Aerospace & Defence Trends – Private Equity Involvement, Consolidation & Fragmentation – What does the future hold and what does it mean for Senior Executives?

By Guy Herbertson
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In the first of our Aerospace & Defence Lunch Series, we invited senior executives from within our network to discuss the trends they are seeing in the market, particularly the increasing trend of private equity moving into the sector.

Our guests were able to provide points of view from a variety of backgrounds, including FTSE, privately-owned and PE backed companies, all viewpoints contributing to an interesting discussion and a variety of perspectives.

The consensus is that Aerospace & Defence is attracting much more attention from private equity given the reliable steady demand, and the unfortunate truth that world peace is not on the horizon anytime soon. Therefore, aerospace and defence is seen as a safer investment, despite often requiring longer investment cycles.  

This led to an agreement around the table that Advent’s purchase of Cobham is probably exactly what Cobham needs and therefore a positive move. Mostly because a privately-owned asset can simply make decisions a Plc is not able to, due to differing governance and listed company market expectations.

When it comes to decision making pressures, we discussed whether private equity allowed a longer-term view of a business, verses Plc leaders who constantly have to think about their next reporting cycle. Often within a Plc environment many leaders are forced to make the decision best for the immediate impact on share price and not always the best strategic decision for the longer term.

The concept of more “patient capital” being available within the PE space was also discussed and this divided opinion as to its validity. The opinion on this was that Private Equity still needs to sell an asset within roughly 5 years of acquisition, and if not, there will likely be a feeling in the market that there is a deeper lying problem. However, conversely to this the consensus was that the days of quick buy and sell Private Equity are gone.

Again, there was a general consensus that the GKN acquisition by Melrose will perhaps be a good thing with parts of the GKN business likely to be sold off. It was also thought that PE may get better value in the specialist part manufacturers, and tentatively and cautiously within the MRO market.

When it came to social media, the pressures on a FTSE CEO are increasingly high and the consequences even graver. It was thought that nowadays we see fewer CEO’s being the voice of the business to the markets. It was acknowledged that any misstatements or even minor remarks could be taken out of context and pushed out negatively on social media, thus having a major impact on the share price.  

It was also acknowledged that the millennial generation are more concerned about the vision, mission and purpose of the company they are working for. Defence in particular can face additional challenges due to reticence to working in a defence business. However, it was felt that the millennial demographic within the sector do find it a highly rewarding environment, particularly within STEM subjects where many scientists, engineers and technologists enjoy the industry challenges.

This led to the belief that identifying future leaders and competing for talent with other sectors such as technology companies, will result in an ever-increasing challenge when it comes to succession planning and identifying future executive leaders.

This is particularly acute in aerospace and defence where there can be a reticence to hire new talent from outside of the sector, presenting a higher barrier to entry. It was accepted that the approach to attracting talent would have to change in order for organisations to continue to be successful and identify leaders of the future.

One point of view which many agreed with, was that organisations will have to take risks when appointing at a senior level, potentially appointing the rising talent earlier than has been seen historically. Although it was agreed experience must still be retained and caution must be taken in ensuring new appointments are adequately supported and given the tools to succeed. However, it was widely accepted that younger people will rise into more senior positions much more quickly, far quicker than we have seen before within this typically conservative and often slow-moving sector.

The conversation led onto diversity within the sector and whilst there were good examples of schemes and positive moves made, we still only have 15% of the industry being female. The challenge here is how do we achieve gender equality in leadership positions if only 15% of the total work force are female to begin with. This is something Boyden explored in more detail in our Furthering Female Leadership study.

Boyden’s #DisruptTheNorm campaign is focused on continuing the conversation around leadership gender equality. Views were mixed on a quota and target approach, quotas were felt by some to imply that it’s not always the best candidate secured the role, whereas targets allow for meaningful review of existing attraction/recruitment/promotion and interview processes which lead to greater fairness, transparency and scrutiny. The overarching point was we need something dramatic or nothing will really change.

Overall it was believed that there is still lots of opportunity for Private Equity to support Aerospace and Defence businesses, with more consolidation to come, particularly around the MRO space.

Boyden has supported many aerospace and defence businesses globally. If you would like to know how our Executive Search, Interim Management or Leadership Consulting services have assisted some of our aerospace and defence clients, please do get in touch with Guy Herbertson – Global Co-lead of the Boyden’s Aerospace and Defence practice.

Throughout 2020, we will continue the lunch series to discuss on emerging trends within the sector and the impacts on talent and senior executives.

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