During 2017, Fairmont supported clients across a wide range of transactions, including many discussed in this report. That exposure gives us a perspective on M&A in aerospace, defense, and government services which we hope you will find interesting and useful as you contemplate the year ahead.
In commercial aerospace, we saw mega-deals as key Tier One players sought to offset increasing OEM pricing pressure and gain both operating and negotiating leverage. At the opposite end of the market, we saw commoditized Tier 3 players seek exits at relatively lower multiples (“I knew we should have sold to Precision Castparts in 2015!”) And while the prospect of “digital aviation” continued to attract attention, most of the midmarket activity in aerospace continued to focus on traditional drivers – founder exits, supply chain consolidation, and synergies achieved through scale and scope. As with last year, we continue to believe that preferred platform exposure and well-defined, stable contract/LTA positions and meaningful, proprietary aftermarket presence will become more important than ever to both corporate and financial acquirers.
In the defense sector we saw Northrop finally make its move with the Orbital ATK deal, gaining a range of key capabilities and contracts in space, missiles and munitions. Defense electronics saw further consolidation among mid-market players such as TTM/Anaren, Teledyne/e2v, and Curtiss-Wright/ Teletronics. But overall, 2017 felt more like a prelude to 2018 than a distinct and notable year in its own right for defense M&A. Many sellers (and buyers) watched and waited to see how the Trump Administration would affect budgets and mission priorities before committing to a transaction. Now that those questions are (arguably) being settled, we anticipate a much busier year for defense M&A globally in 2018.
Finally, in government services the story remains largely unchanged. We believe that government services – and particularly Federal, defense, and intel IT services – are on the cusp of a significant shift as commercial tools and techniques are applied more broadly to public sector challenges in ways that reduce personnel requirements but provide far greater benefit to the citizen or the warfighter. That is an outcome that industry and taxpayers alike can look forward to.