Aerospace and Defense M&A Outlook 2008

The total value of disclosed transactions in the Aerospace & Defense industry reached $33 billion in 2006, the highest level since 2000 when they were at $50 billion, according to a report by PricewaterhouseCoopers. Average deal size has almost tripled from a low of $99 million in 2003 to $277 million in ’06.  According to InfoBase Publishers Inc. the top five deals accounted for only 32% of the total value for the year. In the record year of 1999, the top five deals accounted for 77% of the year’s $65 billion in deals.

In the aerospace industry, the launch of the Airbus A380, A350 and the Boeing 787 have signaled major developments in civil aviation and have emerged at a time when these suppliers are coming out of recession.  The Boeing 787 is expected to go into full-scale production in 2008.  This has fueled significant growth for companies in their supply chain, which have also seen significant increases in profitability.  This build up of orders for these new aircraft goes as far forward as 6 years, so one can expect further growth in the coming years supported by this demand.  Many of the smaller suppliers have been targeting mergers and acquisitions to realize better economies and reduce costs.

So, what trends can we expect to see for the smaller companies in the aviation sector?  There is a high level of predicted growth in the low-end of the aerospace industry, where there has been very little innovation in the last 15 to 25 years.  This can only last so long and industry expectation is that we will see the next wave of growth in aerospace coming from the demand for smaller jets.

Valuation multiples in the sector as a whole are on the increase and in recent transactions, buyers have been prepared to pay multiples in excess of 10x.

SOURCE: PricewaterhouseCoopers