The second half of 2011 could be “very strong” for mergers and acquisitions in the aerospace and defense industry following a pace in the second quarter that largely resembled 2010 levels, a business consulting firm said yesterday.
PricewaterhouseCoopers (PwC) said the second quarter of 2011 featured 13 deals worth $50 million or more for a combined $5.3 billion, roughly the same as the $5.2 billion in the same period last year. But deal volume for the first six months of 2011 grew by 39 percent from the first half of 2010, with 30 deals valued at a combined $15.2 billion.
Even though deals in the second quarter of 2011 were off pace from the first quarter, PwC said there were already signs the rate in the second half of the year could climb to levels not seen since the record set in 2007.
“Deal activity during the second quarter declined somewhat from the first quarter of 2011, but this appears to be more of a result of the robust nature of (mergers and acquisitions) activity during the first quarter than the start of a long term trend,” Scott Thompson, a US aerospace and defense analyst at PwC, said. “In fact, the increases in the first half of this year compared to last year demonstrate an ongoing appetite for deals in the sector.”
Most of the deals–62 percent–in the second quarter were driven by divestures as businesses sought to spin off units with slower defense growth, a trend expected to be on the rise, PwC said.
“Financial investors should continue to find attractive investment opportunities as sector constituents continue to seek to shed certain defense assets, which tend to have relatively stable cash flows from longer-term government contracts,” Thompson said.
One of the most notable divestures of the year was Northrop Grumman’s [NOC] spinning off of its shipbuilding division, which became Huntington Ingalls Industries [HII] on March 31 (Defense Daily, April 1), 2011.
“While strategic investors are narrowing their focus on businesses that are believed to be more resilient to defense spending cuts, they are also shifting from diversified strategies toward building competencies in specific defense niches, which could drive additional mega deals,” Thompson said.