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Global aerospace and defense deals insights: Q4 2017 · Global Aerospace and Defense Deals Insights...
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A record year for aerospace and defense “Tax reform will provide increased liquidity which, combined with continued strong growth in aviation and a return to growth in defense, should result in another strong year of M&A in 2018.” Bob Long US Aerospace and Defense Deals leader PwC Trends and highlights • Deal value in 2017 was $72 billion, 7% above the previous record in 2015 and 79% higher than 2016. • There were 454 deals in 2017, the same amount as in 2016. However, the average deal size in 2017 was $411 million, 19% higher than the three-year historical average of $345 million. • There were nine deals with announced value greater than $1 billion, accounting for 86% of the total value this year. United Technologies’ $30 billion acquisition of Rockwell Collins was the largest transaction since 2015 and heavily impacted the trends between the third and fourth quarters of 2017 at right. • North America had the largest increase in deal activity in 2017, up 29% from 2016, while Europe’s participation as an acquirer dropped by 20%. PwC Deals Global Aerospace and Defense Deals Insights Year-End 2017 $72B 454 $411M Executive summary Two thousand and seventeen was a record year for deal value in the global aerospace and defense industry, with $72 billion, surpassing the previous record of $67 billion set in 2015. Commercial aviation remains strong, with growth in Revenue Passenger Miles (RPMs) up nearly 8% in 2017 and above 6% in each of the two prior years. However, increasing competition and pressure on profit margins have been catalysts for industry consolidation and have resulted in some of the largest acquisitions in industry history, as suppliers seek synergies. Deal activity in defense was also strong this year, mostly due to geopolitical tensions, emphasis on missile defense, and the Trump administration’s increasing defense budgets. Defense contractors have been planning ahead by making investments in technologies such as autonomy, artificial intelligence, robotics, and cybersecurity. We predict these trends will continue through 2018. Tax reform will provide increased liquidity which, combined with continued strong growth in aviation and a return to growth in defense, should result in another strong year of M&A in 2018. Source: Thomson Reuters Source: Thomson Reuters and other publicly available sources 2017 versus 2016 Q4 2017 versus Q3 2017 Total deal value 79% 72% Total deal volume 0% 15% Average deal size 69% 71%
Transcript of Global aerospace and defense deals insights: Q4 2017 · Global Aerospace and Defense Deals Insights...
A record year for aerospace and defense
“Tax reform will provide increased liquidity which, combined with continued strong growth in aviation and a return to growth in defense, should result in another strong year of M&A in 2018.”
Bob Long
US Aerospace and Defense
Deals leader
PwC
Trends and highlights
• Deal value in 2017 was $72 billion, 7% above the previous record
in 2015 and 79% higher than 2016.
• There were 454 deals in 2017, the same amount as in 2016.
However, the average deal size in 2017 was $411 million, 19%
higher than the three-year historical average of $345 million.
• There were nine deals with announced value greater than
$1 billion, accounting for 86% of the total value this year. United
Technologies’ $30 billion acquisition of Rockwell Collins was the
largest transaction since 2015 and heavily impacted the trends
between the third and fourth quarters of 2017 at right.
• North America had the largest increase in deal activity in 2017,
up 29% from 2016, while Europe’s participation as an acquirer
dropped by 20%.
PwC DealsGlobal Aerospace and Defense Deals Insights Year-End 2017
$72B
454
$411M
Executive summary
Two thousand and seventeen was a record year for deal value in
the global aerospace and defense industry, with $72 billion,
surpassing the previous record of $67 billion set in 2015.
Commercial aviation remains strong, with growth in Revenue
Passenger Miles (RPMs) up nearly 8% in 2017 and above 6% in
each of the two prior years. However, increasing competition and
pressure on profit margins have been catalysts for industry
consolidation and have resulted in some of the largest acquisitions
in industry history, as suppliers seek synergies.
Deal activity in defense was also strong this year, mostly due to
geopolitical tensions, emphasis on missile defense, and the Trump
administration’s increasing defense budgets. Defense contractors
have been planning ahead by making investments in technologies
such as autonomy, artificial intelligence, robotics, and cybersecurity.
We predict these trends will continue through 2018.
Tax reform will provide increased liquidity which, combined with
continued strong growth in aviation and a return to growth in
defense, should result in another strong year of M&A in 2018.
Source: Thomson Reuters
Source: Thomson Reuters and other publicly available sources
2017versus2016
Q4 2017versus
Q3 2017
Total deal value
79% 72%
Total deal volume
0% 15%
Average deal size
69% 71%
2
Global A&D Deals Insights Year-End 2017
Deal activity
A record $72 billion in deal value was announced in 2017, 7%
higher than the previous record set in 2015 and 79% higher than
2016. Deal value was driven by increasing geopolitical tensions
and market competition, and is heavily attributed to one of the
largest transactions in industry history. Even so, deal volume
remained steady this year.
