Acquisition Analysis for Aerospace and Defense Industry
Written by Chuck Marx
US Aerospace & Defense Leader
Strong demand continues to drive Aerospace OEMs. Both Boeing and Airbus have significant backlogs which also impacts demand from equipment suppliers. For example, at the end of the first quarter Airbus had a backlog of 6,716 aircraft, including 5479 single aisle airliners. This level of demand is not surprising, given that a number of airlines are expanding, particularly on shorter routes. For example, United recently announced its intent to purchase 40v small planes from Boeing at a cost of $3.2 billion. Separately, in a purchase announced in January, Southwest Airlines committed to 30 Boeing 737 aircraft. While backlogs and orders remain strong we see shifting dynamics — the cost and value gaps are narrowing and commodity volatility all beg the question: are production rates going too high too fast?
Driven by strong balance sheets, defense companies are looking to expand product lines and increase scope. While consolidation by major weapons manufacturers is unlikely given that the US Department of Defense wants to ensure that bidding on contracts remains competitive, niche technologies remain attractive. Software developers, surveillance equipment manufacturers and cybersecurity providers are prime targets for acquisition. For example, in February, General Atomics International Services Corporation (GA) announced that it had signed a purchase agreement to acquire Miltec Corporation, a Hunstville-based manufacturer of missiles and aerospace systems. The addition of Miltec is expected to increase GA’s expertise in the areas of hypersonic vehicles and small satellites.
During the last downturn, those who had right-sized portfolios led the market because the forward-looking indicators around enterprise value and PE gave them an advantage. Because of this and the other aforementioned factors, we expect to see continued growth in the deal environment for the remainder of 2016.
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