More talk of aerospace industry mergers and acquisitions

Armed with significant cash on their balance sheets, U.S. aerospace and defense (A&D) executives are looking at strategic company acquisitions as the highest-priority investment area to spur growth, according to a recent survey released by KPMG LLP, an audit, tax, and advisory firm based in New Jersey.

The KPMG survey follows a report released in March by Deloitte LLP that predicts the A&D industry is on the brink of a mergers and acquisitions boom.

In the 2012 KPMG A&D Industry Outlook survey, nearly three-quarters (71 percent) of A&D executives say their companies will be involved in a merger or acquisition in the next two years. In addition, 64 percent of A&D executives indicate that their companies have significant cash on their balance sheets, and more than half (53 percent) say they will increase capital spending this year.

Armed with significant cash on their balance sheets, U.S. aerospace and defense (A&D) executives are looking at strategic company acquisitions as the highest-priority investment area to spur growth, according to a recent survey released by KPMG LLP, an audit, tax, and advisory firm based in New Jersey.

The KPMG survey follows a report released in March by Deloitte LLP that predicts the A&D industry is on the brink of a mergers and acquisitions boom.

In the 2012 KPMG A&D Industry Outlook survey, nearly three-quarters (71 percent) of A&D executives say their companies will be involved in a merger or acquisition in the next two years. In addition, 64 percent of A&D executives indicate that their companies have significant cash on their balance sheets, and more than half (53 percent) say they will increase capital spending this year.

"This may spur an industry response similar to what drove major industry consolidation in the 1980s and 1990s, or perhaps an even more dramatic response," said Martin Phillips, U.S. and global leader of KPMG's aerospace and defense practice.

Phillips adds that U.S. government contracts are dwindling. In fact, when asked about the biggest drivers of revenue growth over the next three years, A&D executives most frequently cited acquisitions and joint ventures (50 percent).

Foreign customers

"Companies must find a way to break through to new customers and markets," said Doug Gates, partner in KPMG's aerospace and defense practice. Nearly half (43 percent) of executives surveyed by KPMG say that non-U.S. operations or customers will account for more than a quarter of their companies' revenues.

"We continue to hear about India and Brazil, but look at it realistically and you see that foreign military orders have been minimal to date," Phillips added.

Supplier acquisitions

The Deloitte report released in March says “the era of mega-mergers of large defense contractors is likely behind us. However, there remain hundreds of suppliers to these large defense contractors that could gain scale and cost efficiencies by merging."

Last month, Blackland Aerospace, LP, announced it had acquired Lewis Machine Company of East Hartford, Conn. Lewis specializes in manufacturing complex precision-machined components for clients in the commercial and military jet engine, airframe, missile and power plant industries.