FOCUS is a leading national M&A firm for the lower middle market. With over 40 years of experience, a global footprint, and hundreds of successful deals across myriad industries, FOCUS continues it’s mission to redefine the banker/client relationship.
INDUSTRY TRENDS
Interest Rates Continue to Influence M&A
A&D M&A transactions in the first half of 2024 have increased by approximately 19% from the second half of 2023, indicating that the uncertainty from rising interest rates has dissipated as interest rates have stabilized. With the Fed committed to lowering rates, even nominally, in September, we anticipate the number of transactions to increase in H2 2024 amid lower cost of capital and rising investor confidence. High interest rates continue to have a dampening effect on M&A values where significant third-party financing is used. Marginal M&A deals continue to have trouble gaining financing because of this and tougher credit approvals.
Space: The New (and Booming) Frontier
The space economy is expected to be worth $1.8 trillion by 2035 as satellite and rocket-enabled technologies become increasingly prevalent. In addition, hypersonic weapons and laser weapons will be byproducts of this space expansion. As a result, there is a significant race to develop and own the technologies that will fuel the space race. With an estimated CAGR of 9% in this segment, we anticipate continued M&A activity with premium valuations for space companies.
Challenges in Global Supply Chains
A&D supply chains are both complex and heavily regulated, which makes them very inflexible when problems arise. Currently, the A&D industry is dealing with shortages of parts and components, which is in part due to the aftermath of the COVID-19 pandemic. In aviation specifically, demand plummeted because of the travel bans, but now that lockdowns are lifted and people have resumed normal activity, demand has shot up. Manufacturers are left struggling with unevenly balanced supply and demand. In addition, inflation has driven up the costs of raw materials, which is a complication for many suppliers and manufacturers. The importance of a diverse, flexible supply chain cannot be overstated, and fortifying it should be a top priority going forward.
Labor Shortages
Post-COVID, the aerospace industry has been struggling with a heavily increased demand for talent across all aspects of the supply chain. It is a critical issue, because having a highly skilled, capable workforce is essential for companies to operate at optimally competitive levels. Airlines have been successful in hiring more pilots to manage the surge in travel post-pandemic, but there is still a high demand for workers in sectors such as aircraft construction and repair. While the use of automation and advanced digital technologies is increasing, the aerospace industry is continuously dealing with this labor shortage, especially with more advanced, specialized workers.
Forecasts from AAR Corp. indicate that the global aviation market will require 690,000 new mechanics over the next two decades to sustain the global fleet. This substantial demand, coupled with the ongoing need for thousands of aerospace engineers annually, necessitates innovative solutions.
SIGNIFICANT NEWS
Air Force’s next nuclear missile at risk after costs spike
By Stephen Losey
January 19, 2024, Defense News
BlackRock unveils aerospace and defence ETF
By Laura Gibbons
February 9, 2024, ETF Stream
Carlyle Alumni Amass $1.2 Billion for Defense, Aerospace Bets
By Dawn Lim
March 4, 2024, Bloomberg
General Electric completes spin off of aviation engines business, launching GE Aerospace
By Valerie Insinna
April 2, 2024, Breaking Defense
Tired of being ‘shock absorber’ on inflation, defense industry wants new protections: AIA chief
By Valerie Insinna
May 17, 2024, Breaking Defense
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