The Effects of COVID on A&D M&A

The financial and human toll of COVID is difficult to overstate. Businesses have shifted from growth mode to goals of survival. Deals have slowed a lot. While last year marked a banner M&A year for aerospace and defense, 2020 will look quite different. 

While the first quarter of this year witnessed a few large deals, the crisis gripped our consciousness before the end of the quarter. The impact has been colossal, and its long-term effects are not yet certain. Here’s what we know for now. 

Looking Back at the New Peak 

Between 2012 and 2020, M&A increased steadily. Thanks in large part to the merger of Raytheon and United Techologies, 2019 was a standout deal for the sector, with total deal volume in excess of $132 billion. 

EBITDA multiples also peaked in 2019, with strong positive trends in maintenance, repair, and overhaul, logistics, and distribution. There were also some negative trends—in engineering and project management, and in machined and cast parts. 

What Now?

So what does the future hold? The truth is that we just don’t know. M&A activity will be somewhere between slow and silent over the next six months. PE firms must evaluate the effect of COVID on their portfolio companies, weigh whether they can weather the crisis, and consider options for creating more liquidity. Serial acquirers who are well-funded must wait till conditions are better. Then they will likely look for potentially high-value distressed targets. This could ultimate reconfigure the industry landscape. 

For now, even if companies were seeking acquisitions, the challenges of the credit market make such acquisitions difficult. This may continue to be the case even as the economy picks back up. Liquidity is a top priority. Banks will shift their priorities, and debt financing will continue to abate. 

Although large deals in recent times have meant a consistent stream of divestitures, this is winding down. We may still see some activity in tech-related portfolio companies by bigger cash stable firms because smaller players with significant tech assets will begin to struggle. We should look for unplanned purchases as distressed suppliers get absorb by competitors or clients. 

Despite these minor deviations, mergers and acquisitions will continue to slow as the industry turns its attention to more urgent matters and seeks opportunities to rebuild in the coming months. Firms must instead consider the immediate impact of the crisis, how it might affect cash flow, and what specific measures they must implement to ensure the business can survive. 

About KAL Capital Markets:

KAL Capital Markets is an aerospace investment banking company advising middle market clients on mergers, acquisitions, and accessing the capital markets. The firm’s professionals have an exceptional track record, rooted in deep relationships and experience within aerospace & defense manufacturing and aftermarket services sectors. For additional information, please visit