Small is the name of the game in aerospace and defence sector deals, says PricewaterhouseCoopers LLP
LONDON, 17 NOV 2009 -- The global economic crisis continues to severely constrain global aerospace and defence (A&D) deal activity, as the total value of deals with disclosed values of at least $50 million continued to decline on a year-on-year basis for the first three quarters of 2009, according to the PricewaterhouseCoopers LLP report, Mission control: Third-quarter 2009 global aerospace and defence industry mergers and acquisitions analysis.
PwC’s analysis revealed that the pace of third-quarter deal activity (measured by number and total value of deals with disclosed values of at least $50 million) declined on a year-over-year basis, as was the case for both the first and second quarters. However, compared to the first and second quarters of 2009, deal activity in the third quarter showed a marked improvement, both in terms of the number of deals and in particular, deal value.
Neil Hampson, global aerospace and defence leader, PricewaterhouseCoopers LLP said:
“While the market has experienced some signs of life regarding larger deals, we believe that small currently remains the name of the game. In the near term, we anticipate a limited amount of large deal activity in the A&D sector and a steady or increasing level of mid-market deal activity as buyers and sellers become more comfortable operating in today’s changed financial and economic environment.
“We believe strategic impetus will continue to drive activity in the near term as financial investor appetite remains constrained and as companies exploit opportunities to acquire assets that make their businesses stronger through building density in current markets, enhancing their supply chains, or filling gaps in their product lines.”
The pace of deals valued at $50 million or more has slowed in 2009, falling 69 percent to 11 deals through the first three quarters of the year, compared to 36 deals in the first three quarters of 2008. However, the pace of deals valued at $50 million or more has seen a sequential increase during 2009 from quarter to quarter. In the first quarter of 2009, there was only one A&D sector deal over $50 million, four more were announced in the second quarter and six were announced in the third quarter of 2009, two of which were valued at more than $500 million.
Year-to-date deal value has remained significantly constrained in 2009, relative to a year ago, due in part to limited activity by financial investors and persistent weakness in the capital markets.
- The total deal value for deals worth over $50 million through the third quarter was $2.5 billion, compared with $16.1 billion for the same time period in 2008 (a decline of 85%)
- However, total deal value for deals over 50 million, like deal volume, has seen a sequential increase in 2009 on a quarter-to-quarter basis, rising from $433 million in the second quarter to approximately $2 billion in the third quarter
- While the total number of deals in 2009 continues to increase, the total value of deals is $4.2 billion (a decrease of just under 80% compared with 2008’s total deal value of over $19 billion)
- While year on year total deal values have decreased sharply, sequentially, deal values have started to pick up in 2009. Aircraft and part manufacturers represented 58% of deals versus 33% in 2008.
- Financials investors accounted for 25% of deals with values greater that $50 million in 2008 dropping to 18% for 2009. With the exception of Boeing's acquisition of a facility previously owned by Vought Aircraft Industries, large deals in excess of $1 billion continue to elude the A&D sector.
As the economy improves, large deal activity should continue to increase since sector constituents have had time to focus on balance sheet deleveraging and cost reduction, potentially leaving them better positioned to resume strategic actions.
When considering deal value by region where the target resides, North America was dominant representing 48% of total deal value, which may suggest acquirers have been taking advantage of foreign currency movements, specifically the devaluation of the US dollar. North America and Europe dominated acquirers by region, when measured by total deal value. While North America and Europe dominated deal value by acquirer, the number of deals during the first three quarters of 2009 was skewed towards Europe, accounting for over 45% of deals.
Neil Hampson, global aerospace and defence leader, PricewaterhouseCoopers LLP said:
“The depth and global scale of the current recession, the focus on the strengthening of balance sheets, and the significant degree of deleveraging, has forced some otherwise well run companies to seek strategic niche acquisitions as a means to support overall growth in an environment where organic growth remains difficult. Taking into account deal activity after previous recessions, deal values may be at or near the bottom, given the quarter on quarter improvement in 2009, which could potentially provide some comfort heading into 2010.”
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