Cash-rich defense companies are positioned to make deals

Despite proposed cuts to several lucrative military projects, large defense contractors are well positioned to survive and even thrive as the Obama administration shifts the government’s priorities to new areas.

According to an analysis by the investment bank Houlihan Lokey, large defense contractors such as Lockheed Martin, Boeing, General Dynamics, Northrop Grumman and Raytheon have enough cash and access to debt to make $41.5 billion in acquisitions.

That is compared to pure-play publicly traded government services companies that have about $2.1 billion at their disposal.

“The large primes are best positioned to change themselves," said Anita Antenucci, managing director of Houlihan’s aerospace, defense and government group.

Her comments were part of the firm’s annual “Market to Market” seminar.

With access to that much capital, or “dry powder” as she called it, the companies can make acquisitions to replace revenue lost because of budget cuts, she said.

The companies can use acquisitions to move into faster-growing areas such as health care, cybersecurity and energy that are high priorities for Obama administration, Antenucci said.

Despite their strong position as buyers, overall merger and acquisition activity has been dropping. In the first quarter of 2009, there were only 11 announced deals, compared to 24 in the first quarter of 2008.

Since the first quarter of 2008, the number of deals announced each quarter has dropped. Along with the drop in volume there has been a drop in the value of the deals as well, according to Houlihan Lokey’s analysis.


About the Author

Nick Wakeman is the editor-in-chief of Washington Technology. Follow him on Twitter: @nick_wakeman.

Reader Comments

Fri, Apr 24, 2009

Another point is that valuations of many defense company's are down because of the broader economic down turn. The combination of deep pockets and low valuations makes for a perfect storm of M&A activity. I wouldn't be surprised to see a blockbuster acquisition soon that ignites the sector.

Wed, Apr 22, 2009 Editor

My understanding is that it will be in areas such as cyber security, health care, energy. The areas that are priorities for the Obama administration.

Wed, Apr 22, 2009 Puregoldj Washington, DC

Any ideas what companies could be targets? Anything even on what sectors or subsectors (more than the "can use acquisitions to move into faster-growing areas...)? I am guessing we could see something outside defense, though probably more in the "dual-use" category.

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

What is your e-mail address?

My e-mail address is:

Do you have a password?

Forgot your password? Click here
close
SEARCH
contracts DB

Trending

  • Dive into our Contract Award database

    In an exclusive for WT Insider members, we are collecting all of the contract awards we cover into a database that you can sort by contractor, agency, value and other parameters. You can also download it into a spreadsheet. Read More

  • Is SBA MIA on contractor fraud? Nick Wakeman

    Editor Nick Wakeman explores the puzzle of why SBA has been so silent on the latest contractor fraud scandal when it has been so quick to act in other cases. Read More

Webcasts

  • How Do You Support the Project Lifecycle?

    How do best-in-class project-based companies create and actively mature successful organizations? They find the right mix of people, processes and tools that enable them to effectively manage the project lifecycle. REGISTER for this webinar to hear how properly managing the cycle of capture, bid, accounting, execution, IPM and analysis will allow you to better manage your programs to stay on scope, schedule and budget. Learn More!

  • Sequestration, LPTA and the Top 100

    Join Washington Technology’s Editor-in-Chief Nick Wakeman as he analyzes the annual Top 100 list and reveals critical insights into how market trends have impacted its composition. You'll learn what movements of individual companies means and how the market overall is being impacted by the current budget environment, how the Top 100 rankings reflect the major trends in the market today and how the biggest companies in the market are adapting to today’s competitive environment. Learn More!