The volatility of the current global economy is making investors increasingly cautious and risk averse, especially in the capital-intensive aerospace and defense (A&D) industry. Investors are unwilling to commit sizeable amounts of money to an industry that has a longer gestation period than others; however, the A&D industry offers considerable opportunities to investors looking for secondary buyouts due to lower valuation multiples.
New analysis from Frost & Sullivan (financialservices.frost.com), Analysis of Private Equity and Venture Capital Investment Trends in the North American Aerospace and Defense Industry, reveals that the value of private placements dropped significantly from $4.09 billion in 2010 to $1.07 billion in 2011 in the North American aerospace and defense industry. This has happened despite a minor increase in the number of transactions from 80 in 2010 to 85 in 2011. These trends indicate that investors are slowly moving from low-volume, high-value deals to high-volume, low-value deals.
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Apart from the global economic downturn, the current Eurozone crisis has also affected several European economies. Governments generally tend to cut their defense budgets when the economy slows down. In North America, the value of private placement transactions in the A&D industry has decreased from 2.4 percent in 2010 to 0.6 percent in 2011, in regards to a percentage of value of private placements across all sectors.
Nevertheless, in the aerospace sector, the increasing percentage of middle-class population, especially in India, China and Russia, is expected to result in the purchase of more than 3,500 planes over the next two decades. This is roughly 15 percent of the global demand.
"India and China are currently the preferred investment destinations because of lower costs compared to their Western counterparts," said Frost & Sullivan Financial Analyst Bharath M. "By 2030, the Asia Pacific is expected to have around a 33 percent share of the passenger traffic, followed by Europe at 23 percent and North America at 20 percent."
Maintaining healthy relationships with limited partners, diligent use of dry-powder funds, and a proactive approach toward merger and acquisition or secondary buyout opportunities are vital for investors in the A&D industry.
"Investors could also carefully evaluate prospects in emerging economies such as Brazil, India, China and Russia to compensate for the thinning business in the developed markets," noted Bharath.
Analysis of Private Equity and Venture Capital Investment Trends in the North American Aerospace and Defense Industry is part of the Financial Benchmarking in the Aerospace and Defense Industry subscription, which also includes research services in the following markets: Financial assessment of global aerospace and defense industry, mergers and acquisition trends in the global aerospace and defense industry, Funding patterns in the global aerospace and defense industry. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.
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Analysis of Private Equity and Venture Capital Investment Trends in the North American Aerospace and Defense Industry / NA82-F1