Reading time ( words)
Mergers and acquisitions (M&A) activity in the defense and security domains was valued at $130 billion during the three months to 30 June 2019, according to Jane’s by IHS Markit, a world leader in critical information, analytics and solutions. This compared with $5.4 billion during the prior three months and an average of $10 billion each quarter over the prior ten years.
The merger of Raytheon and United Technologies Corporation (UTC) in a $121 billion all-stock transaction was announced in June this year to create Raytheon Technologies Corporation with combined sales in the region of $74 billion. The deal will create which will be one of the largest defense organisations worldwide and followed UTC's absorption of Rockwell Collins in 2017.
“Even with the merger of Raytheon and UTC excluded, activity during the three months to 30 June was strong,” said Guy Anderson, associate director at Jane’s by IHS Markit. “Other transactions were valued at a total of $9 billion and included CapGemini's $3.5 billion purchase of engineering and research and development group Altran and Parker-Hannifin's $3.6 billion acquisition of military adhesives and coatings group Lord Corporation.”
Beyond market shifting activity at the top of the US defense sector, activity during the quarter pointed towards nascent consolidation in Saudi Arabia, ongoing consolidation in India and continuing moves by defense primes to acquire a presence in 'disruptive' sectors such as alternative propulsion and artificial intelligence.
Ongoing Hard Line by Regulator Hampers Transformational Activity in North America
Despite the scale of transformational activity in the US, deal activity in North America dipped during the second quarter to the lowest level in five years and accounted for just 31% of transactions (based on the location of targets). This marked a decline from a five-year average of 50%. As noted in previous reports, this appears to reflect the ongoing hard line by US regulators in scrutinising mergers and acquisitions on anti-competition grounds.
Jane’s notes a contrast in European activity, which jumped to the highest level in two years (38% of global transactions). Beyond Europe and North America, activity in the Asia Pacific region jumped to the highest quarterly level ever recorded by Jane's with 24% of transactions.
“Further transformational activity cannot be discounted over the course of the year, although competition and inward investment oversight in the world’s largest defense market may act as a partial brake,” said Anderson.
“Greater consolidation can be expected in both Asia Pacific and the rest of the world as markets continue to mature and governments seek to invigorate domestic defense activity.”
About IHS Markit
IHS Markit is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth.
About Jane’s Markets Forecast
With Jane's Markets Forecast you can conduct the strategic market analysis and planning that your business relies on when making critical decisions that grow long-term revenue and market share. By applying a rigorous bottom-up methodology with fully documented sources and comments, Jane's Markets Forecast delivers an accurate and comprehensive overview of revenue available to industry across 19 defense markets and 65 countries. In addition to awarded programmes and stated opportunities, you get an expert assessment of future requirements based on factors including aging inventory, R&D investments, market trends and geopolitics.