BAE Systems' US$5.55 billion swoop for Ball Corp’s aerospace business positions the defence manufacturer in a “fast growing segment of the defence market so that it can capitalise on the long term uptick for defence products".
That was the view of Shore Capital analyst Jamie Murray who pointed out the acquired business is “well positioned in attractive markets, notably military and civil space, C4ISR, and missile and munitions, of which demand appears exceptionally high now”.
In addition, there is a positive read across to the wider defence industry as it highlights confidence within the sector, Murray added.
But the City marked BAE's shares down 4.5%, possibly reflecting the price paid.
AJ Bell's Russ Mould said: "The only downside is the $5.6 billion price tag which looks a touch on the expensive side and potentially explains the initial lukewarm reaction from shareholders to the deal."
"The cost will raise the pressure on the company to execute smartly on the integration process. Assuming it hits the targets it has outlined then it should be earnings accretive in the short term," he added.
ShoreCap's Murray wasn’t surprised by the deal. "We have highlighted previously that capital allocation including acquisitions play an important role for BAE,” he said, adding “it is a theme that we expect to continue, not just with BAE Systems, but across the defence industry as players look to scale up their operations so that they can capitalise on the long term uptick for defence products.”
Aarin Chiekrie, equity analyst at Hargreaves Lansdown highlighted the scale of the deal - equivalent to almost 20% of BAE’s current market cap.
He explained Ball Aerospace provides mission-critical space systems and defence technologies across air, land and sea, “complementing BAE’s suite of products nicely”.
“Given the similarities between the two businesses, there’s clear scope to streamline operations, cut costs and boost profit margins,” he added.
But he said “an acquisition of this size has only been made possible by BAE’s improved performance in recent years”.
Mould agreed: “The fact BAE has been able to carry out a transaction like this with a minimum of fuss is in itself testament to its improved fortunes.”