Shifting Global A&D Landscape – Q1 2022 M&A
M&A activity in the aerospace and defense industry reached new heights in 2021 and Q1 2022 LMM outpaced the historic highs in 2021. Recent data from PwC revealed that there was a 16% year-over-year increase in total annual deal volume, and a $26.8B increase in deal value in the second half of 2022 alone.
We know global defense policies are changing. The largest shifts within A&D is demand and the mindset of defense spending in Europe. You can touch the new demand and companies need to be ready for sole source awards and authorizations for emergency funding. Historically defense funding has been below NATO mandates and troop levels over the last 10 years have fallen from 250,000 to 40,000 in Germany alone.
Companies and customers were starting to rethink their strategy and shift to domestic capabilities, but the invasion of Ukraine has shifted their focus back to international issues. Troop movement has started back into NATO regions. Forward deployments and supporting measures, equipment and services has a long tail, one that could be decades long but unlikely at the 250,000 troop levels. Remember the war in Afghanistan lasted for 20 years in an effort to stabilize the region.
The war in Ukraine offers no easy offramp for Vladamir Putin and most of the world is taking a defensive posture and buildup against Putin’s aggressions to prevent future aggression in NATO’s backyard. The invasion is seeing the use of weapons that we haven’t seen before and will shift the way we view defense planning in the future. There’s been significant increases for the F-35 and companies whose focus is on deployment, logistics, equipment, cybersecurity and information intelligence.
Russia has brought global security to the forefront and a deeper focus on the implications of China, Taiwan and the politics of the industry. There’s a significant need for a more robust global defense network and the war in Ukraine exposed security vulnerabilities and the lack of product materials within our supply chain. Our supply chain is so constrained because we were focused on outsourcing, especially in the earlier stages of the supply chain. To limit our vulnerabilities and lack of product materials, the A&D industry will have to have a more robust onshore model and shift to a Just in Case strategy vs Just in Time.
The tailwinds for US and NATO reinvestment into A&D run strong. While US citizens will become numb to the conflict, Congress and military leaders will keep the conflict on their radar and reestablish a greater military presence to exert pressure for future invasions. The invasion has fundamentally changed us and After Action Reviews by Congress will further drive reinvestment and funding into a global defense network for the US, NATO and our global allies.
To learn how the current trends in A&D impact and benefit your company, call or email me now to receive 3 hours of free consultative analysis. Our analysis offers clarity, based on your objectives, if a full or partial exit, recapitalization, divestiture, acquisition or pre-sale exit strategy provides the greatest benefit to you and your company.
Vercor has been delivering M&A expertise for over 25 years. We serve as a trusted partner to help build long term, iterative strategies that ensure you are positioned to meet your unique personal and financial goals whether it is selling, recapitalizing, acquiring or divesting of a division. Given the shifts in the climate above, now is the time to evaluate, strengthen, and increase the market value of your company regardless of your timeframe.
Todd Cummiskey
Vercor
704-926-6564
Comments