June 6, 2014

The State of Unmanned Capital, June 2014

Jonathan Rubin

The Unmanned Systems industry has received a lot of air time and ink, both electronic and physical, in the media over the last several years. We have reached a stage where not only awareness, but also applications are poised to enter the mainstream of our society. For airborne unmanned systems, individuals are buying hobby systems and they will soon be watching movies and TV shows filmed with UAS-mounted cameras. For ground-based systems, Google’s recent announcement of its self-driving vehicle created broad awareness of the imminence of societal significant change. On the sea, the search for Malaysia Air Flight 370 off the coast of Australia with the Bluefin-21, while associated with a tragedy, highlighted the capabilities of maritime unmanned systems.

But despite the penetration of unmanned systems into popular culture, from the perspective of business owners, the level of funding activity and mergers and acquisitions in the segment is only starting to expand.

In the last 12 months, Westbury has identified six equity capital raises, two of which involved the same target. From the perspective of investors, there is still so much uncertainty in the industry that the risks outweigh the potential returns.

During the same period, there were 16 acquisitions of companies related to the unmanned systems industry. Some of these acquisition were only tangentially related to our industry. For example, Directed Manufacturing, Inc., which was acquired by RTI International Metals, Inc. (NYSE:RTI) in January for $23 million, makes metal parts for a variety of industries, including unmanned systems. Other transactions were more “pure play,” such as the acquisition of Aerial Precision Ag by RoboFlight Systems, LLC on March 31st of this year.

Westbury believes that a clearer regulatory framework this activity could mark the beginning of a strong wave of both financing and M&A, which will gather momentum in 2015, assuming the broader market does not suffer a dramatic decline in the interim. Given the six to twelve month time frame typically required for either to raise financing, or to sell or buy a company, owners and Boards of Directors who wish to execute a transaction so that they can take advantage of the industry’s expansion phase, should be planning for that effort now.

Jonathan Rubin
Managing Director
Westbury Group LLC
(203) 745-0272

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