Mergers and Acquisitions in the Aerospace Defense and Security space set to follow two divergent logics as companies find their way through Covid-19 recovery
With Lockheed Martin’s $ 4.4 billion acquisition of Aerojet Rocketdyne dominating news of the size of the business, arguably the real story is the growing up of Aerojet Rocketdyne technology that drove the deal, according to GlobalData’s M & A in the ADS Thematic report.
As key technologies such as hypersonic propulsion, swarm technology and artificial intelligence mature, prime numbers in the ADS space are expected to acquire businesses in order to gain access to the technology and gain market position. Maturation to approach Initial Operating Capability (IOC) in a number of areas in these areas is driving these deals forward. Oshkosh’s acquisition of Pratt Miller for a similar example for $ 115 million, with the previous company gaining entry into unmanned ground vehicles (UGV) and robotics and market position through the deal.
Anthony Endresen, analyst at GlobalData, comments: “The drivers of the increased activity of the Chinese armed forces and the reform and rearmament program of the Russian Federation, which is bearing fruit, will help the defense spending in the West, but most importantly, drive the use of new technologies. This leads to an increase in research and development funding and an accelerated use of technologies. Primes clearly sees important development flows in these key market patterns, especially given the expected economic austerity measures as the COVID-19 rebounds.
To some extent, the opposite has also happened, with some primes keen to hold onto cash and focus on core business, resulting in either decreased M&A activity or outright divestment. The main activity that ended during the pandemic was the $ 4.2 billion Boeing deal with Brazilian aircraft maker Embraer, which was canceled in April 2020, although Boeing has stated that it is unrelated to a pandemic.
The pragmatic reality is that the collapse of commercial aviation has left such a large financial hole in the heavily overlapping commercial aerospace and defense aviation and defense value and supply chains that the pursuit of new and stable revenue streams is highly desirable.
While these two patterns of fundraising and M&A activity to unlock these mature technologies appear to be different strategies, the reality is that much of these activity is being driven by the collapse of commercial aviation. Undoubtedly, these companies would be sought after for the mature technology since the other drivers are unrelated to COVID-19 or the economic consequences, but the timing and to some extent the assessments must be seen in the context of the collapse of commercial aviation and the sheer size of the economy become hole that it leaves. ”
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