As commercial air travel slowed substantially in 2020, it had an impact on overall M&A deal volume in the aerospace and defense industry. Total commercial M&A deal count in the sector dropped 19%, and total aggregate deal value was down 77% compared to 2019, according to a report by financial adviser AlixPartners LLP. Private equity was involved in 60% of the top ten deals in 2020, the report said.
In 2021, deal volume bounced back and was driven by private equity buyers. Since the beginning of 2021, private equity acquirers showed continued interest in emerging defense technologies, which became one of the core drivers of increased M&A activity. The advent of special purpose acquisition companies also paved the way for increased M&A activity in the sector, the report said.
For instance, private jet operator Vista Global Holding Ltd., which is backed by New York-based private equity firm Rhone Capital LLC, is exploring a potential merger with a SPAC at a valuation of over $10 billion, including debt. So long as private investment in SPACs does not decline, these blank check companies are expected to be a significant factor in the sector's M&A going forward, the report said.
Total disclosed private equity deal value in the sector globally was $9.76 billion for the year to June 11, according to S&P Global Market Intelligence data.
PE involvement
The largest private equity-backed transaction this year, expected to be completed in the fourth quarter, involves private equity giant KKR & Co. Inc., which is acquiring Plano, Texas-based Atlantic Aviation Corp. from Macquarie Infrastructure Corp. for nearly $4.48 billion in cash and assumed debt and reorganization obligations. The purchase price implies a 16.2x multiple of Atlantic Aviation's 2019 EBITDA.
U.S.-based buyout firm Veritas Capital Fund Management LLC was involved in two big private equity deals in the sector year-to-date, according to S&P Global Market Intelligence data.
Veritas and Elliott Management Corp. affiliate Evergreen Coast Capital Corp. finalized the acquisition of aerospace and defense company Cubic Corp. in a transaction worth almost $3.0 billion, including assumed debt.
In a separate deal announced in March, Veritas Capital agreed to sell Huntsville, Ala.-based Abaco Systems Inc. to electronic devices manufacturer Ametek Inc. in a $1.35 billion all-cash deal. Abaco is a provider of open-architecture computing and electronic systems for aerospace, defense and specialized industrial markets. The deal is expected to close by the middle of 2021, subject to regulatory approvals and other customary conditions.
Venture capital firms invested an aggregated $6.94 billion globally across 73 rounds of funding since the start of 2021.
North America logged the highest number of funding rounds year-to-date, followed by Europe and Asia-Pacific.
In Asia-Pacific, the largest of these funding rounds based on disclosed transaction value was for Indian orbital launch vehicles designer Agnikul Cosmos Pvt. Ltd., which raised 805 million Indian rupees in series A financing led by Menlo Park, Calif.-based venture capital firm Mayfield Fund LLC.
Sector outlook
Investor interest in M&A has gradually started to pick up. In fact, global aerospace and defense deal activity in 2021 appears to be a "turning point" for the industry, according to a note from Grant McDonald, global sector leader of aerospace and defense at KPMG International.
As 2020 ended, aerospace and defense deal activity soared "accompanied by reports of multiple bidders for certain companies and a growing number of offers for others."
McDonald cited geopolitics, the pandemic and digital transformation as three drivers for M&A because they "have become powerfully intertwined. These factors are likely to lead to the restructuring of the [aerospace and defense] industry."
No doubt private equity will be watching the consolidation that follows.
As of June 29, US$1 was equivalent to 74.3 Indian rupees.