The fiscal uncertainty looming over the U.S. government and the possibility of budget sequestration has continued to slow mergers and acquisitions in the defense and aerospace industries, according to a report released yesterday by consulting firm PricewaterhouseCoopers (PwC).
The pace of mergers and acquisitions for the first three quarters of 2012 has been below levels in the same period of last year as Congress has been unable to reach consensus on how to cut government spending, and because of the possibility of $500 billion in additional defense reductions over the next 10 years if sequestration cannot be averted by Jan. 2.
“Due to various factors including uncertainty regarding fiscal policy and defense spending, the (aerospace and defense) deal environment is expected to remain suppressed, with activity primarily focused on aerospace and smaller transactions,” said Scott Thompson, PwC’s leading analyst for U.S. aerospace and defense at PwC.
Thompson said that talk of the January sequestration deadline being delayed in the absence of a plan to resolve it has also dampened interest in business deals. “There is also some concern that sequestration could be delayed, which has further muted defense deal activity,” he said.
In the third quarter of 2012, there were only seven deals worth more than $50 million compared to 14 in the previous quarter, PwC said. The total value of third quarter deals reached $4.5 billion, the largest being Superior Aviation’s $1.8 billion proposed acquisition of Hawker Beechcraft. Although the number of large deals slowed, the average value was higher, climbing to $800 million from the second quarter, PwC said.