2007 Defence & Aerospace M&A summary

The total value of Mergers and Acquisitions (M&A) deals in the aerospace and defence sectors worldwide remained buoyant - albeit broadly static - during 2007: USD28.86 billion compared with USD28.69 billion for the previous 12 months.

Perhaps more significantly, deal volume was strong. Jane's M&A database registered 185 deals during the year, up from 132 deals in 2006. Analysts point to interest in the sector from private equity firms and strategic investors, which went head to head in pursuit of deals; competition that - in many cases - served to drive up value.

Global M&A activity in 2007 was - once again - strongly centred on the United States. Of the USD28.86 billion invested, Jane's figures show that USD20.9 billion was invested in the US. This is compared to USD19.4 billion in 2006.

The figures indicate that European organisations in particular were keen to offset flat defence spending in their domestic markets - along with limited and disjointed expenditure in the EU as a whole - by gaining access to the world's largest defence market.

Beyond this, it can be argued that the data reflects a lower-tier land grab within the US itself. By far, the bulk of investment came from US companies positioning themselves in the domestic market.

The US also attracted the year's largest deals.

Of the top 10 deals recorded in 2007, seven of the targets were US based. Furthermore, US companies were buyers in seven of the 10 cases.

Looking at the flow of funds across the Atlantic, 2007 saw European organisations make acquisitions with a total disclosed value of USD8.5 billion in 2007. This marks an almost four-fold increase on 2006. More importantly, the total volume trebled. Some 27 deals were announced in 2007, compared with just nine in 2006.

The trend during 2007 was - as in 2006 - towards the acquisition of lower-tier companies by first- and second-tier European companies almost exclusively from the UK. The exception to the rule was perennial US acquirer BAE Systems' USD4.5 billion purchase of Armor Holdings: a deal that accounted for almost half of Europe's total investment by value during the year.

The most activity centred around UK companies pushing ahead with existing strategies of growth through bolt-on acquisitions.

QinetiQ led the way in terms of deal volume. The group told Jane's that it wants to "punch as a much larger company" in the US, with the ultimate target of deriving 50 per cent of revenues from there. QinetiQ made five US acquisitions in 2007 alone, investing a total of USD335 million in buying Analex Corporation, Automatika, Allied Perception, 3H Technology and ITS Corporation. The average deal size was USD66 million. In common with other companies, its targets were largely in the high-technology sectors.

UK-based VT Group also improved its position across the Atlantic with another two US acquisitions during the year: Advanced Engineering and Planning Corporation and Milcom Systems. The latter positioned VT to access the significant C4ISR sector and complements its strategy of access to US Department of Defense (DoD) 'mission-critical' funding.

Ultra Electronics was also active, with the USD33 million purchase of US video-conferencing solutions company Criticom. The UK defence technology group told Jane's it was looking towards post-Iraq replenishment opportunities in the US and "colossal US budgets", particularly in technology areas such as Battlespace IT.

European investment in the US was, however, characterised by the purchase of relatively small organisations: typical deal values were in the region of just USD50 million.

Source: G. Anderson - Jane's

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