The global mergers and acquisitions (M&A) market has seen relatively high activity since the end of 2020 after the initial uncertainties of the COVID-19 pandemic were digested and capital market liquidity returned. M&A activity in the global Aerospace and Defence (A&D) market has been no different – innovations with respect to sustainability and the digitization of the A&D ecosystem have driven dealmakers to close deals and seize opportunities in a hot market with the “fear-of-missing-out”, private investment appetite, and lots of liquidity pushing the market along. Many of the larger global A&D companies have strong balance sheets allowing for debt-financed acquisitions.
However, with the recent pull-back of public equity markets, higher interest rates, inflationary pressures, and fears of slowing growth and a recession, can global M&A activity in the A&D sector continue at the current pace? Or will collaboration with other A&D players be the option selected to avoid the greater risks to creating value inherent with M&A transactions?
Fundamentals appear good for the A&D sector. Domestic air passenger traffic has almost returned to pre-pandemic levels in many countries including Canada; the race to develop sustainable electric and hydrogen propulsion systems is well underway; advanced air mobility system innovation activity is strong; rising geopolitical tensions are pushing up defense spending budgets around the world and the space ecosystem is thriving with private company innovation and risk-taking occurring in a sector previously driven almost entirely by government-sponsored programs.
Recent A&D deals in Canada
A&D M&A activity specific to Canada has been choppy over the last few years with 2020 having a handful of unusually large transactions for the Canadian sector which was largely driven by Bombardier’s transformation into a pure-play business jet company. We note that certain private M&A transactions are often announced without deal values. Comments in this article therefore only highlight deals with announced values. In 2020, there were 5 A&D transactions involving Canada with announced deal values greater than USD 50 million:
- Airbus increased its stake to 75% and the Governmentof Quebec acquired 25% of the legacy BombardierCSeries (now known as the A220) program in February2020. The announced value of this transaction was USD 1.6 billion.
- MDA Ltd. was acquired from Maxar Technologies byNorthern Private Capital in April 2020 for USD 766 million.
- Bombardier’s CRJ program was acquired by Mitsubishi Heavy Industries for USD 750 million in May 2020 which finalized Bombardier’s exit from the commercial aircraft market to focus on business jets.
- Spirit AeroSystems acquired a number of business units of Bombardier in October 2020 for USD 865 million, including a significant MRO business based in Dallas, Texas.
- CAE acquired Flight Simulation Company in the Netherlands, which trains pilots on Airbus, Boeing, and Embraer aircraft, in November 2020 for USD 105 million.
In 2021, there were very few significant A&D M&A transactions involving a Canadian acquiror or seller. None, in fact, exceeded an announced value of USD 50 million except for the successful IPO of MDA Ltd. launched by its previous private equity owner Northern Private Capital which raised gross proceeds of USD 320 million for MDA’s treasury.
In the first half of 2022, there were two announced A&D transactions with a published value over USD 50 million in Canada:
- TransDigm Group acquired Dart Aerospace from its private equity owner Greenbriar Equity Group for USD 360 million in May 2022. Dart provides design, manufacturing and market-certified solutions for the helicopter and aerospace industry.
- Avcorp Industries, a TSX-listed company and designer and builder of major airframe structures, announced in June 2022 that its shareholders had approved a plan of arrangement for Latécoère SA to acquire all the shares of Avcorp for USD 108 million. Latécoère is based in Toulouse, France, and is a Tier 1 supplier of aerostructures and interconnections systems for all segments of the aeronautics industry. The transaction is expected to close in Q3-2022.
Download the article below for a detailed look at recent A&D company valuations.
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