KippsDeSanto & Co. expects valuations and mergers and acquisitions activity to increase across the aerospace, defense, and government services industry in 2018, based on the result of its first-ever survey of M&A dealmakers.
Survey respondents were optimistic about the overall economy and M&A activity in the near- to medium-term, according to KippsDeSanto.
“Across all the sectors we surveyed, most respondents were optimistic that anticipated M&A activity levels would be up 5 percent or more,” managing director Bob Kipps said. “This confidence level for the aerospace, defense and government services sectors is resulting, in part, from last year’s tax law changes, ongoing economic confidence, and an improved U.S. defense budget picture.”
The government services sector was expected to receive the most attention, with over 75 percent of respondents predicting an increase in the number of deals. Government services has already seen M&A growth in recent years, with 102 deals announced in 2017, up from 88 in 2016, according to KippsDeSanto. Half of the respondents predicted at least a 5 percent increase in activity, while a quarter of respondents were even more bullish, expecting an increase of 10 percent or more.
The defense sector is also expected to see a boost, with more than two-thirds of survey respondents saying that defense sector deals will be up by 5 percent or more in 2018, after two flat-to-down years. M&A activity in the aerospace sector, which saw three consecutive down years, may be stabilizing or increasing in 2018 as well, according to the survey. Almost half of the survey respondents predicted an increase in aerospace dealmaking of 5 percent or more, while the other half said they thought that the level of dealmaking activity will remain the same, Kipps DeSanto said.
“Across all sectors, almost half of survey respondents think valuations will be up from 2017. Plus, it’s evident that the primary goal that drives M&A strategy continues to be the addition of new capabilities, products or technologies,” said Managing Director Kevin DeSanto. “Almost half of the leaders surveyed agreed, with another third ranking the adding of new customers as their top priority.”
The survey included 168 dealmakers who are interested in the aerospace, defense and government services sectors, including both strategic buyers and leading private equity groups. Nearly 50 percent of the strategic buyer participants represented public companies, including most of the largest and most active industry buyers.
The complete survey results are available here: 2018 M&A Survey.
Related: Bob Kipps and Kevin Brancato’s 2018 GovCon Market Prediction: More M&A Activity