Publication: The Military Balance 2017
14 February 2017
In 2016 there was renewed impetus for defence industries in many nations to engage in mergers and acquisitions, as well as divestments. This resulted from a combination of market uncertainty, budgetary constraints and procurement considerations, and was apparent despite a worsening security environment for many nations. Although the scale of overall defence expenditure remains significant, defence markets remain a challenge for industry, not least as firms attempt to grapple with volatile political and economic environments, which all require careful insight and measured strategies: in today’s defence marketplace there are no one-size-fits-all answers.
In the United States, while United Technologies Corporation (UTC) rebuffed an acquisition attempt by Honeywell International in February 2016, this venture was indicative of mergers and acquisitions (M&A) activity in the broader defence marketplace. In Europe, for instance, there was notable activity in the air- and land-systems sectors. Airbus announced in March 2016 that it had agreed the sale of its defence-electronics business to private-equity firm KKR for US$1.2 billion, although European electronics specialist Thales and land-systems company Rheinmetall had also been interested in acquiring this business. Divesting itself of its defence-electronics arm was part of the restructuring plan for Airbus’s Defence and Space business, which was made public in September 2014. Although Airbus’s departure from the defence-electronics market was not on the same level as UTC’s sale, in 2015, of its Sikorsky military-helicopter business, both episodes showed that companies are critically examining their defence and aerospace portfolios.