7 septembre 2023 | International, Terrestre
MBDA, Poland’s PGZ to develop medium-range air defense missile
The ambition is for the new missile to serve both the Polish and British militaries as a common munition with a dual source of production.
17 novembre 2020 | International, Aérospatial, Naval, Terrestre, C4ISR, Sécurité
Why defense firms need to get systematic about M&A — big and small
By: Eric Chewning and Frank Coleman III
After years of growth, defense budgets will likely flatten (or decline). In such a financial environment, the U.S. Department of Defense will consider trade-offs between funding modernization, sustaining legacy equipment and preserving force structure.
These hard choices will be informed by the DoD's strategic acquisition priorities, which will likely continue to reflect the need for innovation around leading-edge capabilities in areas like space, C5ISR, long-range precision fires, unmanned vehicles and artificial intelligence.
To support these evolving mission requirements, the defense industry will need to ensure the industrial base is able to deliver technological advantage. This requires attracting world-class talent as well as the necessary financial capital to operate global industrial enterprises.
Attracting these resources requires continued value creation through growth and return on invested capital improvements. But in a down budget environment, where is this growth to come from?
While many will think organic growth is the best value-creating option (and often is), the answer also lies in augmenting a classic portfolio strategy with a systematic approach to transactions. Mergers and acquisitions are a proven growth accelerant for defense companies, and have generated superior shareholder returns and greater resilience for companies that have pursued it systematically.
At first glance, this may simply seem like an obvious description of recent history. The aerospace and defense sector, after all, has seen rapid consolidation in the last five years, with deals worth $358 billion struck between 2015 and 2019, three times the total between 2010 and 2014.
The problem for defense companies looking for more of the same is that this wave of consolidation now appears to have run its course. The combined market value of the top five defense hardware players is now more than four times that of the next five; so even as further mega-deals are theoretically possible, they will be increasingly difficult to execute, underscoring the value of programmatic M&A.
Distinct from selective or organic deal-making approaches, programmatic M&A involves a company conducting two or more small or midsized deals per year, with an aggregate value greater than 15 percent of its market capitalization over five years, that align with their overall corporate strategy (which is hopefully linked to the “fast streams” of growth in the budget (see exhibit below)).
These deals get choreographed around a specific business case, such as scaling or integrating vital digital capabilities, and are rooted in a disciplined appraisal of transactions.
In the defense industry, programmatic M&A should be deployed against a strategy supported by the customer's need for innovation, lower costs and better mission outcomes for the war fighter.
Our analysis shows that over the last decade, few defense companies took a programmatic approach to M&A. Those who did outperformed their peers in total shareholder returns by 10.4 percent. M&A was also an important key to resilience during the last defense spending downturn in 2007-2011: The top quintile of outperforming companies, as well as optimizing cash and flexing capex, used it as an opportunity to grow less cyclical parts of the business and build digital capabilities.
Defense companies may be deterred by the current market environment, featuring stretched valuations, competition from institutional capital and a squeeze on mid-tier players. They may be cautious about the challenge of integrating smaller nondefense acquisitions into company processes and culture — a process that is easier to get wrong than right to be sure.
The very complexity of these circumstances creates opportunities for bold players to differentiate themselves from their peers, align their strategies with national defense priorities and add significant value for shareholders. When done well, programmatic M&A can form a central pillar of their growth strategy.
With a proactive approach to deal sourcing, holistic diligence, and in-house execution and integration expertise, companies can establish M&A as a critical capability and avoid the risks of reactive, one-off projects. In the challenging environment that confronts the defense industry today, those who act boldly will succeed in creating enduring businesses that can adapt to the evolving needs of the national defense.
Eric Chewning and Frank Coleman III are partners at McKinsey and Company. Chewning previously served as chief of staff in the Office of the Secretary of Defense, and before that as the Pentagon's industrial chief.
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24 mars 2020 | International, Aérospatial, Naval, Terrestre, C4ISR, Sécurité
COVID-19: Farnborough Cancellation Another Blow For Defense Biz
"Looking ahead, defense acquisition is in uncharted territory," says Air Force acquisition head Will Roper of the effects of the COVID-19 virus. By THERESA HITCHENS WASHINGTON: While the cancelation of the biennial Farnborough Air Show due to the COVID-19 pandemic may not have an immediate impact on the bottom lines of aerospace firms in the defense sector, the decision to close one of the world's top two airshows is yet another harbinger of pending upheaval in the overall market, analysts say. In particular, it deprives US firms of publicity abroad and highly valuable face-time with customers and potential customers from foreign governments. “Things like Farnborough are important to US aerospace companies because they help to facilitate sales and marketing,” said Todd Harrison, director of the Aerospace Security Project at the Center for Strategic and International Studies (CSIS). “It's traditionally been a place where you show off your latest technology and latest systems, but it's also where you finalize deals that have been in the works for a while. And so, some of that can still happen, but some of it may not happen.” Richard Aboulafia, a veteran aircraft industry analyst at Teal Group, echoed: “It's just a reflection of a sad reality: economic time has simply come to a halt for our industry and for others. That means fewer big opportunities to meet clients, advertise products and capabilities, share information, and look for opportunities. Big air shows are essential for these, but here we are.” The Farnborough Air Show — which takes place south of London — registered representatives from 96 countries in 2018, and some logged $192 billion in orders and contract commitments. The cancelation of the 2020 show, slated for July 20-24, was announced today. “I don't see the cancellation of Farnborough as a big blow to defense contractors. It is generally a way of raising their profile, but has no immediate impact on their business prospects,” said Phil Finnegan, Teal Group's director of corporate analysis. That said, Finnegan and a number other analysts agreed, the aerospace market is in for a rough ride — and not just on the commercial side as airlines see their profits for 2020 nosediving, making it increasingly unlikely that they will invest in new planes. “Looking ahead, defense acquisition is in uncharted territory. Near- and far-term impacts of Coronavirus evolve daily,” Air Force acquisition head Will Roper said this afternoon. “As we complete our first week of response, our teams navigated potential work stoppages, changing local and state directives, halted supply chains, and gearing up to support any national Defense Production Act requirements.” The Defense Production Act, which allows the government to order companies to boost production or produce new things, was invoked last week by President Donald Trump. Finnegan said “the biggest threat to defense contractors will come to those with significant commercial aerospace operations. The cash flow drain from those operations potentially could hurt them. “It also reiterates the importance of maintaining a balance in operations,” he added. “Obviously, in recent years commercial aerospace has offered greater growth and potentially high profit margins. This crisis reiterates the importance of a diversified approach to defense and aerospace to take advantage of the stability of the defense market in a crisis.” Indeed, several other long-time industry analysts said that DoD may face price hikes as firms try to shift the costs of commercial overhead to the defense contracts — especially for spare parts. Further, Harrison noted, governments around the world are going to be cash-strapped and likely loathe to make new commitments to large buys of new fighter jets or drones. According to the latest report from the Aerospace Industries Association, US aerospace and defense exports in 2018 amounted to $151 billion: civil aerospace accounted for the majority with $131.5 billion; defense products the remaining $19.5 billion. “So, Farnborough may not be the reason that sales go down, It's more of a symptom of the fact that there just aren't going to be as many opportunities for a while,” he said. https://breakingdefense.com/2020/03/covid-19-farnborough-cancelation-another-blow-for-defense-biz