The year 2020 started off just as promising as last year for aerospace M&A. According to Deloitte’s most recent Global A&D report, the M&A portion of the industry has been trending hot since 2015, and there was nothing to indicate that 2020 wouldn’t deliver along the same lines. In fact, the report projected a 3-4% growth in defense as well as a boost in commercial orders and sales.
And then COVID happened.
To be fair, the United States had quite the headstart on the global pandemic as it made its way around most of the rest of the world before finally gaining ground in our country. And while many companies may have used this time to prepare to the best of their ability, the pandemic has still taken a noticeable toll on M&As.
Where do we go from here?
Here’s a look at what we know so far:
Defense is Up, M&As are Down
To be fair, 2019 was a banner year for A&D mergers and acquisitions. High profile deals like Raytheon and United Technologies or L3 Technologies and Harris Corp stole the spotlight and built momentum for the industry. It was already a tough act to follow, and COVID has all but ensured that 2020 won’t be a repeat season.
Even in the face of uncertainty, defense companies still have a lot to be excited about. Spending in the defense sector typically leans heavily on government bodies, and national security budgets remain relatively unchanged. This has enabled defense contractors to remain more or less stable, and for companies like Boeing, the defense sector may allow them to prevent permanent financial despair to the company as a whole. However, the recent halt on travel and other factors have forced aerospace companies to proceed with caution regarding spending. Given the market conditions, buyers are generally cautious about expenditures and deals. Many firms are deferring their talks about M&A and refocusing their efforts to maintain resilience and financial health.
What A&D Firms Should Be Focusing on Now
Given we’re well past the halfway point of 2020 with no real end to the pandemic in sight, it’s safe to say that 2020 is pushing pause on aerospace M&A. Companies should use this quiet time to review their assets and portfolios, free up cash on hand to weather a prolonged state of affairs, and if needed, increase their liquidity.
Aside from the financial aspect, A&D companies would do well to prioritize fixing or streamlining internal systems. When M&As start to bounce back, companies will be better able to integrate new data quickly, improve collaboration between the two parties, and fluidly respond to change.
Right now, aerospace companies are finding themselves in the same state as other industries. They’re addressing more urgent concerns and making themselves more resilient from the inside out. In doing so, they’ll be in a much healthier position to resume M&A activities when the time is right.
