London, 22 FEB 2010 -- The fast descent of deal values in aerospace and defence (A&D) spurred by recession and the banking crisis of 2008 continued into 2009 with the first quarter of the year seeing a near-stalling of deal value. Since that time, deal values have revived but small deals continue to dominate the sector’s activity, according to ‘Mission Control’, PwC’s annual review of merger and acquisition activity in the global A&D industry.
However, deal activity, as measured by the total number of deals, has stayed buoyant at near record levels as companies limit their acquisition budgets but continue to take advantage of opportunities to make small but strategic purchases.
While deal activity stayed high, values plummeted. The average value of larger deals (US$50 million or above) fell 27% to US$379 million in 2009 from US$519 million in 2008. The total value of these larger deals dropped 62% from US$20.8 billion in 2008 to just US$7.9 billion in 2009. Indeed total A&D deal value in 2009 fell 54% year-on-year to US$10 billion, its lowest level of the decade, and a 76% fall from the US$41.6 billion high of 2007. The considerable moderation in deal ambition reflects continuing concern about programme cost delays and overruns, lower orders for large military platforms and reduced passenger and freight travel.
The overall reduction in M&A investment reflected these concerns. At the same time, the market continued to see a flow of deals reflecting the growth in the security and surveillance sector. If credit markets continue to ease alongside rising stock markets, strategic acquirers will have greater financial flexibility to consider larger targets in 2010. Much will depend on the direction of key economic indicators in the first half of the year.
The two largest 2009 deals – General Atlantic’s US$1.65 billion move for TASC and Boeing’s US$1 billion takeover of the Vought production facility - compared to the US$5.6 billion and US$2.2 billion values delivered by the largest 2008 deals.
The proportion of deals announced by financial investors continues to remain low relative to strategic investors. Financial investors accounted for approximately 14.3% of deals with values greater than US$50 million in 2009, in line with that experienced in 2008. Of the 21 deals greater than US$50 million in 2009, only three involved financial investors. With the capital markets still in a ‘repair and heal’ mode, financial investors continue to focus a large portion of their efforts on providing improvement, support, and guidance to existing portfolio companies rather than seeking new acquisitions.
Neil Hampson, global aerospace and defence leader, PricewaterhouseCoopers, said:
“US companies continued to dominate the vast majority of overall deal value in 2009. Deals with US targets and/or acquirers accounted for 84.4% of deal value, an increase over the 72.6% achieved in 2008. In the fourth quarter of 2009 all three deals involved US acquirers and US targets. The US dominance continues the trend away from years such as 2004 and 2006 when there was a much more balanced profile between Europe and North America. However, by 2008, the UK and eurozone represented only 28% of deals and fell further to just 9.5% in 2009.”
Targets in North America and Asia and Oceania represented 90% of total deal value for deals greater than US$50 million. The percentage of deal value for targets in Asia and Oceania rose from 6% in 2008 to 15.7% in 2009. The largest of these was General Electric’s US$300 million purchase of the remaining 51% interest, which it did not already own, in Singapore’s Airfoil Technologies International, a turbine repair services provider.
Neil Hampson, global aerospace and defence leader, PricewaterhouseCoopers, commented:
“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.
“On the defence front, for example, the security requirements that come from the need to respond to non-state threats, including at home, has become as important as the need to defend against state threats. The focus on critical infrastructure defence, including IT systems, cyber networks, energy installations and transport, will intensify.
“In the longer term, the role of China in the civil aerospace market will become more strongly felt. As the first decade of the new millennium drew to a close, Airbus delivered its first Chinese-made aircraft.
“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.”
Notes to Editor:
A full version of ‘’Mission control’ will be available for download from Monday 22 February 2010 at: www.pwc.com/aerospaceanddefence/deals.
Mission control is an analysis of mergers and acquisitions in the global aerospace and defence industry. Information is sourced from Thomson Financial and includes deals for which targets and acquirers have primary SIC codes that fall into one of the following SIC industry groups:
This analysis includes all individual mergers and acquisitions for disclosed or undisclosed values, leveraged buyouts, privatisations, minority-stake purchases, and acquisitions of remaining interest announced between January 1, 2000, and December 31, 2009, with a deal status of completed, intended, partially completed, pending, pending regulatory approval, unconditional (i.e., initial conditions set forth by the acquirer have been met but deal has not been completed), or withdrawn. The term deals, when referenced herein, is used interchangeably with transactions.
Regional categories used in this report approximate United Nations (UN) Regional Groups as determined by the UN Statistics Division, with the exception of the North America region (includes North America and Latin and Caribbean UN groups), the Asia and Oceania region (includes Asia and Oceania UN groups), and Europe (divided into United Kingdom, plus eurozone and Europe ex-UK and eurozone regions).
The eurozone includes Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovenia, and Spain. Oceania includes Australia, New Zealand, Melanesia, Micronesia, and Polynesia. Overseas territories were included in the region of the parent country, and China, when referenced separately, includes Hong Kong.
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