Market Research Report
Mergers and Acquisitions (M&A) in Aerospace and Defense Market - Growth, and Trends (2017 - 2019)
|Published by||Mordor Intelligence Pvt Ltd||Product code||964482|
|Published||Content info||80 Pages
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|Mergers and Acquisitions (M&A) in Aerospace and Defense Market - Growth, and Trends (2017 - 2019)|
|Published: August 1, 2020||Content info: 80 Pages||
Mergers and Acquisitions (M&A) in the aerospace and defense (A&D) sectors has emerged as a commercially viable business strategy as it helps the participants enhance their technological know-how while dividing the risks associated with technological disruptions. An M&A facilitates the sustenance of both firms or in most cases helps the major players to foster comparatively faster growth than their competitors. M&As are not necessarily limited to the same sector and there are instances of such collaborations even in cross-sectors by firms to diversify and enhance their technological capabilities to effectively serve the specific requirements of a broader clientele. However, the acquisition of another firm comes with the associated drawbacks. A reckless decision and acquisition of a firm with huge debts can result in future losses for the acquiring company. Also, regulations associated with M&A can prove to be a challenge during such transactions, as these transactions have a severe effect on a country's economy, and most M&As involving dominant A&D firms require the approval of the country's legislature to be completed.
Consolidation will Continue at a Rapid Pace in the Aerospace & Defense Sector in the Coming Years
The A&D sector is highly capital intensive due to the rigorous R&D programs that need to be undertaken to upgrade the product portfolio and integrate new merging technologies in the products with an aim to compete with other companies offering similar or better products at a given price point. The high risks involved with R&D and supply chain render a certain uniqueness to the sector and elevate the barriers to the entry of new players. The M&As in the defense sector are primarily directed towards acquiring smaller players with niche capabilities to utilize the acquired expertise to upgrade the current product portfolio of the acquiring company. It has been observed that the likelihood of a defense merger is radically increased if it involves smaller players or those focused on tangential industries, as in the case of the United Technologies-Raytheon merger. Most defense incumbents have adopted a "one-stop-shop" model that enables them to develop manufacturing capabilities at the component level, reducing/eliminating the supplier dependence of the OEMs. While the OEMs have benefitted largely from the transparency offered by a smaller and consolidated supply chain, the associated suppliers have largely banked on increasing profit margins by developing indigenous design capabilities and entering into long-term service contracts with prominent A&D firms. Besides, firms like Raytheon Technologies Corporation and Safran SA have actively focused on vertical consolidation of their capabilities and have henced acquired companies like Rockwell Collins and Zodiac Aerospace, respectively.
The aerospace and defense sector is undergoing a strategic transformation that emphasizes the consolidation of the supplier base to remove unnecessary costs and enhance the long-term viability of each successor organization. In 2019, United Technologies Corporation (UTC) and Raytheon Company (Raytheon) underwent an all-stock merger to consolidate their position in the A&D sector. The merger resulted in a balanced and diverse portfolio that can cater to both the aerospace and defense requirements, enhanced R&D platform, and facilitate strong cash flow generation. However, the upcoming defense-to-defense mergers will face a challenge in the form of government oversight because of the small number of prime defense contractors operating at a global scale.
United States Experienced Major M&A transactions in 2018 and 2019
The A&D sector in the US is mature and fragmented with several global and regional players active in the market. Since the major aerospace OEMs are based in the US, several tier suppliers are opting to enter or penetrate the US market through M&A. Also, some of the existing companies in order to increase their offerings are acquiring other firms based in this region. The multi-billion merger between Raytheon Company and UTC that was completed in April 2020 has been envisioned to benefit both the firms due to the potential synergies, such as a possible combination of UTC's Pratt & Whitney F-35 JSF engines with Raytheon's Patriot missile-defense products and expertise in areas such as radars, munitions, and cybersecurity. Likewise, several other acquisition deals were announced in June 2019. For instance, Boeing announced the acquisition of the EnCore Group and Parker Hannifin Corporation announced the acquisition of Lord Corporation. The M&A activities are also increasing in the Asia-Pacific region as several OEMs are opening manufacturing facilities in Asia.
The A&D sector comprises of several players and the market is highly competitive. In order to gain major contracts, companies are adopting aggressive acquisition strategies to increase their market presence and dominance. Diversified growth strategy protects a firm from country-specific economic slumps. This has triggered the acquisition of several competitor product portfolios by industry incumbents to gain a competitive advantage in the market. For instance, in March 2019, The Boeing Company (Boeing) completed acquiring ForeFlight, a leading provider of innovative mobile and web-based aviation applications that has been a partner of Boeing since 2017 for providing aviators with Jeppesen's aeronautical data and charts through ForeFlight's popular mobile platforms. The acquisition is envisioned to align with Boeing's growth strategy of complementing organic investments with targeted, strategic investments that position the company for long-term growth. Also, in December 2019, Airbus SE acquired MTM Robotics, an industrial automation company to pursue the expansion of advanced robotics capabilities within Airbus' manufacturing processes. The most notable of such horizontal portfolio expansion is that of BAE Systems plc, which in May 2020, completed the acquisition of the Military Global Positioning System (GPS) business of Raytheon Technologies Corporation. The acquisition presents an opportunity to acquire a high-quality, technology-based business that augments the existing BAE Systems' Electronic Systems portfolio through the addition of world-class GPS anti-jamming and anti-spoofing technology. Several other M&A transactions are expected to be completed by the end of FY2020, resulting in a substantial consolidation of the market.