acquisitions | The Contracting Education Academy

December 26, 2013 By AMK

Budget deal could cause mergers and acquisitions in Defense sector

A U.S. budget agreement making its way through Congress could set off the most robust series of mergers and acquisitions in the aerospace and defense sectors in years, industry leaders and experts say.

The two-year agreement is expected to reassure contractors on government spending and unleash pent-up demand for deals, according to analysts.

The budget deal will halve the $52 billion in automatic spending cuts facing the Pentagon in fiscal 2014 and would lower mandatory reductions in projected spending in 2015.

“It gives our customers in the U.S. government further certainty for their budget decisions,” Marillyn Hewson, chief executive of Lockheed Martin Corp, said in an interview with Reuters.

“It does give us more certainty and helps us in our planning process,” she said, noting that the company is always looking for acquisitions to tap new markets or round out existing business areas.

Keep reading this article at: http://www.nytimes.com/reuters/2013/12/17/business/17reuters-aerospace-mergers-analysis.html?hp&_r=2&&pagewanted=all

February 17, 2012 By AMK

President requests ‘more disciplined’ $613 billion Defense budget

President Obama’s defense budget of $613.9 billion for fiscal 2013 reflects the downsizing of America’s wars abroad and the size of its military, as well as its plans to increase and entrench smaller counter terrorism, special operations and high-tech capabilities globally.

The cut — a reduction of $40 billion, or six percent, from current year spending — includes a 20 percent slash in Afghanistan war spending, increasing weaponry intended for Asian-Pacific security, while deferring legacy weapons purchases and personnel costs into future years.

“We are redoubling our efforts to make better use of the taxpayer’s defense dollar,” Defense Secretary Leon Panetta said, in a statement released with budget documents at the Pentagon on Monday. Panetta is not expected to appear Monday, going instead to three hearings scheduled before Congress this week.

The White House wants $525.4 billion for the regular defense budget and $88.5 billion for the separate war account. The war request includes $85.6 billion for Afghanistan, which is down from $105 billion in 2012, and $2.5 billion for Iraq. Most of the decline in Afghan war spending reflects the operational savings from pulling out the remaining 23,000 surge forces by September.

DOD also requests $178.8 billion for acquisitions, or $109.1 billion for procurement and $67.9 billion for research and development, a crucial account for the nervous defense industry.

A greater total spending cut is forecast for 2014, appearing to come entirely from war accounts. But the Pentagon forecasts its base spending will increase by roughly $10 billion in each of the following four years after 2013. That’s a 0.3 percent decrease in spending for the next five years.

There were no surprises in the increased budgets for U.S. priority accounts, include special operations forces, at $10.4 billion next year, as well as drones, cybersecurity, and missile defense. DOD slashed $15 billion from the still-breathing Joint Strike Fighter’s development, due to forced delays in planned purchases. The Army’s search for a next generation ground combat vehicle and Navy shipbuilding also were cut.

Cutting 72,000 soldiers, 20,000 Marines and thousands more sailors and airmen accounts for $50 billion savings over five years.

The Pentagon claims $60 billion of its total savings next year will come from “efficiencies”, an ongoing DOD effort to trim its own expenses and waste that watchdogs have complained was hard to track and verify.

— by Kevin Baron, National Journal, February 13, 2012, at http://www.govexec.com/defense/2012/02/president-requests-more-disciplined-613-billion-defense-budget/41179/.

June 20, 2011 By AMK

Pentagon: No more big defense mergers

The Defense Department will try to stop consolidation among the nation’s biggest weapons contractors, who are bracing for potentially far-reaching cuts in defense spending because of the nation’s yawning budget deficit, a top Pentagon official said in an interview.

Ashton Carter, the Pentagon’s top acquisitions official, said he expected the defense industry to go through a period of profound change as it adjusts to a new era of austerity. But he cautioned that the department would take steps to prevent mergers and acquisitions within the ranks of major defense contractors like Raytheon and Boeing, whose numbers have fallen sharply since the end of the Cold War.

“We would not allow any further mergers of the big ones,” Carter, the Pentagon’s undersecretary of Defense for acquisition, technology, and logistics, told National Journal. “On occasion we will intervene by blocking a transaction if we thought it was excessively short-term focused and had done a poor long-term risk analysis.”

In 1993, during a very different era for defense contracting, Carter was one of the participants at what came to be known as the “Last Supper.”

Then-Defense Secretary Les Aspin summoned the chief executive officers of the nation’s 15 biggest defense contractors to the Pentagon and bluntly told them they needed to start consolidating.

Carter, who served as an assistant secretary of Defense during the Clinton administration, noted that the industry had roughly 40 major players during its Cold War peak. Within a few years of the Last Supper, the industry had shrunk to barely a half-dozen large companies players.

In the interview, Carter said the number of major defense firms shouldn’t be allowed to fall any further, particularly since the coming cuts won’t be as pronounced as had been the case after the end of the Cold War.

“It won’t be like in the 1990s,” he said. “I don’t expect [the industry] to contract any further.”

Still, Carter said it could no longer be business as usual at the Pentagon. The Defense Department’s base budget has nearly doubled since 2001, but the Obama administration and Congress have made clear in recent months that the Pentagon budget will be held steady – and possibly even cut – in the years ahead. On Monday, for instance, the House Armed Services Committee recommended cutting $9 billion from the department’s fiscal 2012 request.

In the interview, Carter said the department will work to reduce the $200 billion it spends each year on logistics and maintenance by about 5 percent, savings he described as “real money.” He estimated that such efficiencies could save the department as much as $100 billion in coming years.

One weapon the Pentagon will use in its fight to rein in runaway spending is what Carter refers to as a “share line,” an agreement allowing contractors who bring their projects in below budget to keep some of the savings. If an aerospace firm manufacturer delivered a next-generation drone for $200 million less than had been projected, for instance, it might be allowed to keep $100 million for itself. The government would keep the rest.

“Businesses all over the country are constantly, ruthlessly routing out unnecessary costs and making themselves leaner,” Carter said. “We have to provide incentives for [defense contractors] to do that. ”

In the end, though, Carter said major defense firms will have to find ways of delivering their products for less money for the simple reason that there is less money to go around.

“The alternative to adaptation is just canceling programs,” he said in the interview. “The programs that survive will survive in part because they are being economically managed. And if you’re a poorly-run program and you’re not performing, that ipso facto puts you on the potential cut list.”

— by Yochi J. Dreazen – National Journal – June 15, 2011 – located at http://www.govexec.com/story_page.cfm?articleid=48014&dcn=e_gvet

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