Aerospace and Defense (A&D) consolidation through mergers & acquisitions

A defining characteristic of the Aerospace and Defense (A&D) industry over the recent past has been its consolidation. Causes derive from a combination of cost pressures, global opportunities and threats, shareholder demand for value, and need for access to key programs and technologies.

The industry has reduced to a few very large global players, a relatively small number of mid-tier companies still largely defined by their national roots, and a fragmented lower-tier of general or specialist suppliers. This shake out has largely been driven by mergers and acquisition (M&A) focused on key products and technologies.

In this respect A&D is following the path of maturing industries. Industry consolidation follows a pattern through four phases over a definite period of time. For A&D,  consolidation has been happening quickly. The figure below illustrates A&D consolidation and the key activities in each phase.

The largest companies are building global capabilities around core capabilities; the mid-tiers are increasingly developing around technologies, services, or new markets; and the smaller companies are competing through agility or niche specializations.

All are impacted, to greater or lesser extent, by the need to survive and thrive in this consolidating, merger-fuelled environment:

• Buyers are having to pay premium prices due to the attractiveness of the A&D industry and the difficulty of finding suitable take-over targets
• Potential targets are typically jockeying to position themselves for the future
• Companies that cannot grow sufficiently, either organically or through acquisition, are diversifying into new offerings or markets
• Companies that can are faced with post-merger integration challenges, requiring careful preparation, with attention to culture and people, technology and processes, and strong leadership

A.T. Kearney has developed a strong track record of experience in merger “transaction” across industries, including A&D. We work with companies, banks, and private equity organizations in target selection, due diligence, pre-merger preparation, post merger integration, and diversification. Typically, we combine market and industry experts with financial and transactional practitioners to help our clients, tailoring support to their specific needs.

Our success can be measured by repeat business and client references, which we are able to provide.