The fourth quarter of 2012 saw an increase in the value of mergers in the aerospace and defense industries, but the activity remained limited due to the lingering questions over the possibility of sequestration and the budget uncertainty in Congress, according to a report released yesterday by the consulting firm PricewaterhouseCoopers (PwC).
There were $8.7 billion in announced in merger and acquisition deals during the final quarter of 2012, nearly doubling the value from the previous quarter, PwC said. But overall, it was a down year for mergers and acquisition compared to the soaring levels of 2011. The total deal value for 2012 was $19.5 billion, or 15 percent below the average amount the previous 10 years, PwC said.
Scott Thompson, PwC’s leading analyst for U.S. aerospace and defense at PwC, said deals in the aerospace sector remained solid, and he expects mergers and acquisitions (M&A) in the defense sector to pick up once the threat of sequestration is lifted, which would give firms more certainty in the marketplace.
“Defense sector M&A has remained muted, as investors wait for clarity on the outlook for U.S. defense spending,” Thompson said. “However, with strong balance sheets and cash positions, and the need to consolidate in a contracting market, we may see some increase in defense industry transactions once uncertainty around the defense budget is resolved.”
But it remains unclear whether Congress can avert the across the board cuts that would take effect under sequestration beginning March 1. Those cuts would slash the Pentagon’s budget by nearly $500 billion over a decade.
The Obama administration and congressional Democrats have proposed a plan to delay sequestration by at least two months, but doing so, rather than resolving it, would still keep the potential of it eventually taking place alive. Republicans have offered an alternate plan, but it would also in effect delay sequestration–just for a longer period.
PwC said the 2012 deals were led by GE Aviation’s acquisition of Avio for $4.3 billion and Precision Castparts’ purchase of Titanium Metals for $2.6 billion. Those deals accounted for about 80 percent of the M&A activity in that quarter.