The Aerospace and Defense sector saw mergers and acquisitions for US$ 44 billion in deal value during the third quarter of 2017. After three quarters, 2017 is already a record year for the industry, says a new report (pdf) by consulting firm PricewaterhouseCoopers (PwC).
Year-to-date deal value as of September 30, 2017 was US$ 62 billion, equaling the record for the full year of 2015. 2017 was already above average at the midpoint, but then two mega deals were announced in the third quarter – UTC’s US$ 30 billion acquisition of Rockwell Collins and Northrop Grumman’s US$ 9 billion acquisition or Orbital ATK, which ensured record status for the current year.
UTC’s acquisition of Rockwell Collins is the second largest in industry history, after the Berkshire Hathaway acquisition of Precision Castparts, while Northrop Grumman’s acquisition of Orbital ATK falls in the top ten largest deals in industry history, says the report.
The Rockwell Collins acquisition is attributed by many analysts to the commercial aerospace supply chain requiring greater scale in response to increased price pressure from the OEMs. Meanwhile, the Northrop’s acquisition of Orbital ATK is partly a response to investors’ expectations around capital deployment changing from “return of capital” to “investment for growth”.
“Deal activity is against a backdrop of surging commercial aerospace demand and rising geopolitical tensions. Global tensions are driving higher defense budgets in the US as well as higher international demand, which has improved the growth prospects for defense,” says PwC on a note about the report (pdf).