PwC Deals Global A&D Deals Insights Year-End 2017
$328
$105
$982
$81
$256$188
$137
$370
$308
$130
$941
$273
0
200
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1200
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Ave
rag
e d
isclo
se
d d
ea
l va
lue
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mn
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De
al vo
lum
e
Undisclosed <$50 mn$50 mn to $250 mn $250 mn to $1,000 mn>$1,000 mn Average deal size (R-Axis)
Deals by disclosed value
$12
$4
$47
$4
$10$7 $6
$17$13
$6
$41
$12
109
126
154
129
108 111 106
129
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120 124
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0
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0
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De
al vo
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al va
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Disclosed deal value Deal volume (R-Axis)
Total deal value and volume
Source: Thomson Reuters and other publicly available sources
¹Megadeals are defined as deals with disclosed value equal to or greater than $5 billion USD.
Largest transaction
In September, United Technologies agreed to acquire Rockwell
Collins for $30 billion. The transaction is partly a result of
increasing competition and pressure on profit margins. This deal
is the second largest in industry history and will help United
Technologies maintain its competitive position as the industry’s
largest supplier.
Megadeals ($5B and over)
There were four megadeals announced in 2017: the United
Technologies/Rockwell Collins transaction was followed quickly
by Northrop Grumman’s $9 billion acquisition of Orbital ATK.
Safran’s $8 billion acquisition of Zodiac Aerospace set the stage
in January while Thales’ $5 billion acquisition of Gemalto closed
the year on a high note in December.
Sector category analysis
The Aircraft and Parts category continues to account for the majority of deal value in sector. Aircraft parts suppliers are looking to strengthen core
capabilities and mitigate risks from increasing market competition. The Arms and Vehicles category doubled in deal value this year, as increasing
geopolitical tensions drew large transactions in China, South Korea, and the United States.
Source: Thomson Reuters and other publicly available sources
0
2
4
6
8
10
Aircraftand Parts
Armsand Vehicles
ElectronicEquipment
Raw Materialsand Supplies
Softwareand Security Systems
SupportingServices
0.0
0.1
1.0
10.0
100.0
Deal value ($bn)
Deal volume
3Q
17
4Q
17
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
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3Q
16
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1Q
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17
3
Global A&D Deals Insights Year-End 2017
PwC Deals Global A&D Deals Insights Year-End 2017
Regional analysis
North America remains the most active acquirer, followed by the UK and Eurozone and Asia and Oceania regions. This pattern carries over to
target regions, with the US accounting for 32% of targets in 2017, a 29% increase from 2016. Europe’s participation as an acquirer also dropped
by 20% in 2017. This could be a sign of the region’s more diplomatic stance to a changing geopolitical landscape.
Financial vs. strategic investors
Strategic investors continue to contribute to the largest share of deal activity in the sector. Ninety-four percent of value and 76% of volume was
attributed to transactions between sector participants in 2017. Financial buyers’ share of total value and volume remains relatively low.
11.6
0.9
3.5
0.9
46.0
1.2
2.7
1.8
8.6
1.7
6.0
0.82
.3
3.4
12.4
5.011.8
0.8
3.8
2.3
41.2
0.2
11.1
0.7
Strategic investors Financial investors
0
5
10
15
20
25
30
35
40
45
50
82
27
99
27
120
34
97
32
81
27
89
22
82
24
100
29
82
23
93
27
94
30
76
29
0
50
100
150
Deal value ($B)
Deal volume
6%
28%
0%
10%
20%
30%
40%
50%
60%
70%
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
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4Q
16
1Q
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2Q
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3Q
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4Q
17
Financial buyer share of total value
Financial buyer share of total volume
Financial investor share of M&A activity1Q
17
2Q
17
3Q
17
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
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4Q
16
4Q
17
30
%
25
%
27
%
35
%
32
%
23
%
34
%
36
%
26
%
35
%
34
%
30
%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
Share of deal volume by acquirer region
Asia and Oceania North America South America
UK and Eurozone Europe ex-UK and Eurozone Africa/Undisclosed
40
%
9%
3%
48
%
7%
71
%
19
%
47
%
8%
79
%
4%
43
%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
Share of deal value by acquirer region
Asia and Oceania North America South America
UK and Eurozone Europe ex-UK and Eurozone Africa/Undisclosed
Source: Thomson Reuters and other publicly available sources
1Q
17
2Q
17
3Q
17
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
4Q
17
Source: Thomson Reuters and other publicly available sources
4
Global A&D Deals Insights Year-End 2017
PwC Deals Global A&D Deals Insights Year-End 2017
A&D deals outlook
Our view is that aviation transaction volumes will continue their positive trend, leveraging the dynamics discussed above. We also expect growth in
defense deals, but believe the vast majority will be of a “portfolio shaping” nature at the mid- to small end of the range given the Pentagon’s view of
mergers between primes. Additionally, while the industry holds substantial dry powder today, tax reform has the potential to impact volumes and
values across the board as increased liquidity becomes available to fund inorganic growth agendas. Overall, we believe 2018 is shaping up to be
another solid year for deal making in the industry.
