Over the past 21 years, nearly every middle market aerospace and defense company that we have sold was acquired by one of two types of buyers: (1) Strategic, meaning a very large operating company (often publicly traded) in the A&D industry or (2) Financial, meaning a private equity fund. Understanding the difference in these buyers’ motivations and decision-making processes will help create a smoother, more successful selling process.

Strategic buyers are usually looking for a technology or market expansion that will enhance their own competitive position in the long term. Examples are complementary products that combine with their own to create a more comprehensive solution for their customers. Or a proprietary process that will provide the buyer with a lower cost of goods sold. They might also be attracted by an ability to access an incremental customer set, such as existing long-term contracts or customer relationships, or access to new geographical markets. In due diligence, strategic buyers often focus on risk management and exposure to downside possibilities.

Financial buyers, on the other hand, typically are more focused on growth and their ability to rapidly generate higher earnings in the near term. These buyers favor steady financial performance with opportunities for revenue growth by investing additional capital, or increased profitability through cost reductions. Financial buyers often plan for a profitable exit within 3-5 years and their due diligence will focus on projections and growth potential. They usually do not regard middle market companies as candidates to establish new platforms, but rather view them as bolt-on acquisitions that can be accretive to existing A&D investments in their portfolios.

Before selling their companies, middle market aerospace and defense company owners should think about whether they have a preference for one type of buyer over the other.

Have a great day everyone.

Kevin Gould
Managing Director, Aerospace