Grant Thornton report shows increased aerospace and defense M&A activity in 2010

The North American aerospace and defense (A&D) industry experienced a recovery in M&A activity in 2010, with the number of sector transactions increasing nearly 20% over 2009 results, according to a new report on the sector by Grant Thornton Corporate Finance – Aerospace & Defense Update: Mergers, Acquisitions and the Operating Environment. The report is published periodically by Grant Thornton Corporate Finance, in conjunction with Grant Thornton LLP’s Aerospace & Defense practice.
 
M&A highlights from the report include:

• Deal activity was led by acquisitions within defense technology, where the number of defense IT and electronics transactions increased nearly 30% as defense contractors sought to shift the core of their operations by acquiring products and capabilities that match priority areas of the defense budget.
• Approximately one-quarter of defense technology businesses acquired over the past five years have received funding under the federal government’s Small Businesses Innovation Research (SBIR) program, as large firms within defense technology, prime defense and government IT actively acquired cutting-edge technologies.
• Within component manufacturing, M&A activity resumed after a weak 2009, with the number of transactions increasing 6% in 2010, on the back of rising revenues (up 8%) and somewhat recovering earnings.
• In MRO and support services, M&A transaction activity was flat in 2010, but with slightly larger deals.

“As we look to the future, we generally expect these M&A trends to continue in the coming year, driven by a combination of both strategic considerations and financial availability,” said Ian Cookson, Grant Thornton Corporate Finance director and co-author of the report.

The second half of the report discusses the operating environment for the A&D sector:

• Aerospace market outlook: Orders rise on return of lessors
• Defense budget: Talk of cost cuts masks unchanged budget; reprioritizing of spending creates winners and losers
• European update: View from across the pond mirrors U.S. activity
• Annual Government Contractor Industry Survey

“Predicting what will happen with defense budgets is always an uncertain enterprise, even in the most stable of environments,” said Lou Crenshaw, Vice Admiral U.S. Navy (Ret.) and a Defense and Intelligence Sector principle in Grant Thornton LLP’s Global Public Sector practice. Prior to joining Grant Thornton, he was the senior resource and requirements manager for the U.S. Navy, where he was responsible for overseeing an annual budget of $130 billion.

“The current situation appears to be unusually unstable, and there are many indications that there may be substantial shrinkage in the number and amount of certain types of contracting opportunities at the DoD,” continued Crenshaw. “I do believe that even with this level of uncertainty, however, there is some degree of order and logic that those of us in the defense and defense-related industries can rely on as we assess the future.”

To download a full copy of this Grant Thornton Corporate Finance Aerospace & Defense Update: Mergers, Acquisitions and the Operating Environment report, please click here.