The experts within our Aerospace & Defense Group maintain ongoing contact with a wide range of knowledgeable sources to stay abreast of the issues and trends that could impact the industry’s M&A climate or otherwise influence our clients’ businesses.  Following are a few of the topics addressed in our most recent Aerospace & Defense Review, which is published quarterly.

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AEROSPACE & DEFENSE REVIEW (2009: Q4) (View complete report)

The fourth quarter of 2009 presents an opportunity to reflect on the challenging last 12 months as well as to discuss thoughts for the year ahead. Stocks of publicly traded A&D companies finished 2009 up nearly 31 percent on average, rebounding 95 percent since reaching the market low on March 6, 2009. The A&D industry’s strong stock performance displayed the resilience of the sector, which overcame global program delays, reduced access to financing, leverage constraints, a broad economic slowdown, revenue regression and a shifting U.S. defense strategy to post a solid appreciation of stock price. Appreciating stock performance, typically a facilitator to M&A activity, did not translate into an active M&A environment during 2009. 

Looking ahead to 2010, M&A practitioners anticipate that a number of legislative and market catalysts will provoke an active M&A environment. Regarding legislative catalysts, 2010 represents the last year of favorable capital gains tax treatment before the Bush Administration tax policies expire. Although this may not create transactions, it will likely accelerate the pace of deals to close within the year.

It is difficult to predict 2010 with crystal ball accuracy. One prevailing attitude is that the A&D industry will increasingly turn to M&A transactions to expand or maintain market share amongst an improving economic environment, shifting defense priorities and growing international markets. The detailed U.S. DoD budget suggests strong shifts in strategy and funding, clearly benefiting some firms while hurting others. We expect that the shape of funding will change, but not the total dollars spent. We also project M&A to begin 2010 at a slow to moderate pace and accelerate substantially throughout the year, finishing with a very active market for transactions and setting up for a robust 2011.