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Massive Raytheon/UTC Deal Highlights Q2 2019 M&A Activity – What Happens Now?

07 August, 2019

Scott Thompson
Aerospace and Defense Leader, PwC US
Bob Long
Aerospace and Defense Deals Leader, PwC US

M&A activity during the second quarter of 2019 was significant in the global aerospace and defense (A&D) sector. The $52 billion merger of Raytheon and UTC stole the show – the largest transaction the A&D industry has seen in the last six years and comprising about 90% of the total deal value for the second quarter.

However, if we take this notable transaction out of the picture, the second quarter M&A activity was relatively lackluster and we did not witness the recovery typically seen from a seasonally slow first quarter. We do not expect significant divestitures coming out of this deal, but the question remains if companies will feel the urgency to make deals that will help them gain size.

Here’s a quick snapshot of Q2 2019 M&A activity in the A&D sector:

  • There were 110 deals with a total value of $58.3 billion in Q2 2019.
  • Total deal value for YTD 2019 of $64.4 billion is 2.7x of YTD 2018.
  • Total YTD deal volume was consistent with 2018 and 5% higher than the ten-year average.
  • The Electronic Equipment category dominated in Q2 2019 with $53 billion of deal value driven by UTC/Raytheon.

The North America region dominated and was the most active acquirer as well the target region in terms of deal value during the second quarter. In terms of deal volume, Asia and Oceania was the active acquirer and targeted region.

It’s unclear whether the second half of 2019 will produce M&A activity commensurate with or beyond past periods. However, defense budgets and KPIs in the commercial space remain strong, and the fundamentals certainly appear to support small to mid-sized transactions. Valuations remain high across the board for quality assets, but with the amount of dry powder available, we do not see this to be tempering the interest of buyers. What will make more of an impact to decision makers are broader considerations such as geopolitical developments, budget priorities, Brexit and more. All in all, we do believe that 2019 will be a solid year for deal making.

View the full Q2 2019 A&D deals report here.