Uncertainty generated by the US government's ongoing political battle over spending cuts is holding back a wave of defence industry consolidation, according to a 2012 mergers and acquisitions analysis by consultancy PwC.
While 2012 was overall a busy year in M&A, with 108 deals covering aircraft or component manufacturers compared to 107 in 2011, the value of the agreements tells a different story. After racking up $22.7 billion worth of M&A activity in 2011 - including Pratt & Whitney and Sikorsky parent UTC's $18 billion takeover of Goodrich, announced that year - the sector managed just $9 billion in 2012.
But while civil sector M&A remained reasonably solid, with 2012 featuring GE's $4.3 billion acquisition of Avio - there was not one $1 billion-plus "mega deal" on the defence side.
PwC US aerospace and defence leader Scott Thompson placed the blame on Washington's ongoing budget wrangles - but warned the industry to brace itself for a wave of takeover deals if the politicians can settle that issue.
He says: "Defence M&A is facing a perfect storm of pent-up demand, strong balance sheets and cash positions, and - most importantly - the necessity to consolidate in response to a contracting market.
"We view the attempted merger between EADS and BAE Systems in 2012 as a harbinger of further defence deals."
Source: Flight International
