Positive Outlook For Aerospace And Defense M&as
Positive Outlook for Aerospace and Defense M&As
The latest figures show clearly that the US is driving the increase in mergers and acquisitions activity within the global aerospace and defense market and analysts are preparing for a busy second half.
Although deal-making in the second quarter of 2011 was in line with the activity during the same period a year before, the remarkably strong first quarter meant the first half of this year considerably outperformed H1 2010. A total of 30 deals took place in the first six months of 2011, with a combined value of $15.2 billion. This was a 39 per cent improvement on the 23 deals completed in the first half of 2010, which totaled just $10.9 billion.
These figures - which are gleaned from the latest quarterly PriceWaterhouseCoopers (PwC) report into M&A activity in the global defense and aerospace sector - also show that 70 per cent of the deal volumes in the second quarter of the year involved US companies.
PwC said that the figures for the first half of the year reflect the ongoing appetite for deals in the industry. The report stated that the positive first half could indicate an even busier second half: We're already seeing signs of significant deal flow in the second half that could lead full year 2011 totals to approach the record levels of 2007. Defense companies continuing to reshape their portfolios, ongoing appetite from investors in the booming commercial aerospace sector and the growing stockpiles of cash on corporate balance sheets are all factors contributing to our M&A growth expectations in aerospace and defense,' said the firm.
The industry is certainly going from strength to strength, with a recent report from industry research firm, RNCOS, predicting a compound annual growth rate in the sector of 3.2 per cent over the 2011-2013 period. This growth is expected to be largely driven by the civil aviation segment, and generally through growing air traffic and investment from military. Meanwhile, average revenues recorded by firms questioned as part of the Flight International Top 100 survey, increased by two per cent last year.
PwC claims that much of the increase in M&A activity in the first half of the year has been attributable to divestitures. This trend for spinning off slower-growing defense businesses, and creating a more prioritized, compact portfolio, is expected to continue.
Alongside the increase in divestitures came a rise in financial investor activity during Q2. Some 15 per cent of the deals worth over $50 million came about as a result of the involvement of a financial investor, compared with only one such deal during Q2 2010. These investors are likely to find plenty to keep them hooked on aerospace and defense industry deals in the coming six months, according to PwC, which stated, Strategic investors, especially in the US, are continuing to move quickly in this space, leveraging their ample liquidity positions. Weak defense spending trends coupled with pressures to use this cash or return it to shareholders should lead to these companies seeking more M&A opportunities.
Other notable predictions from PwC involved thoughts on the likelihood of mega-deals occurring, and the rise in cross-border M&A activity within the sector. The report suggested that the growing size of the US market will ensure it continues to attract buyers from other countries, including emerging markets such as Russia, Brazil, India and China. Scott Thompson, PwCs US Aerospace and Defense Leader, said that US firms need to be on the look-out for corruption when dealing with buyers from developing countries.
As for the value of the deals in the second half of 2011, the general consensus emerging was that values could rise and deals worth over $1 billion could become more commonplace as investors identify and target firms less likely to be affected by cuts in military spending budgets.
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by: Kelly Smith
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