Transaction values and volumes declined in the first half of 2022 despite rising geopolitical tensions, most notably the war in Ukraine. Early in the year, US regulators made clear that they would not support further large-scale consolidation within the defense industrial base. Perhaps one of the most notable examples of this was the Lockheed/Aerojet Rocketdyne transaction, which was challenged and, ultimately, aborted.
Though defense stocks initially rallied in the early days of the Ukraine conflict, they subsequently settled back, and deal making in the sector slowed. Further impacting the trends was the relative paucity of special purpose acquisition company (SPAC) transactions. During 2021, there was roughly $20 billion in SPAC transactions, largely focused in the space subsector. With plummeting values and increased Securities and Exchange Commission (SEC) scrutiny, those transactions have seen a sharp decline. On the commercial aerospace side, the potential acquisition of Spirit by Frontier or JetBlue has certainly grabbed headlines, although no transaction has yet been formally announced. Otherwise, activity was focused on smaller transactions involving MRO and FBO targets.
We see continued challenges ahead for A&D deal volumes and values, especially for larger transactions. Despite global tensions running at high levels, megadeals may be kept at bay by the Pentagon’s stance on consolidation. There could be bright spots in areas such as AI, unmanned, cyber, hypersonics and others. However, transactions in these spaces are often at the lower end of the scale and, in certain cases such as hypersonics, perhaps still garnering regulatory attention. SPAC transactions in the industry will likely remain few and far between for the immediate future, with values dropping nearly 50%. With respect to commercial deals, we continue to see those as inextricably tied to the trajectory of the pandemic.
“We see continued challenges ahead for A&D deal volumes and values. Despite global tensions running at high levels, meaningful deal making will likely be kept at bay by the US regulators’ stance on consolidation.”
Aerospace and Defense Deals Leader, PwC US
John M. May
Partner, PwC US
Industrial Products Deals Leader, PwC US