A roadmap for aerospace M&A

Mergers and acquisitions (M&A) in the aerospace industry are in a transformative phase.

Mergers and acquisitions (M&A) in the aerospace industry are in a transformative phase, with trends indicating a shift toward streamlined portfolios and strategic partnerships, according to PwC’s Aerospace & Defense US Deals 2025 Outlook. Emphasis now is on sustainable growth, resilience, aerospace growth trends, and supplier consolidation. Since this is our 2025 Forecast issue, let’s examine some report findings in greater detail.

I asked Michelle Ritchie, PwC’s global industrial manufacturing deals expert, to help explain some key trends.

Portfolio reshaping: Demand for emerging technology, along with increased competition from new entrants, has prompted major players to consider divesting non-core assets to streamline operations, pooling capital to modernize core competencies, and pursuing innovation by acquiring venture capital-backed startups.

Companies are reevaluating what’s core to their business in the next three to five years and what’s non-core. “For a couple of years, CEOs and teams have been looking at their portfolio, so I think we’re going to find in 2025 people are now ready to take action and divest,” Ritchie says. “We’re going to see other strategic buyers look at them for acquisitions as well as private equity looking at them for stable cash flows and to do a roll up strategy, putting five or six smaller businesses together to maximize scale and cost savings.”

Commercial consolidation: Intensifying competition and operational inefficiencies are prompting small- and mid-sized aerospace firms to pursue strategic consolidation. Larger players are leveraging M&A to secure critical supply chain capabilities, mitigate production bottlenecks, and achieve economies of scale, particularly in high-demand segments such as narrow-body aircraft and aftermarket services.

As smaller businesses grow, their working capital requirements can become challenging. They’re looking for a partnership or investment to cover their working capital growth requirements to get them through the next growth phase. 

“Companies are also looking to fill gaps in basic technologies or abilities, and they’re looking for efficiency,” Ritchie explains. They’re looking for technologies to put into their offerings to get them on desirable commercial or defense contracts. “We’re seeing increased M&A activity, strategic from a technology perspective, but also assets able to provide stable cash flows for the long term.”

Partnerships and joint ventures (JVs): The sector increasingly favors JVs over traditional acquisitions. This shift is due to JVs being less complex, having fewer regulatory hurdles, and offering increased protection against risks. JVs also support the development of advanced capabilities through innovation achieved via acquisition.

“A JV has a lot less risk than an acquisition, and it lets companies investigate certain technologies or markets of interest,” Ritchie says. “I’m seeing in the JVs more digitization or artificial intelligence (AI). If companies do a JV, it limits the risk.” If it works, the major partner buys the smaller one. If it doesn’t work, they’ll dissolve the JV and move on. – Eric

January/February 2025
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