With North Korea threatening to strike US allies, the arms race to defend South Korea and Japan as well as key American military bases in the Pacific is expected to pick up in the coming months. US defence companies are getting ready for the spike in demand.
Northrop Grumman is the latest to join the fray after it agreed to acquire rival missile maker Orbital ATK for $9.2bn on Monday, including $1.4bn in net debt. Wesley Bush, chief executive of the Virginia-based company, was clear about what is driving the sector to consolidate: "The technological capacity of our potential adversaries continues to advance."
According to Thomson Reuters data, US aerospace and defence M&A has hit $40.5bn so far in 2017, the strongest ever year-to-date performance. Northrop's deal comes on the heels of United Technology's $30.2bn proposed takeover of Rockwell Collins, the biggest deal the sector has seen. Check out the data below.
Is this wave of M&A really sensible? Here's Lex's take:
Earnings and free cash flow multiples are around 20 times, steep levels usually reserved for consumer staples. US bank stocks have pulled back from post-election highs as tax cuts and regulatory reform have stalled. Increased defence spending is equally log-jammed. A bet on defence stocks — or the success of a defence takeover — depends as much on heightened belligerence among Washington Republicans as it does on sabre-rattling by North Korea.
Let's hope that this arms race is just that. Because what's good for the defence industry is rarely great for the rest of humanity.
Welcome to your curated briefing on deals and dealmaking from the Financial Times. Each day in Due Diligence we select a few topics in corporate finance, M&A and private equity to expand on and then select smart reads from across the FT and elsewhere. You’ll also find the latest industry job moves and get a round-up of key headlines. DD is delivered to your inbox Tuesday-Friday at 5am UK time. You can catch up on DD and sign-up here. Drop us a line any time: Due.Diligence@FT.com
PE dealmakers go solo
You are a top dealmaker for a large private equity group. You've made millions for yourself and your company through multibillion-pound deals. Now what?
Given PE founders are notoriously reluctant to give up the reins, setting up your own shop is an appealing option. That's a path increasingly followed by top-tier executives (though firms will be keen to highlight that they do provide career development opportunities).
The latest departure comes in the form of Dominic Murphy, the ex-KKR executive pictured above, who is in the early stages of setting up his new firm 8C Capital.
Murphy is looking to raise €1bn from investors for the healthcare and consumer industries focused group. Murphy has already recruited the help of former colleague Kugan Sathiyanandarajah as co-founding partner.
The company's name is a reference to compound interest as the eighth wonder of the world. It is still early days. New hires are expected and Murphy has not even appointed a placement agent to help raise the cash. Expect Murphy's 8C Capital to take majority and minority stakes in healthcare and consumer companies in Europe.
Murphy, who built his reputation as a rainmaker with the £12bn Boots deal, is in great company when it comes to going solo. Only last week Bloomberg reported that Imran Siddiqui, who left Apollo Global Management as a senior partner this year, is looking to raise more than $1bn from investors to strike deals in the life insurance industry. Adam Clammer, also formerly of KKR, this year closed his maiden fund, and four one-time Bain Capital dealmakers set up Core Equity Holdings, raising more than €1bn this year.
There are few signs that the old guard of PE titans will be signing off any time soon, so watch this space for more senior execs putting out their own shingles.
Read Javier Espinoza's full story here.
China and India: friends at last?
Little hope remained for Fosun’s proposed buyout of India’s Gland Pharma.
For months, the Chinese investment group’s $1.1bn buyout of the anti-coagulant and anaesthetics maker was dogged by rumours that India’s government would not approve the deal. The situation also cast a cloud over future deals between Asia’s most populous countries.
So when Fosun said on Sunday that it had revised its offer and was proceeding with the transaction, it revived hope not just for the deal itself but also for M&A between India and China.
