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.


 
 

 
Boeing photograph

Boeing program completes critical design, safety reviews

Boeing photograph Boeing recently completed the Phase Two Spacecraft Safety Review of its Crew Space Transportation-100 spacecraft and the Critical Design Review of its integrated systems, meeting all of the companyís Commerci...
 
 
LM-C130

Keep on Rockin’: C-130J ferries to Little Rock AFB

  The 61st Airlift Squadron at Little Rock Air Force Base, Ark., received another Lockheed Martin C-130J Super Hercules airlifter Aug. 21.  Brig. Gen. Brian Robinson, vice commander, 618th Air and Space Operations Center ...
 
 

Air Force tests Raytheon’s upgraded High-Speed Anti-Radiation Missile

Raytheon Company and the U.S. Air Force successfully flight tested an upgraded High-Speed Anti-Radiation Missile. The HARM Control Section Modification is more precise and accurate, which reduces potential collateral damage. During this test mission, an F-16 aircraft fired an HCSM, AGM-88F, against an emitter located outside of a zone of exclusion, which contained a similar...
 

 

F-16V completes major capability milestone

The newest configuration of the F-16 Fighting Falcon, the F-16V, has reached a major capability milestone with the integration of a new Active Electronically Scanned Array radar. Completing this milestone on schedule demonstrates our ability to meet program commitments, said Roderick McLean, vice president and general manager of the F-16/F-22 Integrated Fighter Group at Lockheed...
 
 
Lockheed Martin photograph

Robots moving robots: Lockheed Martin conducts first fully autonomous mission

Lockheed Martin photograph A K-MAX unmanned helicopter delivers an SMSS unmanned ground vehicle during a fully autonomous mission demonstration at Fort Benning, Ga. A safety pilot was on board K-MAX but did not operate the cont...
 
 

Lockheed Martin introduces maritime test bed

Using a newly developed advanced maritime test bed, Lockheed Martin recently demonstrated how continually evolving technologies such as data fusion and predictive analytics can be used to share intelligence quickly and securely – even in limited bandwidth naval settings. This new software test platform, designed to mimic different naval environments at sea and ashore, allowed...
 




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>