First Quarter Activity Shows A 345% Increase Over A Year Ago

The global Aerospace and Defense (A&D) sector experienced its strongest performance in the past five quarters with regards to total deal value, according to the most recent PricewaterhouseCoopers LLP report, "Mission control: First-quarter 2010 global aerospace and defense industry mergers and acquisitions analysis". The total deal value for the A&D sector in Q1 2010 is approximately 4.5 times that of the lows experienced in the first quarter of 2009, while average deal value is roughly 3.5 times that of the lows experienced in the first quarter of 2009. 

On a year-over-year basis, the total number of deals increased 8 percent to 68 deals in the first quarter of 2010 from 63 in the first quarter of 2009.  While the number of deals in Q1 2010 declined modestly compared to Q4 2009, the annualized level of activity remains at the high end of the historical average and the average transaction value was up by 78 percent compared to Q4 2009. 

"We believe there are many catalysts in place that support continued strength in the A&D mergers and acquisitions market including an improving commercial aviation picture and reduced levels of defense spending which will spur some consolidation in the defense sector and entrée into adjacent markets," said Scott Thompson, U.S. aerospace & defense leader at PricewaterhouseCoopers.  "This sector is trending towards more large and mid-size deals as many A&D companies improved their financial position during the recession."

The strength of Q1 2010 is demonstrated in the total value of deals greater than $50 million. There were two deals greater than $1 billion in the first quarter of 2010, with a total quarterly deal value of $5 billion.  This compares with Q3 and Q4 of 2009, when total quarterly deal value was $3.2 billion and $2.5 billion, respectively. On a year-over-year quarterly basis, total transaction value increased 345 percent from $906 million to $5 billion for all deals with a reported value over $50 million.

The average deal value of transactions greater than $50 million also rose to $630 million during the first quarter of 2010, representing a 52 percent increase compared to the previous quarter. 

In the first quarter of 2010, total transaction value and average transaction value for deals with a disclosed value also showed significant improvements.  The average transaction value from 2001 through 2009 was $188 million. This compares with an average transaction value of $244 million for the first quarter of 2010.

The most notable change in the A&D mergers and acquisitions market during Q1 2010 is the reemergence of the financial investors, who've had minimal involvement in deal activity since the third quarter of 2008. However, in the first quarter of 2010, financial investors accounted for 38 percent of total deals worth $50 million or more. This compares with approximately 13 percent in 2008 and 12 percent in 2009.

From a regional perspective, North America (particularly the U.S.) continues to represent a significant portion of deals measured by both number of deals and value of deals greater than $50 million. In the first quarter of 2010, North America represented 41 percent of deal value by target and accounted for 50 percent of the number of deals by target. 

In terms of acquisitions, North America continues to represent the largest portion of the number of deals worth $50 million or more at 38 percent compared to the UK and Eurozone (25 percent), Europe ex-UK and Eurozone (25 percent) and Asia and Oceania (13 percent). Additionally, the UK and Eurozone and North America regions accounted for the majority of deal value (41 percent and 40 percent respectively), compared to Europe ex-UK and Eurozone (17 percent) and Asia and Oceania (2 percent).

FMI: www.pwc.com/us/industrialproducts