Global aerospace and defense deals insights: Year-end 2019

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Executive summary

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.  

aero-deal-summary

"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.”

Bob Long, US Aerospace and Defense Deals Leader

High level trends and highlights of 2019

Highlights

  • In 2019, the total deal value increased by 62% to $93.8 billion when compared with 2018, largely as a result of the UTC/Raytheon transaction. When compared with the ten-year average, the deal value for 2019 grew 2.5x.
  • The total deal volume for 2019 declined by 4% to 447 deals when compared to 464 deals in 2018. However, compared to the ten-year average, 2019 deal volumes increased by 3%.
  • The average deal size for 2019 increased by 68% to $539.2 million when compared to 2018. When compared to the ten-year average, the average deal size for 2019 increased by 2.3x.  Again, this was heavily impacted by UTC/Raytheon.

Deals by disclosed value and average deal size

In 2019, the average deal size grew by 68% to $539.2 million from $321.7 million in 2018 primarily as a result of the UTC/Raytheon transaction. When compared with the ten-year average, the average deal size in 2019 also increased by 2.3x. During Q4 2019, the average deal size declined by 9% to $288 million from $318.2 million in Q3 2019.

 

Financial vs. strategic investors

In 2019, strategic investors dominated with 81% share in deal value, sponsoring $76.3 billion worth of deals. In deal volume also, strategic investors were ahead of financial investors with 69% share, or 308 deals. However, Q4 2019 bucked the trend somewhat with financial investors leading value at 59% and strategic investors contributing 76% of deal volume.

Regional analysis

In 2019, UTC/Raytheon drove North America to lead the pack in terms of deal value as the acquirer and target region. The region was followed by Asia and Oceania in both the acquirer and target region. In terms of deal volume, however, roles were reversed with Asia and Oceania respectively contributing 35% and 34% as the acquirer and target region followed by North America.

 


Highlights of deal activity


Aerospace and defense deals outlook

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.

About the data

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.

Contact us

Bob Long

Aerospace and Defense Deals Leader, PwC US

Scott Thompson

Aerospace and Defense Leader, PwC US

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