On the heels of a record year for aerospace and defense mergers and acquisitions, activity in the first half of 2019 has set the bar even higher, with announced transactions worth approximately $120 billion, compared to 2018’s total of $127 billion.

The proposed mega-merger of Raytheon and UTC announced in June is the main event of the year so far, creating a proposed industry giant that would see $74 billion in revenues resulting in $14 billion in EBITDA for 2019 (proforma), and a yearly R&D fire power of over $8 billion. Synergies of $500 million in revenues and $1 billion in costs are to be delivered within four years. The merger drastically increases the fire power and resilience of both companies, in both the defense market and commercial aerospace Through this merger, RTX—the new Raytheon Technologies Corporation— becomes a new mega-player who can compete aggressively to increase its market share and profitability, and which creates a potential threat to the OEMs. The battle for a bigger share of the profit pool in the industry is intensifying.

The first half of 2019 has also seen the acquisition of LORD Corporation for $3.7 billion by Parker Hannifin, a world leader in motion and control technologies. With this acquisition, Parker Hannifin continues to expand its portfolio of high-value-added products, by integrating solutions in industrial adhesives and coatings. Parker Hannifin had previously demonstrated its ability to deliver a high level of synergies when it acquired Clarcor in 2016. The company expects cost synergies amounting to $125 million from this acquisition by 2023, with the optimization of logistics, productivity, and support functions.

"Investment funds continue to play a leading role in the sector’s M&A activity, participating in three of the ten main transactions of the first 2019 semester."

Another major strategic shift took place with Bombardier continuing its refocus on business jets, by selling its CRJ program to Mitsubishi Heavy Industries (MHI), which is expected to stop production in favor of its SpaceJet. Under the deal, MHI also acquires maintenance, support, refurbishment, marketing, and sales activities related to CRJ, while Bombardier will continue to operate the CRJ aircraft production site in Mirabel, Quebec, to build its current order book on behalf of MHI. In addition, Bombardier is pursuing plans to divest its aerostructures business, including Bombardier Belfast, which produces wings, nacelles, and airframe elements for the A220 as well as regional and business jets.

Investment funds continue to play a leading role in the sector’s M&A activity, participating in three of the ten main transactions of the first 2019 semester:

  • A consortium led by Apax Partners and Warburg Pincus has announced the acquisition of Inmarsat, the leading UK satellite operator. Its undervaluation, its portfolio of frequencies, as well as its leadership in the embedded connectivity market had already attracted the interest of EchoStar and Eutelsat in 2018.
  • Onex Corporation acquired WestJet, of which Silchester held a 17% stake, while some airlines are experiencing turbulence (poor Lufthansa results in Q1 2019, bankruptcy of Wow Air and Germania, takeover of Transat by his compatriot Air Canada).
  • Carlyle acquired Forgital, confirming the interest of investment funds for the aeronautical metallurgy sector which is now consolidated in an oligopoly. As further evidence, last January Apollo Global Management made an offer on Arconic, although rejected, while Consolidated Precision Products (CPP) announced its recapitalization with Berkshire Partners and Warburg Pincus.

There is no doubt that the 2018 M&A transaction record will be broken in 2019, despite an increasingly complex environment for the sector, including the 737 MAX crisis, unfavorable factors in the short term (high oil prices, a global trade slowdown, and rising geopolitical tensions), and structural challenges (digital revolution, electrification of aircraft, environmental challenges, and autonomous flight).

top aerospace defense deals sept 2019

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