Has Divestiture Activity in the Aerospace / Defense Industry Peaked?
Over the past several years, the aerospace and defense industry has seen a steadily increasing flow of divestiture activity. Since 2010, each year has seen at least as many divestitures as the year before, reaching a high of 57 transactions in 2015. The number of divestitures is not simply increasing in occurrence, but also as a percentage of total M&A transactions in the industry, growing from 16% in 2010 to 28% in 2015. Whether large or small, a few recurring themes highlight the rationale for the activity: shifting strategic focus, focusing on the ‘core’, shucking an underperforming business, pruning a business that was acquired as part of another transaction, or selling to shore up the parent company’s financials. One company that has been an active portfolio manager in recent years is, paradoxically, one that had historically been one of the industry’s serial acquirers – L-3. L-3 has divested four business units since 2014, and there is rampant speculation among industry analysts that more divestitures are on the way. L-3 CEO Michael T. Strianese commented during the 4Q15 earnings call that, “these actions reflect [L-3’s] commitment to repositioning [its] portfolio and improving [its] financial performance by focusing on [its] core defense, electronics, communications and ISR markets, where [the Company has] leading positions and strong technical discriminators.”
Number of Divestitures Since 2010
Divestiture activity through the first five months of 2016 has been on par with the level of activity in 2015. Through May of 2015, 21 of the year’s 57 divestitures had been completed. Likewise, 21 transactions were announced through May of 2016. The largest divestiture transaction thus far in 2016 is KKR’s acquisition of Airbus Group’s Defense Electronics Business for $1.24 billion. The following table lists a handful of the notable divestitures announced in 2016.
Notable 2016 Divestitures
The pace of activity in 2016 suggests that, while perhaps not growing, the number of divestitures is likely to remain high. While they may not come in the same quantity or dollar value as they did at the end of 2015, the same factors that drive such deals remain core to the overall portfolio management strategy of many industry players.