PwC Mission Control Report: Aerospace and defense market logs record mergers/acquisitions in 2011, activity to continue at high level in 2012

NEW YORK, 8 Feb. 2012. Global aerospace and defense merger and acquisition value reached a record level in 2011--$43.7 billion in 341 deals--according to PwC U.S analysts in “Mission Control,” its quarterly analysis of activity in the global mil/aero sector. The 2011 figure surpasses the total deal value of $21.9 billion and 332 deals in 2010, as well as the previous record of $42 billion in 2007.

The primary driver in 2011 was a $16 billion transaction, the largest in sector history; however, volume drivers were broad-based, with higher numbers for small deals (less than $50 million) and large deals (above $1 billion), says a PwC spokesperson. A total of six large deals were completed in 2011, lending to an increase in average transaction size.

A large increase was realized in deals for aerospace targets in 2011, measured on both a volume and value basis, while the number of defense deals decreased. Aerospace deal multiples also surpassed defense targets, according to the research.

"We saw a wide-ranging mix of deals in 2011, as global aerospace and defense merger and acquisition activity reached record levels. Larger deals became more common, driven by sales of slower-growth defense businesses and private equity exits, while smaller deals drove the bulk of deal volume as major players with ample liquidity focused on acquiring growth," explains Scott Thompson, U.S. aerospace and defense leader at PwC. "We anticipate a continued high level of merger and acquisition activity in the year ahead, driven partly by strong cash positions and a favorable debt market, particularly in aerospace, where the outlook is being boosted by fleet expansion in Asia and strong replacement demand in Western countries. 

“Conversely, global deal activity in the defense sector is increasingly being impacted by the wave of government cutbacks in key markets stemming from fiscal retrenchment,” Thompson adds. “The uncertain outlook is causing defense contractors to further globalize in the face of growing competition for a shrinking pool of business. These trends will play a major role in deal activity as the year unfolds."

Looking ahead, the aerospace and defense sector continues to globalize as non-U.S. players increase their competitiveness, benefiting from a growth in air travel and defense budgets in select regions, such as Asia, Latin America, and the Middle East, even as other countries cut spending, says a PwC representative. According to the analysis, many nations, such as China, India, and Brazil, are seeking to take advantage of this demand shift by fostering their own domestic industries. Of these markets, China appears to be best-positioned to advance its national aerospace industry given the relative level of domestic demand as well as technological help from western suppliers.

 

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