31 Mar Common Problems With Aerospace and Defense M&A
Those who follow the industry know that M&A in A&D has been soaring for the past decade. And though things temporarily slowed thanks to the COVID-19 pandemic, things are yet again looking up. A&D is highly complex, though, demanding a significant investment from buyers and sellers. Here are some of the most common issues we see in these transactions.
Government contracts figure prominently in this sector, so identifying the necessary consents required for your deal is critical. Federal law usually prohibits the transfer or assignment of government contracts, but they may consent to such transfer via a novation agreement after closing. The structure of a transaction matters, such such agreements are generally required under the Federal Acquisition Regulations in an asset sale. FAR offers detailed guidelines for novation agreements that you must follow to the letter.
Some A&D companies undergo transactions as they await results of a government contract bid. The federal agency to whom the company submits the bid usually must consider M&A activity during the process. Without proper disclosures, the bid might be overturned. Buyers and sellers should evaluate the potential impact of bids.
Antitrust issues figure prominently in most M&A transactions, as the A&D industry is very consolidated. The DOJ and FTC have both repeatedly reiterated antitrust concerns. Plan ahead, with internal evaluations assessing antitrust concerns. Don’t count on government regulators to look the other way. They won’t.
Highly Complex Due Diligence
A&D due diligence looks beyond corporate risk, and also assesses the role regulatory factors may play. For instance, government contracts may contain most favored customer pricing provisions, and failure to comply may destroy the contract. Conflicts of interest can also post a problem, thanks to FAR restrictions on such conflicts.
National Security Considerations
You cannot work in A&D without also considering national security issues. The Committee on Foreign Investment in the United States pays careful attention to foreign investments in key industries to weigh the potential national security effects. Parties must weigh whether they are required to make a CFIUS filing, or should consider voluntarily doing so.
Aerospace A&D is a complex undertaking, that requires looking well beyond the companies involved, and to external issues, including the role of changing political winds. The right guidance can help your company make the right decision, rather than wasting time and money on a transaction that’s doomed to failure.