US-Israel

September 9, 2008 High Technology Forum

Anita M. Antenucci
Managing Director
Aerospace•Defense•Government Group

Houlihan Lokey
Investment Banking Services
1800 Tysons Blvd., 3rd Floor
McLean, Virginia 22102
703.847.5225

Los Angeles New York Chicago San Francisco Minneapolis Washington D.C. Dallas Atlanta London Paris Frankfurt Hong Kong Beijing Tokyo
 ADG
Market Trends US Aerospace Industry Overview

ƒ Current market trends in the Aerospace Industry:

¾ Aerospace cycle continues to be driven by the global airline sector
¾ Even with increased cancellations and deferrals, the large aircraft OEMs have enough in their
backlogs to sustain roughly flat production during 2010 - 2012
¾ The industry is currently focused on fuel efficiency and cost savings, with premium valuation
multiples paid for high priority technology companies

US Aerospace Industry Structure US Aerospace Industry Sales 1999 - 2008E

$225
$ 2 1 0 .6
$ 1 9 8 .8
$200
$ 1 8 3 .3
Primes/ $175
$ 1 7 0 .1
OEMs $ 1 5 3 .7 $ 1 5 1 .6 $ 1 5 2 .4 $ 1 5 5 .7
$ 1 4 4 .7 $ 1 4 6 .6
Billions of D ollars $150

$125
Tier I Suppliers
$100

$75
Tier II Suppliers
$50

$25

Tier III Suppliers

$0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2 0 0 8 (E)

Houlihan Lokey 2
 ADG
Market Trends US Defense Industry Overview

ƒ US DoD budget trajectory expected to continue over the next few years:
¾ Between FY09 and FY13 procurement is projected to rise $21 billion and O&M is expected to
rise $18 billion
¾ Overall O&M spending expected to remain flat between 2008 and 2011 as supplemental
spending declines
¾ A new administration will likely enact changes in Defense spending priorities

Defense Supplemental & Bridge Funding DoD Discretionary Budget Authority

$600
$800 $566.2
$515.4 $523.9 $530.3 $539.1 $548.8
$696.2 $705.7
$700 $500
$626.2
$600 $557.3
$400
$520.9
$500 $455.3 $465.8
$300
$400 $362.1

$300 $200

$200
$100
$100
$0
$0
08

09

10

11

12

13
20

20

20

20

20

20
08

09
02

03

04

05

06

07

FY

FY

FY

FY

FY

FY
20

20
20

20

20

20

20

20
FY

FY
FY

FY

FY

FY

FY

FY

Military Personnel Operations & Maintenance Procurement

RDT&E Military Construction Family Housing
DoD Budget W artime Supplementals W artime Bridge Funding W orking Capital Funds

Houlihan Lokey 3
 ADG
Market Trends Aerospace and Defense Market Activity
Observations M&A Activity

™ Aerospace companies continue to generate an abundant amount of cash and, 400

N umber of Tran saction s

as a result, have maintained aggressive acquisition strategies 350

Š Acquisitions often remain the best use of funds for strategic players as 300

organic growth rates slow 250

200 143 132
™ Defense M&A pricing remains stable despite declines in the equity markets 98 119
150 102
™ As speculation of large budgetary cuts increase, defense companies are 100 58 76
39
aggressively seeking acquisitions with exposure to the most critical areas 50 111 126 141 113
69 81 87 89
™ $302 billion of capital raised in 2007; demand for quality deals remains 0
strong

*
07
01

02

03

04

05

06

08
20

20
20

20

20

20

20
™ Lower levels of leverage force financial sponsors to focus on high quality

20
deals Aerospace D efense

Source: Houlihan Lokey, Capital IQ

*As of September 5, 2008

Public EV/EBITDA Multiples M&A Pricing

14.0X
1 4 .0 x 1 .8 x

1 2 .0 x 1 .6 x
12.0X
1 .4 x
1 0 .0 x

EV/EBITD A
10.0X 1 .2 x
EV/EBITD A

EV/REV
8.0X
8 .0 x 1 .0 x
6 .0 x 0 .8 x
6.0X
0 .6 x
4.0X
4 .0 x
0 .4 x
2.0X
2 .0 x 0 .2 x

.0X
0 .0 x 01 0 .0 x

02

03

04

05

06

07

*
*
01

02

03

04

05

06

07

08
08

20

20

20

20

20

20

20
20

20

20

20

20

20

20

20
20

Aerospace D efense Aerospace Defen se Aerospa ce D efen se

Source: Wall Street Research Source: Houlihan Lokey, Capital IQ

*As of September 5, 2008 *As of September 5, 2008

Houlihan Lokey 4
 ADG
Market Trends Foreign Investment in US ADG Assets

Observations Percent of Foreign Investment in US ADG

™ Foreign ADG Companies are making aggressive moves to expand their 3 5 .0 %

presence in the US market
Š Due to the weak dollar, acquisition currency is stronger for foreign 2 9 .8 %
acquirors 3 0 .0 %

Š Foreign acquirors are looking to create a natural currency hedge by 2 5 .2 % 2 5 .4 %

2 6 .0 % 2 6 .1 %

offsetting US dollar sales with US dollar cost inputs 2 5 .0 % 2 3 .3 %

2 2 .7 %
Š Foreign buyers are expanding US footprint in order to win more US
DoD contracts 2 0 .0 %
™ While the US ADG market continues to attract foreign buyers, transaction
challenges exist
1 5 .0 %
Š Political, regulatory, and cultural issues increase uncertainty and
2002 2003 2004 2005 2006 2007 2008
complexity of M&A transactions

Top Foreign Acquirors from 2002 - 2008 Top Israeli ADG Acquirors 2002 - 2008

Co bham
Elbit Systems Ltd.
BAE Systems
Ultra Electro nic Israel Aerospace
QinetiQ Gro up plc Industries Ltd.

