Aerospace & Defense M&A activity in 2019 was largely impacted by the second quarter of 2019, which included the $52 billion merger of Raytheon and UTC – the A&D industry’s largest transaction in its history. Deal values were largely impacted by this megadeal, but the more telling story of 2019 is found in transaction volumes, which fell just short of 2018, but exceeded the ten-year average in the industry.
However, even when isolating the Raytheon and UTC merger, 2019 was a robust year in terms of M&A. The total deal value was $93.8 billion, with roughly 55% of that number represented by this one megadeal. The question is whether this deal’s impact will potentially extend in the form of competitors seeking growth opportunities to face off most effectively with the new industry giant in the new year and beyond.
Here’s a quick snapshot of 2019 M&A activity in the A&D sector:
The North America region led the pack in terms of deal value as the acquirer and target region, with Asia and Oceania following. However, in terms of deal volume, roles were reversed with Asia and Oceania taking the lead.
The Electronic Equipment sub-sector led the charge in 2019’s deal value with a 60% share, much of which is attributed to the UTC/Raytheon deal. In terms of deal volume, the Aircraft and Parts category was out in front with 26% share, followed closely by Arms and Vehicles with 24%.
Strong defense spending and commercial air travel trends continued to support confidence in deal making across the A&D sector, and we believe that confidence will continue into the first quarter of 2020. The fourth quarter especially saw an uptick in financial investors leading deal value, which is an indicator of the attractiveness of the industry. We expect private equity to continue seeking opportunities as permitted by relatively strong valuations.
Certain bright spots should show through in 2020, including C4ISR and modernization on the defense side and the commercial aftermarket as OEMs seek expansion in that direction. Although the industry could be impacted with current events concerning Middle East developments, Brexit, and the upcoming US presidential election, we don’t see any significant headwinds and should see continued strength in M&A activity for the A&D sector.
View the full year-end 2019 A&D deals report here.