Aquila

What will drive transactions in 2021?
We discuss the deals forecast for the remainder of 2021.

With firms continuing to explore acquisitions, divestitures, and other deals, deal activity is likely to remain robust in the second half of 2021, building on the rebound that began after the first wave of the COVID-19 pandemic and has continued at a steady rate this year.

In the first quarter of the year, the sector saw record deal prices and volumes, with one big transaction skewing the average. This action topped off a very strong trend that had been in place since the second quarter of last year, with both values and volumes gradually rising. Notably, three of the major transactions in the first half of 2021 involved the merger of urban air transportation firms with special purpose acquisition organisations. The two most recent quarters depict very opposite patterns, with the second quarter of 2021 sliding significantly from the first quarter's highs. Given the underlying fundamentals and the ongoing trend, we anticipate a rebound in the third quarter of 2021.

Portfolio reorganisation and a series of big transactions among defence and government services businesses increased values and volumes in the final three quarters of 2020. However, signs of life in commercial aviation began to emerge later in the year, particularly in the first half of 2021. While defence will remain active in the face of ever-changing global issues, Biden's defence budget may keep movements in check. However, we believe that economic activity will be stimulated when lower-tier providers hurt by the pandemic give goals.

COVID-19 stifled commercial aerospace dealmaking in 2020, with defence accounting for the vast majority of activity

In the first half of 2021, the industry saw a surge in SPAC activity, particularly in the first quarter. SPAC transactions accounted for four of the top ten deals, three of which included urban air transport firms. SPACs have played a significant role in A&D agreements for some time now, notably in space and satellites, but their prominence recently appears to have increased significantly. While it is impossible to predict when and to what extent this trend will spread to other A&D subsectors, we believe SPACs will remain a viable route to market for the industry in the short future.

Commercial aviation traffic has recovered, although most analysts believe it will not be fully recovered until 2023 or 2024. While aircraft utilisation is increasing, there are still a large number of aircraft parked. Production is increasing, but it will be a gradual ascent to full capacity. Despite these considerations, there has been little consolidation or a substantial number of bankruptcies to yet. We believe this has resulted in "delayed maintenance" within the tier II/III supplier base, which might lead to acquisition possibilities for original equipment makers and larger companies. In our opinion, the necessity to strengthen supply chains and the desire for diversity across platforms