Aerospace and defence firms rein back spending on M&A

MERGER and acquisition activity in the aerospace and defence sectors remained at near-record levels in 2009, though the value of completed deals plummeted as firms reined in their acquisition budgets, new research from accountancy firm PricewaterhouseCoopers has shown.

The value of deals in the sector more than halved over the past year to $10bn (£6.5bn), its lowest level of the decade. Among larger mergers and acquisitions worth above $50m, the average deal value fell from $519m in 2008 to just $379m in 2009, reflecting increased worries around programme cost delays and overruns, lower orders for large military platforms and reduced passenger and freight travel.

Around 90 per cent of the total M&A value was generated in the US, Asia and Oceania, due to the dominance of American companies in the sector and the growing influence of emerging economies.

Neil Hampson, PwC’s global aerospace and defence leader, said: “As we look ahead into the new decade, small and strategic is likely to remain the name of the game in the short term, but major restructuring forces are likely to be felt increasingly strongly in the long term with consequent implications for deal strategies and values.

“With cash-rich balance sheets and improved fundamentals, businesses are likely to continue using the M&A market as a means to fill gaps in existing portfolios, expand and maintain market share and address the shift in defence priorities.”

The largest aerospace and defence deal to be completed last year was the sale of defence contractor Northrop Grumman’s TASC advisory services business to an investor group led by General Atlantic, for $1.65bn. The second largest was Boeing’s $1bn purchase of a production facility from Vought Aircraft Industries.