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    Aerospace, Defense & Government Contracting Q4 2022

    Q4-2022-Aerospace-Defense-Government 

    Industry Trends

    Increased Defense Budget Approved by Congress

    Congress approved an 8% budget increase in 2023, an additional $45 billion to the National Defense Authorization Act (NDAA). Among the $858 billion NDAA, roughly $817 billion is allocated for defense spending on ammunition, equipment, fleets, and various defense initiatives. The rest will go towards pay raises, infrastructure investments, programs, and fighting inflationary costs in the Pentagon.1

    L3Harris Agrees to Buy Aerojet Rocketdyne in $4.7 billion Deal

    The deal comes after their initial sale to Lockheed Martin was blocked; the recent transaction valued at $4.7 billion will make L3Harris one of the top defense contractors for the Pentagon. Among the various products of Aerojet are engines for military missiles and rockets for NASA. The deal will face intense scrutiny from regulators, as continued consolidation in the space could stifle innovation, price competition, and leave the U.S. military vulnerable to supply disruptions.2

    Japan’s Buildup of Military Will Bring in Billions for U.S.

    Japan has committed $2.0 billion to purchase U.S. Tomahawk missiles for their fleet of naval destroyers and budgeted for future U.S. and Norwegian aircraft-launched missiles. Tokyo has budgeted a record $54.1 billion for their military buildup as the threat of China and North Korea amplifies. Delivery of these contracts will begin between 2025-2027, bringing in billions for U.S. military manufacturers.3

    Sustainable Fuel for Ultralong-Range Jet Engines Undergo Testing

    Gulfstream Aerospace and Rolls-Royce are testing the use of 100% Sustainable Aviation Fuel (SAF) that can be used in existing jet engines without modification. SAF can reduce CO2 emissions relative to jet fuel by 80%, a meaningful step toward net zero carbon emissions for the aerospace industry. This test demonstrated the ability of Rolls-Royce engines to run on 100% SAF in aircraft and lays the groundwork for certification of the fuel type in additional Rolls-Royce engines.4

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • Sequa Corporation
    • Veritas Capital Fund Management, L.L.C
    • n/a
    • Applied Aerospace Structures, Corp.
    • Greenbriar Equity Group, L.P.
    • n/a

    Other Financial Buyer Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • Liteye Systems Inc.
    • Highlander Partners, L.P.
    • n/a
    • York Space Systems LLC
    • AE Industrial Partners, LP
    • n/a
    • Aero Accessories & Repair Inc
    • ATL Partners
    • n/a

    Other Strategic Buyer Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • Associated Aircraft Manufacturing & Sales, Inc.
    • First Aviation Services Inc.
    • n/a
    • Timken Aerospace Drive Systems, LLC
    • PCX Aerostructures, LLC
    • n/a
    • Aviatron Inc.
    • Wencor Group, LLC
    • n/a
    • CAVU Component Repair, LLC
    • Unical Aviation, Inc.
    • n/a
    • Ascension Engineering Group, LLC
    • Boecore, Inc.
    • n/a
    • HyPoint Inc.
    • ZeroAvia, Inc.
    • n/a

     

    Source S&P Capital IQ as of 1/9/2023 and PCE Proprietary Data

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    Data Assumptions

    This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.

    Glossary

    EBIT - Earnings Before Interest and Taxes
    EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
    LTM - Last Twelve Months
    TEV - Total Enterprise Value

    Sources:

    1. Harris, B. “Congress authorizes 8% defense budget increase.” Defense News. 15 December, 2022.
    2. Cameron, D. “Defense Contractor L3Harris Plans to Buy Aerojet Rocketdyne for $4.7 Billion.” Wall Street Journal. 12 December, 2022.
    3. Gale, A. & Tsuneoka, C. “Japan to Spend Billions on U.S. Tomahawk Missiles in Military Buildup.” Wall Street Journal. 23 December, 2022.
    4. Tyrrell, M. “Rolls-Royce and Gulfstream give wings to sustainable business aviation.” Aerospace Manufacturing - MIT Publishing. 23 December, 2022.

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