Reporting by Karen Jacobs; Editing by Phil Berlowitz
Published: 22 July 2011
(Reuters) – Many aerospace and defense companies plan to use the cash on their balance sheets to acquire companies and expand into new markets as U.S. defense spending comes under pressure, a survey of executives by audit and advisory firm KPMG found.
In the survey of 100 senior aerospace and defense executives in June. two-thirds said they expected their companies to be involved as a buyer in a merger or acquisition deal in the next two years.
Martin Phillips, global head of KPMG’s aerospace and defense practice, said companies want M&A and joint ventures that will get them to adjacent markets and product lines, with a focus on international expansion.
“Is there going to be massive industry consolidation? Probably not,” Phillips said.
He said he expects larger companies facing dwindling U.S. defense contracts and flatter sales to aggressively buy smaller players that have high-demand products and services.
Global defense spending is under pressure as the United States and other nations look to reduce budget deficits. The Pentagon, the world’s biggest weapons buyer, has promised that the defense industry will not be immune from budget cuts.
Avionics supplier Rockwell Collins (COL.N) on Friday turned in quarterly earnings that disappointed and cut its full-year sales outlook, citing U.S. government funding delays and defense program terminations.
“Traditional sources of revenue are going to be lean over the next two to five years,” KPMG’s Phillips said.
Half of the 100 aerospace and defense executives surveyed said revenue and employment levels would stay flat or fall next year. When asked when their companies’ U.S. staffing might return to pre-recession levels, 63 percent said 2013 or later, while 6 percent responded “never.”