Aerospace and defence is at a turning point

In the past year, soaring geopolitical concerns and rising inflationary pressures have been among the most significant events confronting governments and economies. These factors are driving winds of change in the aerospace and defence (A&D) industry, and patterns in mergers and acquisitions (M&A) are likely to follow.

There is now increased focus on the need to strengthen defence-critical supply chains to safeguard global markets and bolster supply networks; many are shortening their supply chains and moving them closer to home.

Amid these shifts, A&D companies have begun to rely less on global supply chains and focus more on centring production regionally. This could create M&A opportunities, especially for smaller technology-focused deals as original equipment manufacturers race to compete and close gaps in their strategic product and service offerings.

Financial investors may also continue to play a greater role in sourcing corporate combinations that fuel opportunities for higher returns on investment. In the longer term, A&D executives are likely to remain focused both on building their technological capability and strengthening their supply chains. And with ESG priorities taking flight, environmental objectives are poised to help shape M&A deals of the future.

The concept of supply chain sustainability has broadened for A&D companies. Environmental, social and governance criteria remain very important for stakeholders, but the war in Ukraine has underlined the need for a more resilient kind of sustainability — one that is designed to adapt rapidly to geopolitical events.

There are a finite number of profitable M&A opportunities at any given moment and corporate targets that enhance business value are going to command a premium, whatever the market conditions. Speed and confidence are prerequisites, but they must be based on a strong business intelligence and superior decision-making ability.

Mergers and acquisitions are not the only way to add technological capabilities. A&D companies are more willing than ever to consider joint ventures, partnerships and other forms of alliance with companies large and small. Private equity firms are often catalysts of these kinds of deals.

These traits are likely to be more useful for A&D dealmakers in the future than ever before. Global power competition is magnifying security risks and, as a consequence, corporate competition will also remain hot as companies search for the best M&A deal.