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More M&A activity expected in MRO and aftermarket sectors, says Lazard Frères

There are a wealth of opportunities for mergers and acquisitions (M&A) in aerospace and defence, including the MRO and aftermarket.

That’s according to Michael Richter, managing director and global head of the Aerospace and Defense Investment Banking Group of financial advisory and asset management firm Lazard Frères, in a media briefing ahead of the Farnborough Air Show 2022 next week (18-22 July).

Richter cited industry diversification into new sectors, new technology programmes in AAM and drones, new space themes and a global increase in defence spending as some of the factors behind potential M&A activity. He also said that as international industry players meet face to face again at Farnborough “there will be the realisation of pent-up demand in M&A as companies investigate adding value to their businesses through diversification, through acquisition or mergers”.

He noted that prospective buyers continued to value businesses with aftermarket exposure, which is bolstering M&A opportunities in the MRO and aftermarket space. Examples include Unical Aviation’s sale to Platinum Equity and Carlyle’s acquisition of Signature Aviation’s Engine Repair and Overhaul Business for US$230 million. Lazard advised the seller on both transactions.

Richter said that aftermarket and MRO M&A activity is expected to continue to be robust “as aircraft utilisation increases and shifting demand and supply dynamics drive investor confidence”.

He added: “MROs that support narrowbodies will fare well as near term MRO capacity increases have shifted toward this type. The aftermarket remains a source of sustainable cash flows, relatively insulated for cycle timing with operating results more dependent on stable fleet sizes versus changing delivery schedules.”

Richter also said that established MRO markets in North America and Western Europe are expected to “marginally expand” over the next few years. Asia Pacific, including China, will be boosted by domestic travel growth.

Up to May 2022, there have been 148 announced merger and acquisition transactions in aerospace and defence, compared to 166 during the corresponding period in 2021. “This follows a relatively strong year for M&A in 2021 with US$125 billion of deals logged, compared with US$39.8 billion of deals concluding in 2020 – in the midst of the global pandemic,” said Richter. In 2019, activity volume totalled $119.2 billion.

Noteworthy deals completed in 2021 included Parker-Hannifin’s acquisition of Meggitt for $10.2 billion; Viasat’s purchase of Inmarsat for $7.3 billion; and Blackstone, Cascade and Global Infrastructure Partners acquiring Signature Aviation for $5.6 billion.

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