Mergers & Acquisitions in the North American and West European arms industry in 2007

Please contact the SIPRI Arms Production project with questions or comments.

Information on this page comes from Perlo–Freeman, S. & Sköns, E., Arms Production, Chapter 6 in SIPRI Yearbook 2008: Armaments, Disarmament & International Security, Oxford: OUP.

For a list of significant mergers and acquisitions in the North American and West European arms industry in 2007, see here.

The largest acquisitions in 2007

There were considerably more large merger and acquisition deals in the arms industry in 2007 than in 2006, with at least seven mega-deals (i.e. acquisitions with a value of over $1 billion), compared to one in 2006. (See table below). The largest such deal was worth $4.8 billion. At least six were acquisitions of US companies, reflecting the high level of interest in the US arms industry amongst potential buyers due to the very high levels of US military spending.

Four of the acquired companies rank among the SIPRI Top 100 arms-producing companies for 2006: Armor Holdings, EDO Corporation, United Industrial Corporation and ARINC. In addition, three former subsidiaries bought in 2007 had arms sales large enough to rank them among the Top 100: Devonport Management Ltd (DML, with arms sales of $780 million in 2006), Smiths Aerospace (sales of $1.3 billion) and Thales’s naval operations (sales of $1.6 billion).

Table: the largest mergers & acquisitions in 2007

*Thales acquired a 25% stake in DCN in return for their naval operations, and also paid DCN €55 million. The dollar figure refers to the implicit valuation of the DCN stake.

The areas of the arms industry with most take-over activity reflect those that have seen most revenue growth in recent years: service companies, such as ARINC and Washington Group, hi-tech electronic and subsystems companies such as EDO, United Industrial and Smiths Aerospace; and companies profiting strongly from the Iraq war, such as Armor Group, who make military vehicles and armour plating. At the other end of the scale from the 'mega-deals', many larger companies have been acquiring small high-tech electronics, computing and consultancy firms, sometimes with only a few dozen employees, that offer niche capabilities or technologies.

Transatlantic mergers and acquisitions

Transatlantic acquisitions of US companies almost exclusively involved purchases by UK-based firms, reflecting the increasing interconnections between the British and US arms industries and in particular the privileged position of British arms-producing companies as regards acquisitions in the US arms industry compared with other European companies.

The two largest acquisitions in 2007 involved deals between British and US companies. The $4.8 billion acquisition by the US company General Electric of Smiths Aerospace from the UK’s Smiths Group represents a significant consolidation in the aerospace industry at the sub–prime level. The combined arms sales of GE and Smiths Aerospace in 2006 were $4.5 billion, which would have been enough to put the joint company in 15th place in the SIPRI Top 100 for 2006. The deal expands G’s engine and services business for military and civil aerospace, adding Smiths Aerospace’s various avionics and electronic systems.

Armor Holdings makes armour plating for military vehicles much in demand for the Iraq conflict. Its 2006 arms sales of $1930 million represent an astonishing 32–fold increase on pre–invasion arms sales. Its acquisition by BAE Systems will greatly expand the latter’s Land and Armaments Group in the USA, now of comparable size to the land systems operations of General Dynamics. The deal will increase BAE’ share of revenues coming from the USA from one-third to 45 per cent.

Although not amongst the mega-deals listed above, UK research and technology company QinetiQ engaged in a high level of acquisition activity in the USA, with five such deals completed or agreed in 2007, with a total value of $333 million . The largest purchase was that of Analex for $173 million. Analex, which had revenues of $150 million in 2006, provides IT, aerospace engineering and security, and intelligence support services for military, intelligence and space programmes.

Naval restructuring in Western Europe

Both France and the UK saw major consolidation agreements in their naval sectors in 2007, promoted by their respective governments. In the UK, BAE Systems and VT Group agreed in July to form a joint venture merging all their surface warship activities. The two companies account for 85 per cent of British naval shipbuilding. The deal was linked to the planned procurement by the UK of two new large aircraft carriers, which received ‘main gate’ approval to commence production on 25th July, the day the joint venture was announced. Under the terms of the deal, BAE Systems will own 55 per cent of the joint venture and VT Group 45 per cent, with BAE possessing an option to buy out VT after 3 years. Also linked to the carrier programme was the acquisition by Babcock International, a naval and general military services company, of Devonport Management Ltd, the owner of the Devonport naval dockyard. DML, the sole supplier of submarine refitting and deep maintenance of submarines for the British MOD, was bought from a joint venture in which the US company KBR had a 51 per cent stake.

For more information, see Perlo–Freeman, S. & Sköns, E., Arms Production, Chapter 6 in SIPRI Yearbook 2008: Armaments, Disarmament & International Security, Oxford: OUP.