Business

February 8, 2013

Aerospace deals drive uptick in fourth quarter M&A activity

Total merger and acquisition value increased in the aerospace and defense sector in the fourth quarter of 2012, following an anemic first nine months of the year, according to Mission Control, a PwC U.S. quarterly analysis of merger and acquisition activity in the global aerospace and defense sector.

Aerospace deals continued to represent the bulk of activity, as defense sector M&A activity remains constrained due to potential sequestration and uncertainty in defense spending. Once this uncertainty lifts in the year ahead, defense M&A should begin to recover as defense companies can better assess transaction opportunities, according to PwC.

We saw a welcome uptick in aerospace and defense M&A activity in the fourth quarter, driven by two mega deals in the commercial aerospace sector, said Scott Thompson, U.S. Aerospace and Defense leader at PwC. Looking ahead, the aerospace sector continues to attract significant M&A interest, with considerable attention focusing on the growth of commercial aviation. Defense sector M&A has remained muted, as investors wait for clarity on the outlook for U.S. defense spending. However, with strong balance sheets and cash positions, and the need to consolidate in a contracting market, we may see some increase in defense industry transactions once uncertainty around the defense budget is resolved.

Total A&D deal value (valued at $50 million or more) reached $8.7 billion in the fourth quarter of 2012, close to doubling from the $4.6 billion in total deal value recorded in the third quarter. This increase in value was primarily driven by two mega deals (valued at $1 billion or more) in the commercial aerospace sector, which accounted for approximately $6.9 billion and 80 percent of total deal value. Deal volume increased slightly during the fourth quarter of 2012 when compared to the third quarter, also driven by aerospace deals.

Looking at the full year of 2012, there were 284 announced deals with disclosed and undisclosed values in the A&D sector representing $19.5 billion in total deal value, down from the record year of 2011 of 320 deals, representing $43.2 billion in total value. Total deal value for 2012 was approximately 13 percent below the preceding 10-year average of $22.4billion. Excluding a mega deal announced in 2012 that was subsequently abandoned, total deal value was $17.7 billion in 2012, or 21 percent below the 10-year average. Overall, the aerospace M&A market had a very strong year, but the defense sector continued to lag.

In 2012, the defense sector faced potential U.S. sequestration and uncertainty, which has continued into early 2013. The defense sector did not generate one mega deal in 2012, while 2011 brought four mega deals. Significant cuts to U.S. defense spending, in the past, have led to waves of defense M&A, signaling potential improvement in deal totals in 2013. Once there is more certainty regarding defense budgets and the impact on specific programs, the defense industry will be able to better value companies and assess M&A opportunities. When this period begins, defense M&A is expected to become much more dynamic, and could lead to some historic deals, according to PwC.

In addition to horizontal consolidation, defense industry sequestration will force continued restructuring, increase the focus on growing exports and increase the likelihood of acquisitions in related services businesses like technology and healthcare. In the near-term until sequestration is decided ñ defense announcements will likely remain limited and focused on bolt-on acquisitions in cyber security, technology solutions and defense electronics,î added PwC’s Thompson.

In 2012 there was a minor shift toward deals involving U.S. parties (when measured on the basis of value) due to participation of U.S. entities in the two mega deals announced during the fourth quarter. This strength was not broad based, and without these two mega deals, average values would have fallen in the fourth quarter. The motivations behind U.S. deal activity during 2012 varied and included the attempted sale of distressed assets, the divestiture of non-core industrial businesses by defense contractors and diversification by defense contractors into higher growth businesses.

On a regional basis, Asia continues to become a more important player in the global aerospace and defense deal market, particularly as an acquirer.
Industrial policies in several of the developed and emerging markets within this region have encouraged the development of larger domestic competitors through local-market consolidation. European players will also likely become more active in the A&D M&A market in 2013. European defense cooperation should remain a motivation for local M&A. However, protectionist sentiments are expected to influence European-related transactions, in light of concerns over domestic employment and the desire to retain the economic benefits of domestic A&D industries.

For a copy of Mission Control, PwC’s quarterly analysis of M&A activity in the global aerospace and defense sector, visit www.pwc.com/us/industrialproducts.




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


 
 

 

Headlines September 15, 2014

News: Navy identifies pilot presumed dead in crash - A Navy fighter pilot presumed dead after two fighter jets crashed in the far western Pacific Ocean has been identified.   Business: Boeing eyes 737-700 solution for new JSTARS - Boeing is officially planning a variant of its 737-700 commercial jetliner as a competitor for the Air Force’s...
 
 

News Briefs September 15, 2014

Australia contributing planes for anti-IS campaign Australia is preparing to contribute 600 troops and up to 10 military aircraft to the increasingly aggressive campaign against the Islamic State extremists in Syria and Iraq, Prime Minister Tony Abbott said Sept. 14. Abbott said Australia was responding to a formal request from the United States for specific...
 
 
Courtesy graphic

Lockheed Martin conducts flight tests of aircraft laser turret for DARPA

AFRL photograph The Aero-adaptive Aero-optic Beam Control turret that Lockheed Martin is developing for the Defense Advanced Research Projects Agency and the Air Force Research Laboratory has completed initial flight testing. T...
 

 

Lockheed Martin advances live, virtual, constructive training in flight test

https://www.youtube.com/watch?feature=player_embedded&v=jvXmOW8L3mU Lockheed Martin successfully tested a new solution for integrated live, virtual and constructive training during a flight demonstration at the company’s Aeronautics facility in Fort Worth, Texas. During the flight test, a pilot flying in a live F-16 engaged in a synthetic training exercise with a pilot flying as wing...
 
 
Image courtesy of NASA/JPL-Caltech/Univ. of Arizona

NASA’s Mars Curiosity rover arrives at Martian mountain

NASA’s Mars Curiosity rover has reached the Red Planet’s Mount Sharp, a Mount-Rainier-size mountain at the center of the vast Gale Crater and the rover mission’s long-term prime destination. “Curiosity n...
 
 

Raytheon begins full rate production on TALON Laser Guided Rockets

Under a $117 million contract awarded to Raytheon, Raytheon Missile Systems has begun production of the TALON Laser Guided Rocket. In 2013, the Armed Forces General Headquarters of the United Arab Emirates awarded Tawazun a contract to procure the TALON Laser Guided Rocket. “Full rate production of the TALON LGR is a significant milestone for...
 




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>