A record year for aerospace and defense deals leads into a positive 2018 outlook

January 26, 2018

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By Bob Long

Free from the uncertainty surrounding US tax policy and buoyed by the continued economic expansion and a strong stock market, global dealmakers are poised for larger transactions in 2018. The global aerospace & defense industry is coming off a record year for deal value, and we expect continued growth in aviation and defense deals.

Last year’s record $72 billion in industry deal value was driven largely by increasing geopolitical tensions and market competition, and is heavily attributed to one of the largest transactions in industry history – United Technologies’ $30 billion acquisition of Rockwell Collins.

Commercial aviation remains strong, with growth in revenue passenger miles up nearly 8%, but increasing competition and pressure on profit margins have been catalysts for industry consolidation. Suppliers seeking synergies drove some of the largest acquisitions in industry history.

Deal activity in defense was also strong in 2017, mostly due to geopolitical tensions, emphasis on missile defense, and the Trump administration’s increasing defense budgets. Defense contractors have been planning ahead by making investments in technologies such as autonomy, artificial intelligence, robotics, and cybersecurity.

In 2018, we expect aviation transaction volumes to continue their positive trend, and growth in defense deals that will be of a “portfolio shaping” nature at the mid- to small end of the range given the Pentagon’s view of mergers between primes. While the industry holds substantial dry powder today, tax reform has the potential to impact volumes and values across the board as increased liquidity becomes available to fund inorganic growth agendas. Overall, we believe 2018 is shaping up to be another solid year for deal making in the industry.

View the full year-end A&D deals report here.

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