Pushing the Envelope: How PE Firms Can Capture Value in a Booming Aerospace Market

Summary

The aerospace industry is growing dramatically as rising global demand for commercial and corporate jet aircraft is creating a boom-time environment for primes and select systems, components and materials suppliers across the value chain.

Although this industry growth is attractive to private equity (PE) firms, aggressive aerospace industry players have generally been willing to outbid PE firms for acquisition targets and other assets. During the last five years, transaction multiples for strategic and financial buyers have steadily drifted apart to the point where the industry players are currently paying nearly 50% more for aerospace & defense assets than their PE counterparts, according to S&P Capital IQ.

So what do industry consolidation and strong deal competition mean if you are a PE firm looking to invest in aerospace? L.E.K. Consulting believes there are two imperatives for PE in light of these dynamics:

1. Move beyond thinking about discrete aerospace targets and consider sub-sector roll-up strategies to build a winning (and differentiated) market position in light of industry consolidation
2. Develop a plan to enhance – perhaps even change – your aerospace targets’ business models to compete with aggressive bids from industry players

PE firms that are prepared to push the envelope by developing sub-sector investment strategies and enhancing their targets’ business models to unlock new opportunities stand to capture the greatest value through mergers and acquisitions (M&A) in this market.