US aerospace and defense companies are looking to acquire technologies that will help them win more defense contracts, but said some potential candidates were proving to be pricey.
Several companies told a Morgan Stanley investor conference today they had an interest in purchasing companies that would give them a competitive advantage as the Pentagon moves to scale back traditional weapons programs and devote more resources to fighting new security threats and aiding ground troops, Reuters reports.
Defense contractor Northrop Grumman Corp said companies were commanding premium prices and added expectations of potential acquisition candidates were high, in terms of valuations.
“There are good companies out there; they are not cheap,” Northrop Chief Executive Ronald Sugar said.
Sugar added that he was not expecting consolidation among the top-tier companies in the industry, partly because of customer resistance. Because of valuations, it was important to make sure potential acquisitions fit with company strategy.
“We’re willing to pay a good price for a top company,” Sugar said.
General Dynamics Corp completed its $643 million (R4990 million) acquisition of imaging systems maker Axsys Technologies Inc today.
Chief Executive Jay Johnson said his company was on the lookout for more acquisitions, but added: “I don’t expect and am not looking for any kind of transformational deals at this time.”
Aircraft supplier Goodrich Corp said it could eye acquisitions that would boost its content on helicopters and enhance defense systems that gather, monitor and disseminate intelligence.
“We’d like to do more on the M&A front,” Goodrich Chief Executive Marshall Larsen told the Morgan Stanley conference.
“We have found multiples on the defense side still quite high. So we are very conscious about not doing anything that’s going to cause us not to be able to make (a deal) accretive in a fairly short period of time.”
Goodrich said it uncovered more potential acquisition candidates in the past year and expects to be involved in more M&A activity over the next year.
“I don’t know if it will bear fruit, but we’ll have more activity in trying to make something happen,” Larsen said.
Avionics maker Rockwell Collins Inc also said deal multiples have not come down much in the aerospace sector. It cited a potential for more consolidation at the lower end of the market, among smaller companies that have weaker balance sheets and need access to capital.
“I think those kinds of companies are thinking much harder about their future and as we say examining strategic alternatives,” Rockwell Chief Executive Clay Jones told the investor conference. “And we’re seeing I would say a richer pipeline if for no other reason because of that.”
Pic: Northrop Grumman logo