As discussed in our previous quarterly reports, statistics regarding 2019 deal values were heavily impacted by the UTC/Raytheon transaction announced in the second quarter. We believe the more telling aspect of the story in the year is found in transaction volumes, which fell just short of 2018, but exceeded the ten-year average in the industry. Strong defense spending and commercial air travel trends appear to be supporting confidence in deal making and we see that confidence continuing into Q1 2020 absent any major heightening in the recent Middle East tensions or other geopolitical developments.
"Strong defense spending and commercial air travel trends appear to be supporting confidence in deal making and we see that confidence continuing into Q1 2020 absent any major heightening in the recent Middle East tensions or other geopolitical developments.”
Our view is that 2019 deal making was largely on trend with the underlying fundamentals of defense spending and strength in the commercial space. Clearly, the UTC/Raytheon transaction had enormous impact on the statistics, but we see its impact potentially extending in the form of competitors seeking growth opportunities to face off most effectively with this new power player. Strong financial sponsor activity in the fourth quarter is yet another indicator of the attractiveness of the sector and we would expect private equity to continue seeking opportunities as permitted by relatively strong valuations. Our view is that certain bright spots will show through in 2020, including C4ISR and modernization on the defense side and the commercial aftermarket as OEMs seek expansion in that direction. The significant unknowns in our view are the potential impact of very recent Middle East developments, Brexit, and the upcoming US presidential election. The consistency seen in A&D M&A could change quickly if one or more of these factors experiences an unanticipated shift, positive or negative. Absent that, we do not see any significant headwinds to continued strength in values and volumes as we kick off the new decade. In fact, 2020 is already off to a good start with the recent announcement that Woodward and Hexcel are merging in a deal valued at about $6.6 billion.
The information presented in this report is an analysis of deals in the global aerospace and defense industry. Deal information was sourced from Thomson Reuters and includes deals for which targets have an SIC code that falls into one of the 14 aerospace and defense industry groups. Certain adjustments have been made to the information to exclude transactions which are not specific to aerospace and defense or incorporate relevant transactions that were omitted from the SIC industry codes.
This analysis includes all individual mergers, acquisitions, and divestitures for disclosed or undisclosed values, leveraged buyouts, privatizations, minority stake purchases, and acquisitions of remaining interest announced between January 1, 2017 and December 31, 2019, with a deal status of completed, partially completed, pending, pending regulatory and pending completion, and excludes all rumors and seeking buyers. Additionally, transactions that are spin-offs through distribution to existing shareholders are included.
Percentages and values are rounded to the nearest whole number which may result in minor differences when summing totals.
Aerospace and Defense Deals Leader, PwC US
Aerospace and Defense Leader, PwC US