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Please see the full Q3 report here.

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.

Quarter in Review Table of Contents:

I. KAL Capital Overview

II. Q3 M&A Snapshot

III. Commercial Focus

IV. Defense Focus

V. Aftermarket Focus