Industrials Sector Comment – August 2014


Clearwater International’s Industrials team were once again present at the Farnborough Airshow, held from July 14th – 20th.

This year’s Farnborough event saw Airbus secure deals worth $75bn, mostly attributed to the launch of its revamped A330 passenger jet – the A330neo. In total, there were more than 1,000 collective order commitment announcements during the show with more than 200 further option commitments.

Given the increasingly competitive nature of the aerospace sector and the need for many of the major players to reduce their dependency on the defence industry, we expect to see significant M&A activity in the coming years. A recent example is Cobham plc’s acquisition of Aeroflex Holding Corp, a provider of high-performance microelectronic components and test and measurement equipment, predominantly to the commercial sector. This acquisition enables Cobham to increase its presence in higher-growth commercial markets and reduce its reliance on US defence spending, which currently accounts for more than a third of its overall sales.

In another example, Rockwell Collins Inc’s acquisition of Arinc Inc, a communication and systems engineering provider, reduced its commercial-to-military mix from approx. 50% for each sector to 54% commercial and 46% military. Clearwater International predicts plenty more cross-border deals of this type in future and is also alert to more Asian buyers looking to grasp opportunities in the market, such as  the Chinese AVIC group which bought German aircraft engine maker Thielert last year.

UK-based All Metal Services (AMS), which is the world’s largest independent raw materials service provider to the aerospace and defence industries, has just been acquired by the US company Reliance Steel & Aluminum. AMS provides a broad range of aerospace metals, offering full or cut to size in addition to in-house-machining capabilities and water-jet cutting for more complex requirements. Reliance made the acquisition in order to take advantage of the anticipated growth in the aerospace industry.

Clearwater International has completed a number of deals in the aerospace industry, working across the sector with precision-engineered components manufacturers, maintenance services providers and information systems software developers. These are immensely exciting times for the global aerospace industry, and we predict high levels of M&A activity as emerging market demand brings extraordinary growth over the next generation.