Tuesday 5 March 2013, Amsterdam
The global defense industry witnessed significant M&A activity in 2012. The prevalent unstable economic environment, and consequent federal military budget cuts in the major spending countries in North America and Europe, meant that companies resorted to consolidation as their primary growth strategy. The need to access emerging foreign markets such as India, Australia and Saudi Arabia has also driven major companies to join hands with locally established companies.
In 2013, the industry is anticipated to experience a largely similar or marginally higher M&A activity than that of 2012, due to the aforementioned persistent driving factors. Additionally, the unrest and uprisings in the Middle East and Africa will raise the militaries’ weapons and equipment needs, subsequently fueling the M&A trend in the industry.
The recently announced budget cuts by major defense spenders including the US, the UK, France, and India for 2013 is expected to affect several, earlier formulated, long term programs, causing a significant concern for the defense contractors. Taking this as a cue, several major companies are in the process of realigning their business models by streamlining their existing operations and expanding into high growth markets.
M&A has proven to be the most effective instrument for the firms to cope with the current market difficulties such as narrowing profit margins and revenues and a considerable drop in the number of contract awards. For example, in the last quarter of 2012, Renault Trucks Defense completed the acquisition of Panhard in order to add the latter’s area of specialization, i.e. small armored vehicles for military use to its existing product portfolio in France.
The C4ISR Electronics and IT segment led deal activity in 2012 with 267 transactions, followed by the aerospace products and parts segment with 170 transactions. Activity in these segments primarily occurred in North America and Europe. From a regional perspective, historically strong North America reported 267 deals and recorded significant deals activity in most defense industry segments.
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