Europe ex-UK and Eurozone
Local: 54 deals, $0.1 billion
Inbound: 9 deals, $0.3 billion
Outbound: 4 deals, $0.0 billion
UK and Eurozone
Local: 68 deals, $13.4 billion
Inbound: 33 deals, $1.0 billion
Outbound: 30 deals, $1.4 billion
Asia and Oceania
Local: 123 deals, $11.8 billion
Inbound: 15 deals, $0.9 billion
Outbound: 20 deals, $0.8 billion
North America
Local: 118 deals, $43.5 billion
Inbound: 26 deals, $0.9 billion
Outbound: 24 deals, $0.5 billion
South America
Local: 3 deals, $0.0 billion
Inbound: 2 deals, $0.0 billion
Outbound: 0 deals, $0.0 billion
Africa/Undisclosed
Local: 1 deal, $0.0 billion
Inbound: 2 deals, $0.0 billion
Outbound: 9 deals, $0.4 billion
29
%
25
%
27
%
30
%
28
%
22
%
31
%
32
%
23
%
33
%
30
%
36
%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
Share of disclosed deal volume by target region
Asia and Oceania North America South America
UK and Eurozone Europe ex-UK and Eurozone Africa/Undisclosed
40
%
9%
3%
47
%
4%
71
%
15
%
45
%
9%
82
%
3%
47
%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
Share of disclosed deal value by target region
Asia and Oceania North America South America
UK and Eurozone Europe ex-UK and Eurozone Africa/Undisclosed
Regional analysis (continued)
A&D deals by region
Source: Thomson Reuters and other publicly available sources
Source: Thomson Reuters and other publicly available sources
Announced Target name Target nation Acquirer name Acquirer nation Status Deal value1 Category
09/04/17 Rockwell Collins Inc. United States United Technologies Corp. United States Pending 30,000 Aircraft and Parts
09/18/17 Orbital ATK Inc. United States Northrop Grumman Corp. United States Pending 9,171 Arms and Vehicles
01/19/17 Zodiac Aerospace SA France Safran SA France Pending 7,839 Aircraft and Parts
12/17/17 Gemalto NV Netherlands Thales SA France Pending 5,398Software and Security
Systems
10/28/17Wuchang Shipbuilding Industry Group
Co. Ltd.China
China Shipbuilding Industry Co.
Ltd.China Pending 3,549 Arms and Vehicles
02/24/17 DigitalGlobe Inc. United StatesMacDonald Dettwiler & Associates
Ltd.Canada Completed 2,134
Software and Security
Systems
06/13/17 Hyundai Heavy Industries Co. Ltd. South Korea Hyundai Robotics Co. Ltd. South Korea Completed 1,268 Arms and Vehicles
06/28/17Daewoo Shipbuilding & Marine
Engineering Co. Ltd.South Korea
The Export-Import Bank of Korea
{KEXIM}South Korea Completed 1,127 Arms and Vehicles
04/07/17 Soares Ltd. ChinaChina Merchants Industry Holdings
Co. Ltd.Hong Kong Completed 1,100
Raw Materials and
Supplies
01/27/17Harris Corp.-Government IT Services
BusinessUnited States Veritas Capital Partners LP United States Completed 690
Software and Security
Systems
Announced Target name Target nation Acquirer name Acquirer nation Status Deal value1 Category
10/23/16 B/E Aerospace Inc. United States Rockwell Collins Inc. United States Completed 8,201 Aircraft and Parts
01/26/16Lockheed Martin Corp.-Government IT
& Technical Services BusinessesUnited States Leidos Holdings Inc. United States Completed 5,930
Software and Security
Systems
11/14/16 STX Offshore & Shipbuilding Co. Ltd. South Korea Creditors South Korea Pending 3,597 Arms and Vehicles
04/29/16Jiangsu Guoxin Investment Group
Ltd.-AssetsChina Sainty Marine Corp. Ltd. China Completed 3,188 Supporting Services
09/29/16 Safran Identity & Security SAS France Investor Group United States Completed 2,720Software and Security
Systems
11/29/16Shenyang Aircraft Industry (Group)
Co. Ltd.China Zhonghang Heibao Co. Ltd. China Completed 1,400 Aircraft and Parts
03/18/16Airbus Group SE-Defence Electronics
BusinessGermany KKR & Co. LP United States Completed 1,244 Electronic Equipment
05/24/16 ILC Holdings Inc. United States TransDigm Group Inc. United States Completed 1,000 Electronic Equipment
12/23/16Daewoo Shipbuilding & Marine
Engineering Co. Ltd.South Korea
The Export-Import Bank of Korea
{KEXIM}South Korea Pending 830 Arms and Vehicles
07/11/16 Industria de Turbo Propulsores SA Spain Rolls-Royce Holdings PLC United Kingdom Intended 796 Aircraft and Parts
Announced Target name Target nation Acquirer name Acquirer nation Status Deal value1 Category
08/10/15 Precision Castparts Corp. United States Berkshire Hathaway Inc. United States Completed 31,595Raw Materials and
Supplies
07/20/15 Sikorsky Aircraft Corp. United States Lockheed Martin Corp. United States Completed 9,000 Aircraft and Parts
02/06/15 Exelis Inc. United States Harris Corp. United States Completed 4,561 Electronic Equipment
01/23/15 Keppel Land Ltd. Singapore Keppel Corp. Ltd. Singapore Completed 2,288 Supporting Services
09/23/15 Landmark Aviation United States BBA Aviation PLC United Kingdom Completed 2,065 Supporting Services
04/20/15 Websense Inc. United States Raytheon Co. United States Completed 1,900Software and Security
Systems
03/18/15Shifang Mingri Yuhang Industry Co.
