A new report by Bluestone Capital Partners indicates an improving market performance for the defense industry in 2015 after almost five years of being outperformed by the aerospace industry.
The company said that businesses in the aerospace and defense sector with significant defense exposure have achieved a median trading multiple of at least 10-times earnings before interest, taxes, depreciation and amortization this year compared to the previous five years.
Bluestone also indicated decreased valuation discounts for large cap defense companies and diversified A&D businesses compared to large cap aerospace firms.
According to Bluestone, the improving valuation of defense-oriented companies is due to recent developments regarding the defense budget, including the omnibus spending bill for fiscal year 2015 and President Barack Obama’s $534 billion request for 2016.
The report notes an uptick in merger-and-acquisition activity with transactions such as Science Applications International Corp.’s purchase of Scitor for $790 million and Harris Corp.’s deal to buy Exelis for $4.8 billion, which Bluestone says shows a stabilization in the market.