Mission control: Second-quarter 2010 aerospace and defense industry mergers and acquisitions analysis

This quarter, Mission control continues its special report series on making smarter deals in a changing environment with a look at merger integration and the ever-increasing importance of capturing synergies to maximize deal value. The discussion explores the importance of cost containment, identifies synergy targets, and suggests strategies for successful M&A integration..

Our analysis of second quarter data reveals that deal activity was relatively sluggish in Q2 2010. Although the sector saw significant activity in the middle-market and large deal segments of the market, mega-deal activity was nonexistent during the quarter. While the pace of deal activity, as measured by the volume and value of transactions, remains above the recession lows of Q1 2009, the overall deal market recovery took a relative pause in Q2 2010.

Despite the decline in deal activity, one noteworthy trend was the reemergence of US entities, which became more active in the deal market during Q2 2010 compared with 2009 and Q1 2010 when measured by their relative participation in announced deal volume and value. The increased involvement from US entities may be attributed in part to the release of the US Quadrennial Defense Review, which is eliminating some of the uncertainty surrounding upcoming defense spending priorities.

It is likely that 2009 represented a trough for mega-deal activity in the sector, as improved capital markets and a recovery in the global economy will likely encourage buyers to seek new transactions at or above $1 billion. We believe that these factors will also help drive overall deal totals in the sector, leading to our cautiously optimistic outlook for the deal market entering the second half of 2010.