Ltd.China
Xinjiang Machinery Research
Institute Co. Ltd.China Completed 1,804 Aircraft and Parts
10/29/15 C Series Aircraft LP Canada Investissement Quebec Canada Completed 1,000 Aircraft and Parts
03/02/15 Scitor Corp. United StatesScience Applications International
Corp.United States Completed 790 Supporting Services
07/28/15 Fokker Technologies Group BV Netherlands GKN PLC United Kingdom Completed 781 Aircraft and Parts
5
Global A&D Deals Insights Year-End 2017
PwC Deals Global A&D Deals Insights Year-End 2017
Top 10 A&D deals 2017
Top 10 A&D deals 2016
Top 10 A&D deals 2015
Source: Thomson Reuters and other publicly available sources
¹ In Million USD
© 2018 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network.
Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. Disclaimer: This content is for general information
purposes only, and should not be used as a substitute for consultation with professional advisors.
Smart deal makers are perceptive enough to see value others have
missed, flexible enough to adjust for the unexpected, aggressive enough
to win favorable terms in a competitive environment, and circumspect
enough to envision the challenges they will face from the moment the
contract is signed. But in a business environment where information can
quickly overwhelm, the smartest deal makers look to experienced
advisors to help them fashion a deal that works.
PwC’s Deals group can advise aerospace and defense companies and
aerospace and defense-focused private equity firms on key M&A
decisions, from identifying acquisition or divestiture candidates and
performing detailed buy-side diligence, to developing strategies for
capturing post-deal profits and exiting a deal through a sale, carve-out, or
IPO. With more than 9,800 deals professionals in 75 countries, we can
deploy seasoned teams that combine aerospace and defense industry
skills with local market knowledge virtually anywhere and everywhere your
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Although every deal is unique, most will benefit from the broad experience
we bring to delivering strategic M&A advice, due diligence, transaction
structuring, M&A tax, merger integration, valuation, and post-deal services.
In short, we offer integrated solutions, tailored to your particular deal
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For more information about M&A and related services in the global
aerospace and defense industry, please visit www.pwc.com/us/deals or
www.pwc.com/us
About the data
The information presented in this report is an analysis of deals in the global
aerospace and defense industry. Deal information was sourced from Thomson
Reuters and includes deals for which targets have an SIC code that falls into
one of the 14 aerospace and defense industry groups. Certain adjustments
have been made to the information to exclude transactions which are not
specific to aerospace and defense or incorporate relevant transactions that
were omitted from the SIC industry codes.
This analysis includes all individual mergers, acquisitions, and divestitures for
disclosed or undisclosed values, leveraged buyouts, privatizations, minority
stake purchases, and acquisitions of remaining interest announced between
January 1, 2015 and December 31, 2017, with a deal status of completed,
partially completed, pending, pending regulatory and pending completion, and
excludes all rumors and seeking buyers. Additionally, transactions that are spin-
offs through distribution to existing shareholders are included.
Percentages and values are rounded to the nearest whole number which may
result in minor differences when summing totals.
About PwC’s
Deals Practice
Bob Long
US Aerospace and Defense Deals leader
McLean, Virginia
(703) 918-3025
For a deeper discussion on deal
considerations, please contact one of
our practice leaders or your local Deals
partner:
Scott Thompson
US Aerospace and Defense leader
McLean, Virginia
(703) 918-1976
Dean Gilmore
Global Aerospace and Defense leader
London, England
+44 7970 665555
Randy Starr
US Aerospace and Defense
Advisory leader
Florham Park, New Jersey
(973) 236-5682
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