Industry Chatter at Farnborough Signals Increased Interest in Mergers and Acquisitions

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7/20/2010

By guest blogger Craig Gottlieb,
Accenture Management Consulting

A prominent photo in many a London broadsheet this week is of the Boeing 787 landing at the Farnborough Air Show, its wingtips displaying their distinctive up-turn and Rolls Royce engines prominently logoed for local consumption.

The landing of the 787 is big news, for Boeing and for the commercial aviation sector which is looking forward to a significant rebound in orders at this year’s Farnborough Air Show. But it was another headline in the Financial Times that caught my jetlagged eyes this morning: “EADS sets course for U.S. purchases.” As a good portion of my work over the past year has involved evaluating acquisitions, I had planned to spend some time this week writing about the mergers and acquisitions trend in aerospace and defense. Now that even the traditionally conservative board of EADS has approved increased merger activity, we can officially declare that there is a trend toward increased M&A in aerospace and defense.

Most trends tend to go on unrecognized for a fair amount of time before they are officially recognized as such. M&A in aerospace and defense is no different. Analysts can certainly argue over which acquisitions in the defense segment set things in motion. Finmeccanica’s 2008 purchase of DRS Technologies is a strong contender, as are the quiet accumulations of serial acquirers such as Harris and L3 Communications. Who deserves credit for starting the trend is debatable, but the reasons behind increased attention to M&A are not. There are fewer new programs to be won. The “long tail” of smaller, rapidly deployable programs is an emerging revenue source. Defense companies are growing their services portfolios. Product diversity is critical to maintaining revenue predictability. The list goes on.

Yet as important as M&A is to future growth in the industry, it is tricky business. Despite the long history of consolidation in the industry, aerospace and defense companies have not done a particularly good job of fully integrating their acquisition portfolios. While it may once have been enough to make an acquisition and then permit the acquired company to continue running much as it once did, the growing need to integrate ideas and capabilities across business units makes post-merger integration more important than ever.

The aerospace and defense clients with whom I have worked on M&A over the past year have been extremely attentive to the “synergies” of their deals. Be it a rationalization of their procurement spending, reduction in facilities, increased geographic reach, entry into new markets (plus offset credits), improved logistics contracts, or balancing of work across sites, the new acquirers are keen to get something from the deal besides a bigger overall revenue number on their income statement.

Post merger integration requires collaboration across the organization: from supply chain, to human resources, information technology, manufacturing and beyond. More importantly, it requires a central organization, a traffic cop. For example, the use of a “clean room” as a clearinghouse for sensitive data during the merger negotiation can jump-start activities such as procurement rationalization, which can then be used to finance future initiatives. The clean room often evolves into the nucleus of the post-merger integration team, which manages the longer term effort to achieve benefits.

M&A will be a constant topic throughout the week at the Farnborough Air Show. Large and mid-size players are looking to advance their market share, improve geographic reach and improve their cost position.

The 787 will be a pleasure to see, but there will be far more to hear.

Craig Gottlieb is senior manager at Accenture’s Management Consulting Practice, based in the company’s Hartford, Conn., office.

All rights reserved © Accenture 2010. This article is produced by consultants at Accenture as general guidance. It is not intended to provide advice on specific circumstances.

Posted at 11:43 AM by Sandra Erwin | Permalink | Email this Post | Comments (0)

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7/20/2010

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