BAE Systems PLC (LSE:BA.) is among a string of defence firms eyeing a surge in dealmaking as global conflicts drive cash flow and demand for new technologies.
According to Financial Times-cited analysis by Vertical Research Partners, the world’s 15 largest defence companies are on course for free cash flow of around US$50 billion (£39.8 billion) in 2026.
This would mark almost double their combined cash flow as of late 2021, prompting speculation over a boom in deal activity across the sector ahead.
FTSE 100-listed BAE in 2023 joined several defence peers in penning major corporate deals with its US$5.6 billion takeover of America’s Ball Aerospace.
US-based L3Harris in late 2022 also agreed to buy rocket engine firm Aerojet Rocketdyne, with AeroVironment (NASDAQ:AVAV) more recently laying out an agreement for rival drone firm BlueHalo in November.
A further uptick in merger and acquisition activity was expected ahead too, Bain & Co consultants partner Michael Sion told the Financial Times.
“Many companies are looking to expand what they offer to get ready for advanced technologies,” he said, pointing to the likes of space products and defence electronics.
He added modernisation of defence systems, accelerated by the likes of war in Ukraine, left new opportunities for private equity firms across the sector after venture capital deals in the defence sector had jumped 18-fold over the past decade, according to Bain.