Deal or no deal for A&D

While the pace of deal activity in the A&D sector remains above the recession lows of Q1 2009, the overall deal market recovery took a relative pause in Q2 2010. During the quarter, there were seven announced deals worth $50 million or more, compared to the eight deals reported in Q1 2010. Additionally, the total value for announced deals in Q2 was $2.2bn, a significant decline from the $5bn in total deal value from the first quarter of this year.

In Q2 2010, average deal values edged downward compared to the previous quarter and full year 2009, primarily due to the absence of mega-deals (deals with a disclosed value of at least $1bn). This represents a decline when compared to the two mega-deals announced in the first quarter of 2010 and full year 2009. Despite the drop in mega-deals, the pace of activity in large and middle-market deals is similar to Q1 2010 and 2009; the majority of deals were those with undisclosed values or those with disclosed values under $50 million.

The absence of activity by financial acquirers during the second quarter is notable and represents a departure from their relative level of activity in 2009 when they accounted for nearly 11% of deals worth $50m or more and in Q1 2010 when they accounted for 20% of deals. Looking ahead to the second half of 2010, strategic acquirers will likely continue to dominate deal-making with intermittent increases in financial investment.

“The M&A deal environment within the aerospace and defense sector experienced a loss of momentum during Q2, but we expect a gradual increase in activity throughout the rest of this year,” said Scott Thompson, U.S. aerospace & defense leader at PricewaterhouseCoopers. “Lots of cash, improved capital markets and a recovery in the global economy will likely help drive overall deal totals in the sector, which makes us cautiously optimistic as we look ahead to the second half of 2010.”