Briefing: European drift west turns to stampede in 2008

Europeans accounted for more than a third of acquisitions in the US defence market during 2008, continuing the steep upward trajectory of the last three years. The lure of the world's largest defence market remained strong, although exchange rates made deals both attractive and necessary.

The wave of European acquisition funds that entered the US defence market in 2007 (and to a less degree 2008) followed a tentative trickle from 2005 onwards.

Jane's research indicates that Europeans accounted for 12 per cent of acquisitions in the US in 2006, and 31 per cent and 35 per cent in 2007 and 2008 respectively.

The intensity of acquisitions activity in the US during 2007 led a London dealmaker to remark at the start of 2008 that only the stiff competition for targets (which sent values spiralling upwards) acted as a brake on further European involvement. BAE Systems also commented at the time that "everything looked rather expensive".

An accommodative credit environment (until late 2007); exchange rates that made deals both attractive and (as it was subsequently argued) necessary; plus the enduring issue of relatively flat spending in domestic markets combined to shape decisions.

A weak dollar was clearly a factor. The greenback started 2006 at USD1.18 against the euro, slid to USD1.31 by the start of 2007 and dipped to USD1.58 by mid-April 2008.

This article was taken from Jane's Industry Quarterly - 'Looking West: mergers and acquisitions activity in the defence sector' - which will be published in April 2009.