the three-month period. In this case the sector was down 6.9% over the past three months. The broader indices are also down over this time frame, although not as steeply. The S&P 500 lost 6.0% over this same period, while the NASDAQ only dropped 1.1%. The situation for the full year is even more discouraging as the CFTTI is down 17.0% year-over-year while the S&P 500 and NASDAQ are up 6.1% and 13.7%, respectively. Sector multiples have also dropped significantly compared to this same time last year. The sector revenue multiple dropped from 2.5x to 2.1x, while the sector EBITDA multiple fell from 14.9x to 10.6x.