Uncertainty may be hanging over the defence industry as budgets cuts come to the fore in the USA and Europe, but for the aerospace and defence industry in general, 2010 was a year when merger and acquisition activity picked up after falling into a trough at the onset of financial crisis.
As figures from PricewaterhouseCoopers show, 2010 saw not only a dramatic bounceback in the number and value of buyout and merger deals, but the return of big deals - over $50 million - indicates the power of key trends characterising the industry, including the dominance of US firms (see chart).
PwC's London-based global aerospace and defence practice leader Neil Hampson notes that total deal value nearly doubled year-on-year, from $10.9 billion in 2009 to $20.2 billion in 2010, and the average value of deals worth $50 million or more was up 17%, from $310 million to $364 million.
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"While low compared to the $42.1 billion transacted at the peak of M&A activity in 2007, the 2010 level saw M&A in the sector back to the levels of 2008 and years prior to 2007," he says, adding that deal volume has remained high and is slightly above the 2008 peak.
Driving this resurgence in mergers and acquisitions are powerful trends. Broadly, commercial aerospace has recovered from recession faster and stronger than most predicted, says Hampson.
That sector is looking to capitalise on a growing market and a changing landscape as the customer base shifts toward the Asia-Pacific region and the industry responds to new competitors, particularly China's Comac.
Hampson also notes that company break-ups are a growing trend: "We may see some pressure from investors, as well as appetite from the market, to break aerospace assets away from their diversified parent companies."
Also, he says, conditions are in place for financial investors to become more active in the market. China's and India's efforts to build domestic aerospace industries will provide impetus for additional deals. South Africa and Turkey are also of growing interest.
PwC sees limited opportunity for consolidation among the largest companies, but predicts lower-tier consolidation and moves by private equity investors are likely, as well as consolidation in the European mid-tier aerostructure market, which has many smaller players.
Source: Flight International