No Match Found
After some positive signs in the second half of 2022, dealmaking in the aerospace and defense (A&D) sector dropped to rates consistent with the first half of last year. The industry is largely focused on portfolio optimization, driving assets coming to market at low- to mid-range values as well as strategic and focused acquisitions to build out capabilities and programs (including unmanned and space).
A contributing factor to the lower levels of activity is the Pentagon’s negative stance on further consolidation in the defense industrial base. We also see companies being laser-focused on opportunities that best fit their existing capability and customer sets. This results in selective acquisitions and a focus on divesting assets no longer considered core.
In the defense subsector, we would expect the level of deal activity to be stable for the remainder of 2023, absent geopolitical developments or other major events. For the commercial aerospace subsector, we expect the landscape to continue at a consistent level, with activity heavily tilted toward maintenance, repair and overhaul (MRO) and supply chain transactions.
While we see CEOs in certain other sectors turning to transformative acquisitions to reposition and reinvent their businesses for long-term success, A&D leaders have been more heavily focused on fine-tuning their businesses to be as closely aligned with market opportunities as possible. However, integration is never an easy hill to climb, regardless of deal size. Retaining talent can be particularly challenging, especially for a smaller company being absorbed into a major prime contractor. We see companies focused on searching for paths where synergies can be harvested, controls and procedures can be aligned, and, yet, creativity and ingenuity are not stifled. Companies that strike this balance with deals that strengthen their core will most likely reap the largest benefits from their investments.
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“Deal activity in the remainder of fiscal year 2023 is expected to be consistent with current levels, which are running behind. Activity will likely be focused on small- to mid-market platform plays (cyber, unmanned, space) in the defense sector, while MRO and supply chain will be areas of focus in the aerospace sector.”