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“Post-9/11 Generation” of Public Companies Targeted for Acquisition

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Several public companies in the aerospace, defense, and government services universe have been the targets of acquisitions recently.  In April 2011, for example, Providence Equity Partners announced the acquisition of SRA International in a $1.9 billion deal and Ares completed its acquisition of Global Defense Technology & Systems (“GTEC”) in a $313 million transaction.  Many of the recent transactions involved targets that were publicly-traded entities for just a few years.  This “post-9/11 generation” of aerospace, defense, and government services firms went public to capitalize on interest in the sector and favorable end-market growth dynamics driven by a heightened national security environment which led to increased defense spending.  Since 9/11, 29 companies in the industry went public, raising a total of over $8.5 billion.

For the majority of the firms that held initial offerings in the past ten years, their time as publicly-traded firms was short-lived.  Of the 29 that have gone public, 15 have since been acquired (listed on the chart below), with a median period before acquisition of 3.2 years.  The results for shareholders have been mixed.  The 15 acquired companies generated a median compounded annual stock price return of 15.1% from initial public offering to acquisition close.  Notably, GTEC, United Defense Industries, and Veridian each generated compounded annual returns for shareholders in excess of 50%.  There have been exceptions, however.  ICx, for example, went public in 2007 at $16 / share.  ICx was acquired by FLIR about three years later for just $7.55 / share.

Going public is a viable way for companies to expand their capital base, as well as to provide liquidity to existing shareholders.  The public markets remain receptive to IPOs in the industry, as the successful flotations of Huntington Industries and Aeroflex have demonstrated.  The cycle of corporate life will keep turning however, and the continued easing of credit markets for larger assets will serve to facilitate future acquisitions of public companies.

Click here for additional detail on the previously mentioned 15 acquired companies.

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