Aerospace and defense: Deals 2022 outlook
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What's driving deals in 2022
PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for 2022.
Emerging technologies, geopolitical and regulatory trends likely to drive 2022 M&A activity
After a record first quarter, M&A activity in the aerospace and defense (A&D) sector jetted on with strong activity throughout 2021 — rebounding from lower levels in 2020. The activity has been driven in part by the Biden 2022 budget, which maintained total defense spending largely intact. The 2022 budget, along with renewed geopolitical tensions and an emphasis on innovative technologies are expected to keep M&A activity healthy in the medium to long term.
The commercial aviation sector, still impacted by the effects of the COVID-19 pandemic, is starting to display signs of recovery as air travel in major markets returns to near pre-pandemic levels. Strong M&A activity in 2022 in the commercial aerospace sector appears likely, given that some manufacturers are raising production forecasts and that there exists a potential for supply-chain consolidation.
Aerospace and defense deals outlook
Global defense spending increased in 2021, led by growing geopolitical competition. This, along with a realignment of US defense priorities surrounding R&D-led technology innovations, is expected to steer defense M&A activity in 2022 and beyond. We expect defense-focused corporates to continue evaluating existing portfolios and divest non-core assets, while also focusing M&A activity to invest in emerging technologies through the acquisition of innovative startups.
The commercial aerospace sector will most likely continue to be dependent on the post-pandemic recovery and the impact of future virus variants. Vaccination rates will likely dictate the timing of a return to pre-2020 M&A levels. Despite some positive tailwinds, commercial aviation supply-chain capacity still remains well in excess of demand. Consolidation in this sector will likely be driven by well-capitalized suppliers and private equity firms.
“In 2022, M&A activity in the defense sector will most likely continue to be driven by geopolitical factors, emerging technologies and budget priorities — including positioning ahead of upcoming elections later in the year. M&A in commercial aviation will be closely tied to the recovery from the pandemic and supply chain stability — either to drive growth through technologies or to consolidate during a slower recovery.”
