Sold! Armoured vehicle mid-market set for wave of consolidation

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Lockheed Martin is in discussions with French armoured vehicle manufacturers Nexter and Panhard as the companies look for ways to work together.

"We are exploring opportunities for collaboration," Morri Leland, Lockheed's Deputy Director for international Business Development in its Missiles & Fire Control unit told the Dubai Airshow, according to Defense News.

Is this another sign that the armoured vehicle market is set for a wave of consolidation? Last week General Dynamics announced that will acquire Force Protection Inc. (NASDAQ: FRPT) for around $360 million. The Summerville, South Carolina firm flourished throughout the Bush era but with the outlook for armour and survivability products bleak, it's little wonder the mid-market leader has been swallowed up into General Dynamic's machinations.

“Force Protection complements and strategically expands General Dynamics’ armoured vehicle business, adding new products to the expansive portfolio of combat vehicles that we currently manufacture and support,” said Mark C. Roualet, President of General Dynamics Land Systems. “In addition, Force Protection’s skilled workforce provides high-quality support and sustainment services to an installed fleet of approximately 3,000 vehicles, strengthening our ability to support assets deployed with U.S. forces around the world. With this acquisition, we will create new opportunities to serve domestic and international customers alike.”

Michael Moody, Chairman and Chief Executive Officer of Force Protection, Inc., commented, “After careful consideration of the strategic direction of Force Protection, our board decided that a sale to General Dynamics would maximize value for our stockholders. With their armoured vehicle business, General Dynamics will be able to pursue opportunities that we could not have pursued as a stand-alone company. As part of the General Dynamics family, our innovative products and offerings will continue to provide militaries worldwide critical assets that save troops’ lives.”

The U.S. Department of Defense indicated earlier this year that it will look unfavourably on top tier consolidation in the defence industry as it looks for the market to be more competitive than ever with acquisition budgets strained.

Flat ignoring this though was United Technologies Corp. (NYSE:UTX), who forked out $18.4 billion for Goodrich Corporation (NYSE: GR) in September.

“Goodrich is a great business with a solid product portfolio and significant aftermarket sales that complement UTC’s existing aerospace presence,” said United Technologies Chairman and Chief Executive Officer Louis Chênevert.

We can, in truth, overlook this deal however on the basis it was made for Goodrich's maintenance, repair and overhaul (MRO) and commercial business, not its defence portfolio. Long-term it's a smart buy for UTC as the defence bottom line will come back once markets recover. Chênevert went on to state, “This acquisition further strengthens our position in the growing commercial aerospace market and enhances our ability to support our customers with more integrated systems.”

But the market cannot remain in limbo for much longer as there simply aren't enough contracts to sustain the number of firms vying for them. Mid-market consolidation is inevitable.

With Lockheed Martin having recently won the contract for the £1 billion Warrior upgrade, as well as for the turret on the new Scout SV vehicle for the FRES programme, the firm is well placed to acquire and integrate new capabilities. The French defence market is in flux as Safran and Thales continue to sporadically thrash out merger discussions and as the government looks set to implement severe budget cuts to reduce the country’s deficit. What starts out as a working collaboration between Lockheed and the French vehicle makers could soon turn into another mid-market acquisition.

Contributor:   Andrew Elwell

Andrew graduated from The University of Nottingham with an MA in History in 2003. After graduating Andrew started his career with a niche armour systems manufacturer, which provided ballisitic and blast armour products for the international defence market. His first major undertaking was to project manage a UOR up-armour programme for an in-theatre MoD vehicle. After completion of the contract, Andrew headed up the research and development department at the company. This involved designing, developing, testing and presenting new armour solutions to defeat customer specific threats to all major European and International ballistic and blast standards.

Following this Andrew moved behind the desk and became Senior Editor at a news and data provider, offering proprietary analysis, intelligence, market research and data on the global security and defence industry. The role offered the chance to write widely on the industry, exploring new technologies and getting to grips with corporate finance, mergers and acquisitions and debt and equity fundraisings.

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