Anticipating New Challenges in A&D M&A
Most aerospace and defense owners have lived through a range of crises, and are intimately familiar with how the unexpected can affect aerospace and defense mergers and acquisitions. They know that a contingency plan is key, but we’ve seen with the pandemic that some contingencies can never be planned for. That doesn’t mean flexibility and preparation are impossible—just that they require more ingenuity than many owners could have ever imagined. A&D sell-side M&A requires a thoughtful approach to the next crisis, well before it happens. The right A&D investment bank can help you weigh your options for a flexible response. Knowing your own industry and business is also key.
We’re seeing a handful of new trends that stand to affect A&D M&A. Here’s what you need to know about staying ahead of the curve.
It is not yet clear at all the impact the Russian invasion of Ukraine will have, though we are already seeing higher oil prices. In terms of M&A, companies in the defense sector may benefit from the invasion. That includes higher valuations. At the same time, though, supply chain issues loom large. A&D companies should assume that the invasion will have an effect in the future, and begin planning for that effect now, based on what they know about the most likely outcomes in their sub-sector.
Supply Chain Issues
Supply chain issues are holistic, affecting everyone, even businesses that experience few direct effects. A&D companies may have already changed the way they buy materials, and may need to continue to do so. Remaining flexible, with multiple back-up plans and strong relationships with good suppliers, is key to thriving in this uncertain environment. A&D businesses now must spend more time on planning and lead times, and may need to roll this additional time into cost and timing estimates.
Consider that materials are just one aspect of the supply chain crisis. The rising cost of labor makes a steady supply of quality employees more expensive than ever. Ensure you don’t waste time and effort on recruitment by putting a strong retention package in place.
With a strong trend toward automation, A&D principals who can automate processes should. This may require significant upfront investment, but it also makes a business a more enticing acquisition. It also lends greater flexibility during a tight labor market, and can help mitigate some of the effects of the pandemic (and protect against any future pandemics).
A&D deals are facing increased regulatory scrutiny, and DoD recently promised this trend will accelerate. For the largest businesses, certain mergers may no longer be possible when they reduce competition or drive prices higher. Before considering any deal, it’s important to get expert insight to assess how feasible the deal will be in the current regulatory climate.