Private Equity Deals Down 85% in 2008

PricewaterhouseCoopers has released its annual 'Aerospace & Defense Deals' for 2008, and it's bad news for defense private equity investors. While total deals declined from $32.9B in 2007 to $14.3B, private equity transactions collapsed, down to $2.4B in 2008 compared to $16B in 2007. 

We've written here before that the combination of a contracting credit market (read: full blown global economic meltdown) and cash-rich large defense companies makes a poor forecast for private equity firms focused on defense and Government investing. In the worst case, they could get boxed out completely for an extended period of time while the big guys go direct for their strategic acquisitions.

This poses plenty of questions for shops like DC Capital, Veritas, and Paladin that do not have diversified deal coverage like a Carlyle. Mainly, can these defense/govt only shops stay viable on such an anemic market? Could there be any consolidation or fund closures?

Bright spots? Absolutely. The Finmeccanica/DRS 'deal of the decade' highlighted the continued shift toward more aggressive internatioanl deal flow. In fact, "...transatlantic deals dominated the deal totals, accounting for US$9.7bn of deal value with US$7.3bn attributable to European bids for North American targets." What's more: "Deal value in the rest of the world came close to its record US$1.7bn level reached in 2006."

More commentary to follow as we review the report in more detail, including some focus on new PE investors, a further look at international deals, and more on PWC's commentary about the road ahead.