Smiths Gro up RADA Electronic

M eggitt Industries Ltd.
Chemring
BUR Systems Ltd.
EAD S N .V.
Elbit Systems Ltd.
TAT Technologies
Thales

0 5 10 15 20 25 30 0 1 2 3 4 5 6 7
N umber o f AD G Acquisitio ns N umber o f AD G Acquisitio ns

Houlihan Lokey 5
 ADG
Market Trends US-Based Acquisitions Rationale & Case Studies

ƒ Favorable exchange rates driving increased foreign buyer interest

ƒ Access to US market and leading edge technology
¾ Expanded US presence driven by increase in post-9/11 defense spending
¾ Leverage increased presence to win DoD contracts

Announced: 5/7/07 Announced: 5/13/08

Acquiror: Acquiror:

Target: Target:

Target Revenue: $2.8 billion Target Revenue: $478 million

Acquisition Rationale Acquisition Rationale
Increase US presence and access to DoD Continued desire to increase presence in the
programs US defense electronics market

Houlihan Lokey 6
 ADG Foreign Firms Have Successfully Employed US-Based
Market Trends Acquisitions as Part of Their Growth Strategy

BAE SYSTEMS

£ 6.00
8/13/04: Acquisition of
Boeing’s Commercial
CAGR
Electronics Unit
£ 5.00 25.1%
8/17/04: Acquisition of
Practical Imagineering, Inc.

£ 4.00 4/5/04: $27MM

acquisition of STI 10/25/04: $592.2MM acquisition
Government of DigitalNet Holdings, Inc.
Systems 12/21/07: $451MM acquisition
£ 3.00 of MTC Technologies, Inc.
5/7/07: $4.0BN acquisition of
Armor Holdings, Inc.

£ 2.00
6/24/05: $4.2BN Acquisition of
United Defense Industries
11/18/04: $88.4MM acquisition of
ALPHATECH, Inc.
£ 1.00

£ 0.00

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Houlihan Lokey 7
 ADG Foreign Firms Have Successfully Employed US-Based
Market Trends Acquisitions as Part of Their Growth Strategy (cont’d)

COBHAM
£ 2 .5 0 CAGR
12/19/07: $195.0MM acquisition of
BAE Systems Surveillance and
Attack Unit 15.8%

12.21/04: $260.0MM
£ 2 .0 0
acquisition of REMEC, Inc.

4/6/04: $48.0MM 12.24/04: Acquisition of

acquisition of DTC H. Koch & Sons Co.
Communications, Inc.
5/13/08: $425MM
5/30/07: Acquisition of Patriot
Acquisition of
Antenna Systems
M/A-COM
£ 1 .5 0
1/15/08: $376MM
Acquisition of SPARTA, 8/20/08: Acquisition
Inc. of Global Microwave
Systems, Inc.

£ 1 .0 0
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Houlihan Lokey 8
 ADG Recent M&A Activity in the ADG Sector by Israel-Based
Market Trends Companies
Announce Acquiror Target Target Description Enterprise EV / EBITDA
Date Value

6/23/08 Elbit Systems Ltd. Bar-Kal Systems Engineering Bar-Kal is an Israeli company, engaged in research, development and marketing of NA NA
technologies related to systems engineering of hyperspectral remote sensing for
defense and government-related customers in Israel and abroad.

3/27/08 TAT Technologies, Bental Industries Ltd. Bental specializes in innovative motion technologies such as PM brushless $12.5 NA
Ltd. motors, PMGs (permanent magnet generators), electronic drivers and controllers,
servo actuators and more. Bental is the leading supplier in its field to Israel's
defense industries. Bental's products are integrated into various platforms and
applications including: turret & gun control systems for AFVs, UAVs, missiles,
jet engines, cryogenic coolers for thermal imaging systems, optical systems,
rotational drives for large antennae pedestals, and more.

7/26/07 Elbit Systems Ltd. Ferranti Technologies Limited Ferranti Technologies Limited designs, develops, and manufactures electronic and $30.7 NA
electro-mechanical equipment that is applicable to the defense, aerospace, and
commercial sectors of industry. The company forms business partnerships with
customers and suppliers in order that the most advanced products can be
manufactured. Its customers include British Aerospace, GEC Marconi, Lucas
Aerospace, and ALSTOM Transport.

3/20/07 Elbit Systems Ltd. Tadiran Communications Ltd. Tadiran Communications, Ltd. engages in planning, development, and $751.7 20.4x
manufacture of communication equipment and systems. The company operates
and manages radio sets and accessories, as well as communication and
telecommunication systems for military market; and technologies and wireless
products for civilian communications market for homeland security, public safety
and government agencies.

ƒ Elbit Systems has taken a pro-active approach to acquisitions, and is expected to continue doing so
¾ 17 acquisitions completed since 2003

Houlihan Lokey 9
 ADG Challenges to Foreign Buyers in the US Aerospace &
Market Trends Defense Market

ƒ Securing the necessary approvals may require knowing state and local governments,
federal agencies, and key politicians
ƒ General lack of understanding about the US regulatory hurdles may delay transaction
process
ƒ CFIUS scrutiny increases transaction complexity
ƒ Difficult to implement strategic goals and drive strategy from afar
ƒ Language difficulties and other cultural barriers impact ability to achieve acquisition
synergies
ƒ Access to technical data covered under ITAR requires US citizenship

Houlihan Lokey 10