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Defense ETFs to Gain on Teledyne's FLIR Systems Buyout Deal

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Sweta Killa
·4 min read
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Mergers & acquisitions remained remain strong to the start 2021. This is especially true, as an industrial conglomerate Teledyne Technologies TDY has agreed to acquire thermal imaging camera supplier FLIR Systems FLIR for $8 billion in cash and stock. The deal would represent the biggest acquisition for Teledyne in three decades.

Per the terms of the deal, FLIR shareholders will receive $28.00 per share in cash and 0.0718 shares of Teledyne common stock for each FLIR share, which implies a total purchase price of $56.00 per FLIR share based on Teledyne’s 5-day volume weighted average price as of Dec 31, 2020. The transaction reflects a 40% premium for FLIR stockholders based on FLIR’s 30-day volume weighted average price as of Dec 31, 2020.

Though both companies provide sensor technologies, the transaction will expand Teledyne’s portfolio of imaging sensor technology. The demand for FLIR’s thermal cameras has surged amid the COVID-19 pandemic as it can identify elevated skin temperatures through non-contact temperature monitoring (read: 5 Small-Cap ETFs Set to Explode on COVID-19 Vaccines).

The acquisition will immediately add to earnings, excluding transaction costs and intangible asset amortization, and is accretive to GAAP earnings in the first full calendar year following the acquisition. The transaction has been approved by the boards of both companies and is expected to be completed in the middle of 2021 subject to regulatory approvals.

Market Impact

Following the announcement of the deal, shares of FLIR gained 19.2% at the close on Jan 4 while TDY dropped 7.5%. The news has put the spotlight on aerospace and defense ETFs, which could be the best ways for investors to tap the opportunity arising from the TDY-FLIR deal talks. Investors should keep a close eye on the movement of these ETFs over the coming weeks.

iShares U.S. Aerospace & Defense ETF ITA

This fund provides exposure to U.S. companies that manufacture commercial and military aircraft and other defense equipment by tracking the Dow Jones U.S. Select Aerospace & Defense Index. It holds 35 stocks in its basket with AUM of $2.9 billion and expense ratio of 0.42%. The product trades in an average daily volume of around 340,000 shares. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: ETFs to Win on Boeing Shares Gain: Prospects Look Bright).

SPDR S&P Aerospace & Defense ETF XAR

XAR offers equal-weight exposure to 33 companies in the aerospace & defense segment. It follows the S&P Aerospace & Defense Select Industry Index, charging 35 bps in annual fees from investors. The fund has been able to manage $1.2 billion in its asset base and trades in an average daily volume of 98,000 shares. It has a Zacks ETF Rank #3 with a Medium risk outlook.

SPDR S&P Kensho Future Security ETF FITE

With AUM of $17.8 million, this ETF offers exposure to companies which offer products and services that are driving innovation behind future security including the areas of cyber security, advanced border security, and the following areas for military application: robotics, drones and drone technologies, space technology, wearable technologies and virtual or augmented reality activities. It tracks the S&P Kensho Future Security Index, holding 66 stocks in its basket. The product trades in an average daily volume of 4,000 shares and charges 45 bps in annual fees from investors. The fund has a Zacks ETF Rank #3 (read: Tech Tops in 2020: ETFs & Stocks That More Than Doubled).

SPDR S&P Kensho Final Frontiers ETF ROKT

This ETF follows the S&P Kensho Final Frontiers Index, which utilizes artificial intelligence and a quantitative weighting methodology to capture companies, which offer products and services that are driving innovation behind the exploration of the final frontiers, including the areas of outer space and the deep sea. It holds a basket of 29 stocks and charges 45 bps in annual fees. The product has accumulated AUM of $12.2 million and trades in volume of 3,000 shares a day on average. It has a Zacks ETF Rank #3.

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FLIR Systems, Inc. (FLIR) : Free Stock Analysis Report
 
Teledyne Technologies Incorporated (TDY) : Free Stock Analysis Report
 
SPDR S&P Aerospace & Defense ETF (XAR): ETF Research Reports
 
iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports
 
SPDR S&P Kensho Future Security ETF (FITE): ETF Research Reports
 
SPDR S&P Kensho Final Frontiers ETF (ROKT): ETF Research Reports
 
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