3 minutes

What Does the Future Hold for the Aerospace & Defense Industry M&A Dealmaking?

Highlights from a roundtable discussion featuring dealmakers from Raytheon, Capstone, Seabury Corporate Finance and SAIC.

Aerospace & Defense M&A

2021 started strong for the Aerospace and Defense (A&D) and Government Contracting sectors with the U.S. government focusing on modernizing air, land, sea, space and cyber capabilities. Companies looking to complement their existing offerings engaged in a series of megadeals such as the acquisitions of GE Capital Aviation Services by AerCap for USD 31 billion, Perspecta by Veritas for USD 7 billion and Cubic Corporation by Veritas Capital and Evergreen Coast Capital Corporation for USD 3 billion. The total disclosed deal value for the first half of 2021 stands at over USD 43.5 billion compared to USD 49 billion in the first half of 2020, according to Mergermarket data.

To learn more about recent mergers and acquisitions (M&A) in these sectors and what the future holds, SS&C Intralinks recently presented an insightful webinar titled “Aerospace & Defense Industry Trends and Market Insights.” The speakers included: James Wallace, senior counsel at Raytheon; Ian Cookson, managing director, aerospace, defense, government & security at Capstone; Oliver T. Althoff, managing director and head of North America at Seabury Corporate Finance LLC; and Adam Porter-Price, VP corporate development at SAIC. During our conversation, the group provided their outlook on post-pandemic dealmaking, the entry of new players into the space and their thoughts on the future of A&D.

The panelists acknowledged how technology-enabled M&A dealmaking continued throughout the pandemic — from lockdowns and travel bans in early 2020 intended to slow the spread of coronavirus through vaccine rollouts and the current rise of COVID-19 variants. With the ability to leverage tech, they’ve been able to conduct remote due diligence, present product demos, take virtual tours of facilities and finalize transactions. The shift to deal teams working remotely increased the vulnerability of data security and heightened concerns around cybersecurity. Companies who are thinking about selling their businesses should be prepared to answer rigorous information-security questionnaires and demonstrate security standards during due diligence.

The speakers touched on a host of other issues. It was noted that deals in this sector are facing increased levels of transparency for a variety of reasons, including geopolitical tensions. Representation and warranty (R&W) insurance and cyber insurance can provide extra protection to the buy-side, but they rely on the acquirer’s cyber due diligence during the underwriting process. This means that buyers should have a tight cyber due diligence practice — evaluating more than just the target’s cyber exposure — to protect themselves from unnecessary breaches and bad PR. 

The increased use of other transaction authority (OTA) contracts in the Department of Defense’s acquisition process have drawn new companies into the A&D sector. The entry of commercial companies that compete for government contracts provides an opportunity for VC/PEs to help these companies navigate the federal space. Traditional players can also partner with them by taking a minority share through a venture arm or channel partner agreement. The panelists have been seeing increasing rivalry between the speedboats (VC/PEs) and the aircraft carriers (incumbents) on new emerging technologies that can increase competitiveness in the market and strengthen America’s standing in the world. 

The coming years are going to be transformative for the A&D and federal IT sector. The government’s heightened interest in leveraging new technologies presents opportunities for joint ventures and M&A to create best-in-class products and services. COVID-19 and the changing geopolitical climate will continue to provide challenges and opportunities for portfolio trimming, carve-outs and other activities to adapt to the government’s changing priorities. 

Thanks to the panelists for sharing their knowledge with SS&C Intralinks’ global dealmaking community. You can watch an on-demand replay of the video here.

Alon Kostetsky Intralinks