Business

June 29, 2012

U.S. aerospace, defense execs expect significant merger, acquisition

Armed with significant cash on their balance sheets, and faced with hundreds of billions of dollars in federal defense budgets, U.S. aerospace and defense executives cite strategic acquisitions as the highest-priority investment area to spur company growth, according to a recent survey by KPMG LLP, the audit, tax, and advisory firm.

In the 2012 KPMG A&D Industry Outlook survey, nearly three-quarters (71 percent) of aerospace and defense executives say their companies will be involved in a merger or acquisition in the next two years.

In addition, 64 percent of aerospace and defense executives indicate that their companies have significant cash on their balance sheets, and more than half (53 percent) say they will increase capital spending this year.

Many executives say the highest-priority use for that capital will be strategic acquisitions for their companies (49 percent) – up significantly from 41 percent in KPMG’s 2011 survey. Forty-two percent say they will also aggressively invest in new products and services.

“The way we see it, there’s a day of reckoning coming, and many aerospace and defense executives are telling us that this may spur an industry response similar to what drove major industry consolidation in the 1980s and 1990s, or perhaps an even more dramatic response,” said Martin Phillips, U.S. and global leader of KPMG’s aerospace and defense practice. “They are rethinking their strategies and becoming much more aggressive to drive growth and compete.”

Phillips adds that U.S. government contracts are dwindling, companies are becoming more global, and foreign investors are looking to move into the “non-government” aerospace and defense sector as well. “All of these factors set the stage for much more aggressive mergers and acquistions, product strategies and international growth initiatives.”

In fact, when asked about the biggest drivers of revenue growth over the next three years, executives most frequently cited acquisitions and joint ventures (50 percent) and new product development (50 percent). In addition to continued focus on cost reduction and operational improvement, executives say that the top management initiative for their companies in terms of energy, time and resources will be investigating opportunities for mergers and acquisitions.

“Companies must find a way to break through to new customers and markets, which in many cases will only be possible through partnerships, joint ventures or pure acquisitions,” said Doug Gates, partner in KPMG’s aerospace and defense practice. “In this era of continued belt tightening, we also must not ignore just how attractive some of our domestic assets look to foreign investors, especially as aerospace and defense companies look to divest from underperforming assets.”

With a continually challenged domestic defense sector, executives remain focused on international growth. In fact, the four main strategies to fuel that growth are partnerships/joint ventures (41 percent), foreign military sales (38 percent), international expansion (36 percent) and acquisitions (24 percent). According to the executives surveyed by KPMG, the highest priority foreign markets are Asia (other than China), Europe and the Middle East.

Phillips notes “last year 54 percent of executives identified foreign military sales as the key strategy, but the drop in the results this year appears to indicate a realization that the foreign opportunities these companies are pursuing take several years to materialize. We continue hear about India and Brazil, but look at it realistically and you see that foreign military orders have been minimal to date.”

Despite foreign sales challenges, looking ahead three years, nearly half (43 percent) of executives surveyed by KPMG say that non-U.S. operations or customers will account for more than a quarter of their companies’ revenues, compared with just 35 percent who currently derive more than a quarter of their revenue from foreign operations.

When asked what gives their company a competitive advantage in today’s marketplace, executives most frequently cited innovation and new product development, followed by quality of product and service, customer relationships. The greatest constraints to achieving competitive advantage, according to KPMG survey respondents, are total product costs, innovation and the ability to keep ahead of market trends.

While 62 percent expect modest economic improvement next year, more than half (55 percent) don’t see a full economic recovery until 2014 or later. Likewise, most executives in the KPMG survey expect revenue and employment levels to remain flat or increase only modestly next year. When asked to predict when their company’s U.S. headcount would return to pre-recession levels, 44 percent said 2014 or later, and 14 percent said “never.”




All of this week's top headlines to your email every Friday.


 
 

 

Headlines July 28, 2014

News: U.S. has lost track of weapons given to Afghanistan - The United States supplied almost three quarter of a million weapons to Afghanistan’s army and police since 2004, but the military cannot track where many of those arms have gone, a new report found. Bill to improve VA has $17 billion price tag - A bipartisan...
 
 

News Briefs July 28, 2014

Marines seek authorization for dolphin deaths The Marine Corps is asking for a five-year authorization from the National Marine Fisheries Service for incidental deaths of bottlenose dolphins during training exercises at a bombing and target range. The Sun Journal of New Bern, N.C., reports that Connie Barclay of the National Oceanic and Atmospheric Administration says...
 
 
Army photograph by David Vergun

Senior leaders explain Army’s drawdown plan

Army photograph by David Vergun No commander is happy when notified that a soldier from his or her command has been identified for early separation. But commanders personally notify those Soldiers and ensure participation in th...
 

 

Northrop Grumman awarded mission support services contract

The U.S. Army awarded Northrop Grumman a cost-plus-fixed-fee contract, with a potential value of $205 million, to continue providing mission logistics services in support of combat brigades training at the National Training Center in Fort Irwin, Calif. The contract covers one base year and two one-year options. Support will include the full range of mission...
 
 
Lockheed Martin photograph by Beth Groom

F-35 Rollout Marks U.S.-Australia Partnership Milestone

Lockheed Martin photograph by Beth Groom Royal Australian Air Force Air Marshal Geoff Brown delivers his remarks at the roll out ceremony for Australia’s first F-35. The official rollout of the first two F-35 Lightning II...
 
 
NASA/JPL-Caltech image

NASA’s Mars spacecraft maneuvers to prepare for close comet flyby

NASA/JPL-Caltech image This graphic depicts the orbit of comet C/2013 A1 Siding Spring as it swings around the sun in 2014. On Oct. 19, the comet will have a very close pass at Mars. Its nucleus will miss Mars by about 82,000 m...
 




0 Comments


Be the first to comment!


Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>