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PwC Deals Summary: Global Aerospace and Defense Q1 2018

Core Content

The first quarter of 2018 saw strong deal activity in the global aerospace and defense (A&D) sector, with a total deal value of just over $15 billion, marking a 28% increase from the previous quarter and a 19% rise compared to Q1 2017. Despite a 19% decrease in the number of deals compared to Q1 2017, the average deal size surged by 89% to $485 million, reflecting a significant shift towards larger, more strategic transactions.

The sector's robust financial position, driven by strong cash reserves and the impact of lower corporate taxes, positions it well to capitalize on opportunities amid economic and trade uncertainties. Strategic investors dominated the deal landscape, contributing 90% of the total deal value and 73% of the volume, underscoring the importance of strategic alignment in M&A activity.

Key Trends and Highlights

• Deal Value and Volume:

  • Total deal value in Q1 2018 was $15 billion, 80% higher than the 10-year historical quarterly average of $8.3 billion.
  • 86 deals were announced, with a notable increase in average deal size.
  • The largest deal of the quarter was General Dynamics' $9.6 billion acquisition of CSRA, accounting for 64% of the total deal value.

• Regional Activity:

  • North America accounted for 73% of deal value and 73% of target value, highlighting its continued dominance in the sector.
  • Asia and Oceania had the highest deal volume but fewer targets and acquirers compared to previous quarters.

• Sector Category Analysis:

  • The Software and Security Systems category was the most active, contributing to the majority of deal value.
  • There was reduced activity in Aircraft & Parts and Arms & Vehicles categories, likely due to market saturation or strategic focus shifts.

Megadeals and Strategic Acquisitions

• General Dynamics' acquisition of CSRA ($9.6 billion) was the only megadeal (defined as $5 billion or more) in Q1 2018.
• Other notable transactions included:
  • Shanghai Waigaoqiao Shipbuilding Co Ltd's $960 million sale to CSSC Holdings Ltd.
  • Elbit Systems' $552 million acquisition of Israel Military Industries Ltd.

Outlook for the Sector

The outlook for the A&D sector remains positive, with the potential for continued deal activity in 2018. While the majority of transactions are expected to be mid to small-sized, driven by strategic investors, opportunities for mega-deals still exist. Industry players are likely to focus on accretive transactions within their core businesses, navigating geopolitical tensions and trade uncertainties.

Financial vs. Strategic Investors

• Strategic investors accounted for 90% of deal value and 73% of deal volume in Q1 2018.
• Financial investors, while less dominant, still played a role in deal making, particularly in supporting services and other niche areas.

PwC's Deals Practice

PwC's Deals Practice offers comprehensive M&A advisory services tailored to the aerospace and defense industry. With a global team of over 20,000 practitioners, they provide expertise in strategic M&A, due diligence, transaction structuring, tax, integration, valuation, and post-deal services. Their services cater to both aerospace and defense companies and private equity firms, helping them navigate complex deal environments and extract peak value within their risk profile.

Data Sources and Methodology

• The data is sourced from Thomson Reuters and other publicly available sources.
• It includes deals from January 1, 2015, to March 31, 2018, with a focus on transactions within the 14 aerospace and defense industry groups.
• Certain adjustments were made to exclude non-specific transactions and include those relevant to the sector.
• Percentages and values are rounded, which may lead to minor discrepancies when summing totals.