AUSTRALIAN DEFENCE WHITE PAPER
Jun 09. The FT reported that the Australian government’s recently announced Defence White Paper could see a revival in M&A in the sector, industry sources told mergermarket. Peter Smith, a defence industry strategist, said the government’s allocation of AUD 100bn (USD 80.3bn) for defence spend over the next 10 years could trigger the next wave of global defence M&A.
In a time of relative uncertainty in the world, Australia is unusually clear on its defence strategy and is throwing some predictable, serious money behind it, he said. Smith said there will be more clarity as to where the money will go when the government’s Defence Capability Plan (DCP), detailing major equipment purchases, is announced after June 2009, but that large international defence companies will be keeping a close eye.
L-3 Communications, which is moving into defence technologies and looking at Australian software systems suppliers, for example, is one that is likely to move quickly when we know where the money is going, Smith said. L-3 Communications has acquired some 80 companies since its inception 10 years ago, including a number in Australia, most recently Nautronix. L-3 Communications was repeatedly unavailable to comment.
Bob Browning, chief executive of AUD 490m (USD 393.4m) shipbuilder Austal, believes consolidation will occur at the smaller end of the defence sector as companies merge to compete with the larger players. Austal, he said, would consider further acquisitions of military shipyards.
Andrew Balmaks, managing director of private Australian whole-of-government management consultancy, agreed that the White Paper, along with the market downturn, could trigger consolidation in the defence space. Equipment providers, he said, could look to make buys, with ‘body shop’ consultancies emerging as targets. As previously told to this news service, Balmaks said Noetic, which has revenue of around AUD 5m (USD 4m), is not pursuing a sale but has seen interest from large infrastructure and project management services companies and would consider realistic approaches. He said what makes the company appealing is its strong inroad into government, including defence.
Private Australian engineering consultancy Codarra Advanced Systems, which has a strong pipeline into the defense market and AUD 15m (USD 12m) in revenue, earlier told this news service that the company would actively seek an exit in the longer term but would consider serious offers now. He said he would prefer a sale to an Australian entity, but Codarra would also be ideal for a foreign company wanting to set up in Australia.
David Harvey, executive general manager services for diversified Australian contracting company John Holland, which is a significant supplier to defence and has 5000 employees, also agreed that the White Paper will have an impact on M&A, but it will not be immediate. He said sub-contractors to equipment providers could be affected and become targets. For its part, John Holland always keeps an eye on what’s available but is not seeing any major opportunities now and would not be interested in ‘body shops’. Any acquisitions would be companies with professional and skilled services and highly integrated customers. They could be companies with government customers, companies in the communications space, or companies providing services to the telco, transport, resources or public infrastructure sectors.
Meanwhile, in the main, the White Paper has been favourably received, but its affordability has been questioned. Gregor Ferguson, editor at large of Australian Defence Magazine, said the White Paper sets out government’s intentions to build a bigger defence force with better equipment, but is yet to specify the schedule or budget on big ticket items like frigates, surveillance satellites and submarines. The affordability for these will be more clear when the DMI is announced. An industry source agreed, saying “it