Fosun originally planned to buy 86 per cent of Gland, a deal that would have required the approval of the Cabinet Committee on Economic Affairs. By lowering its target stake to 74 per cent, below the regulatory threshold of 75 per cent, it no longer needs that approval. While the founding family of Gland will retain a higher stake than originally planned, Fosun will still get control over the company.
People with knowledge of the deal stressed earlier this year that regulatory issues were not linked to the territorial dispute between India and China that erupted high in the Himalayas earlier this year. However, the deal seems to have moved forward following the end to the fracas in the mountains.
The continuation of the buyout is an important signal for China-India deals, which have already hit an all-time high this year. Chinese companies have agreed to spend $8.7bn on eight deals in India so far in 2017, up from $1.6bn last year, according to Dealogic data.
For two of Asia’s biggest economies, the deal flow may still sound slow. But, given the political distrust and that China spent just $660m on India deals during the seven years between 2008 and 2014, the current level of business seems like a major improvement.
You may have already heard that our FT colleague Paul McClean died tragically while on holiday last week. At just 24, he was a clever, rising star at the FT. More importantly, Paul was just a wonderfully pleasant, good-hearted person. We're going to miss him dearly. You can read his obituary here and a lovely tribute from our sister newsletter, Brussels Briefing.
Credit Suisse has undertaken a sweeping shake-up of its European investment bank. Jens Welter, a consumer industry banker, and Mathew Cestar, a leveraged finance specialist, have been appointed co-heads of investment banking and capital markets for Europe, Middle East and Africa. Henrik Aslaksen, a veteran advisory banker who joined from Deutsche Bank just over a year ago, has been named executive chairman of the division and will work closely with the two men on strategy and resource planning. The promotions mean that the previous regional co-heads, Marisa Drew and Mark Echlin, will be moved. Drew has been named head of a newly established unit at the bank focused on impact investing and philanthropic advisory services for clients, while Echlin was appointed chairman of Credit Suisse’s UK investment banking division. Read more here.
John Chambers, chairman of Cisco Systems and industry dealmaker, is stepping down from his position when his term expires in December. He will be replaced by Chuck Robbins, the company's chief executive, who took over from Chambers in 2015. Full FT story here.
Chris Lynch, the chief finance officer of mining powerhouse Rio Tinto since 2013, announced his retirement, which is set for next year. Full FT story here.
Mark Todd, co-head of UK mergers and acquisitions at Barclays, has departed the bank to join Ondra Partners, a boutique advisory firm, in a senior role, Bloomberg first reported.
Core Equity Holdings, a private equity group set up by four Bain Capital veterans, has hired Bart Wouters and Karim Id Boufker as principals. Wouters joins from Bain Capital, where he held the same title for seven years and focused on healthcare. Id Boufker comes from Astorg. Before that he was a vice-president at Bain Capital in London, where he worked for five years. He started his career with the Boston Consulting Group in Brussels.
Abraaj Group, an investor operating in global growth markets, has hired Kito de Boer as managing partner. The former US diplomat, appointed in 2014 by then US secretary of state John Kerry to head the Middle East process in Jerusalem, had previously spent 29 years at McKinsey in London, New Delhi and Dubai.
Brunswick, the corporate communications and public relations firm, has named Jonathan Doorley as a partner in its New York office where he will focus on M&A, shareholder engagement and financial comms matters. Doorley spent the previous 11 years at Sard Verbinnen & Co where he became a partner and most recently co-headed its London office.
The Jeff Bezos of China JD.com founder Liu Qiangdong had humble beginnings, but he has managed to build one of China’s largest ecommerce platforms. ( FT)
3G Capital's baby-faced execs The private equity giant has a history of elevating young partners to big operational roles, often replacing the industry veterans at the helms of their acquisitions. Meet the wunderkinds. (WSJ)
The audacity of dough Barack Obama — to the consternation of many of his supporters — is taking a well-trod path out of the White House by cashing in on paid speeches to some of finance's heaviest hitters. (Bloomberg)
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