Small Deals Forming Large Percentage of M&A Activity, PwC Report Finds

The lagging deal values brought on by the banking crisis of 2008 continued into 2009, according to “Mission Control,” PricewaterhouseCoopers annual review of merger and acquisition activity in the global A&D industry.

The report finds that while deal values have turned up of late, it’s been smaller deals that make up the biggest portion of the activity.

PwC finds that: “Deal activity, as measured by the total number of deals, has stayed buoyant at near record levels as companies limit their acquisition budgets but continue to take advantage of opportunities to make small but strategic purchases.”

Unfortunately, even though the amount of deal activity maintained a high level, values fell. The average value of larger deals (US$50 million or above) fell 27% to US$379 million in 2009 from US$519 million in 2008. The total value of these larger deals dropped 62% from US$20.8 billion in 2008 to just US$7.9 billion in 2009. Indeed total A&D deal value in 2009 fell 54% year-on-year to US$10 billion, its lowest level of the decade, and a 76% fall from the US$41.6 billion high of 2007. The considerable moderation in deal ambition reflects continuing concern about program cost delays and overruns, lower orders for large military platforms and reduced passenger and freight travel.

2009’s two biggest deals – General Atlantic’s $1.65 billion purchase of TASC and Boeing’s $1 billion acquisition of the Vought production facility – had a lower total value than those of the previous year, $5.6 billion and $2.2 billion, respectively.

Also, the number of deals announced by financial investors in proportion to the number of strategic investors continues to lag. Financial investors accounted for approximately 14.3% of deals with values greater than $50 million in 2009, in line with that experienced in 2008. Of the 21 deals greater than $50 million in 2009, only three involved financial investors.

“U.S. companies continued to dominate the vast majority of overall deal value in 2009. Deals with U.S. targets and/or acquirers accounted for 84.4% of deal value, an increase over the 72.6% achieved in 2008,” said Neil Hampson, global aerospace and defense leader, PricewaterhouseCoopers.  “In the fourth quarter of 2009 all three deals involved U.S. acquirers and U.S. targets. The U.S. dominance continues the trend away from years such as 2004 and 2006 when there was a much more balanced profile between Europe and North America. However, by 2008, the U.K. and eurozone represented only 28% of deals and fell further to just 9.5% in 2009.”

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Written by Neel Mehta

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